FILED PURSUANT TO RULE 497(C)
REGISTRATION FILE NO. 33-40682
THE LAZARD FUNDS, INC.
Institutional Shares Only
Supplement to Prospectus Dated November 1, 1996
The following information supersedes until December 1, 1996 any contrary
information contained in the Prospectus.
Until December 1, 1996, Scudder Service Corporation ("Scudder") will act as
the transfer agent for each Portfolio's Institutional Shares. Accordingly, prior
to such date, the Purchase Application for Institutional Shares and orders for
purchases and redemptions of Institutional Shares through the transfer agent by
written request should be mailed to Scudder at the following address:
Scudder Service Corporation
P.O. Box 9242
Boston, Massachusetts 02106
Attention: (Name of Portfolio/
Institutional Shares)
The Lazard Funds, Inc.
Effective December 1, 1996, Boston Financial Data Services Inc. will act as
transfer agent for each Portfolio's Institutional Shares and the instructions
for purchases and redemptions of Institutional Shares through the Transfer Agent
described in the Prospectus should be followed. Therefore, please discard this
prospectus supplement after November 30, 1996.
<PAGE>
THE LAZARD FUNDS, INC.
======================
PROSPECTUS
November 1, 1996
LAZARD FRERES & CO. LLC
30 Rockefeller Plaza, New York, New York 10020
(212) 632-6400
(800) 823-6300
<PAGE>
November 1, 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 November 1, 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>
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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% .22% .20% .25% .30% .35% .30% .35% .34% .39%
Total Portfolio Operating
Expenses(after expense
reimbursement)* .92% 1.22% .95% 1.25% 1.05% 1.35% .80% 1.10% 1.09% 1.39%
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ 13 $ 10 $ 13 $ 11 $ 14 $ 8 $ 11 $ 11 $ 14
3 years $ 29 $ 39 $ 30 $ 40 $ 33 $ 43 $26 $ 35 $ 35 $ 44
5 years $ 51 $ 67 $ 53 $ 69 $ 58 $ 74 $44 $ 61 $ 60 $ 77
10 years $ 114 $148 $117 $152 $128 $163 $99 $135 $ 133 $168
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 in Retail Shares 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 and other class specific expenses 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% .14% .38% .43% .30% .35% .30% .35% .30% .35% .30% .35%
Total Portfolio Operating
Expenses(after expense
reimbursement)* .84% 1.14% 1.13% 1.43% 1.30% 1.60% 1.05% 1.35% 1.05% 1.35% 1 .05% 1.35%
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 $ 12 $ 15 $ 13 $ 16 $ 11 $ 14 $ 11 $ 14 $ 11 $ 14
3 years $ 27 $ 36 $ 36 $ 46 $ 41 $ 51 $ 33 $ 43 $ 33 $ 43 $ 33 $ 43
5 years $ 47 $ 63 $ 63 $ 79 $ 71 $ 88 $ 58 $ 74 $ 58 $ 74 $ 58 $ 74
10 years $104 $139 $138 $172 $157 $191 $128 $163 $128 $163 $128 $163
--------------------------------------------------------------------------------
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 and "Other Expenses" for Retail Shares with respect to each
Portfolio are based on estimated amounts for the current 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 Boston Financial
Data Services Inc., 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 have been
audited (except where indicated) 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 Emerging World Funds Portfolio had not
commenced operations, and Retail Shares had not been offered with respect to any
Portfolio, as of the date of the financials and, therefore, no financial data
are provided for such Portfolio 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>
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LAZARD EQUITY PORTFOLIO
Six months ended
6/30/96+++ .............. $ 17.41 $ 0.122 $ 1.568 $ 1.690 $(0.069) $(0.541) $18.49
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
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LAZARD INTERNATIONAL EQUITY PORTFOLIO
Six months ended
6/30/96+++ .............. 12.50 0.168 0.877 1.045 -- (0.065) 13.48
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
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LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Six months ended
6/30/96+++ .............. 10.85 0.298 (0.357) (0.059) (0.299) (0.032) 10.46
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
Six months ended
6/30/96+++ .............. 10.10 0.280 (0.318) (0.038) (0.282) (0.070) 9.71
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
Six months ended
6/30/96+++ .............. 9.52 0.388 0.132 0.520 (0.390) -- 9.65
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
Six months ended
6/30/96+++*** ........... 15.95 0.051 1.733 1.784 -- (0.034) 17.70
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
Six months ended
6/30/96+++ .............. 10.52 0.090 0.850 0.940 -- -- 11.46
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
Six months ended
6/30/96+++ .............. 9.24 0.079 1.802 1.881 (0.001) -- 11.12
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
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD GLOBAL EQUITY PORTFOLIO
1/4/96* to 6/30/96+++.... 10.00 0.089 0.441 0.530 -- -- 10.53
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD BANTAM VALUE PORTFOLIO
3/5/96* to 6/30/96+++.... 10.00 0.006 1.764 1.770 -- -- 11.77
- ----------------------------------------------------------------------------------------------------------------------------------
* Commencement of operations.
** The average commission rate paid is applicable for Portfolios that invest
greater than 10% of average assets in equity security transactions on which
commissions are charged. This disclosure is required for fiscal periods
beginning on or after September 1, 1995.
*** Does not include the operations of the Special Equity Portfolio from
January 1, 1996 through June 28, 1996 (acquisition date).
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
+++ Unaudited.
(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 AVERAGE END OF
TOTAL INCOME- TURNOVER COMMISSIONS PERIOD
PERIOD RETURN++ EXPENSES NET RATE RATE** (000'S)
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
LAZARD EQUITY PORTFOLIO
Six months ended
6/30/96+++ .............. 9.7% 0.90%+,(i) 1.42%+ 25.68% $0.0588 $249,899
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
Six months ended
6/30/96+++ .............. 8.4 0.92+,(i) 2.68+ 24.99 0.0216 1,575,174
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
Six months ended
6/30/96+++ .............. (0.5) 1.05+,(h) 5.76+ 159.81 -- 57,697
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
Six months ended
6/30/96+++ .............. (0.4) 0.80+,(h),(i) 5.78+ 166.78 -- 64,034
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
Six months ended
6/30/96+++ .............. 5.5 1.09+,(i) 8.25+ 96.85 -- 110,964
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
Six months ended
6/30/96+++ .............. 11.1 0.83+,(i) 0.67+ 27.73 0.0570 878,985
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
Six months ended
6/30/96+++ .............. 9.1 1.11+ 1.63+ 52.50 0.0148 115,995
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
Six months ended
6/30/96+++ .............. 20.4 1.31+,(h),(i) 2.18+ 28.00 0.0048 107,428
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
- ---------------------------------------------------------------------------------------------------------------------
LAZARD GLOBAL EQUITY PORTFOLIO
1/4/96* to 6/30/96+++.... 5.3 1.05+,(h),(i) 2.19+ 23.77 0.0305 5,058
- ---------------------------------------------------------------------------------------------------------------------
LAZARD BANTAM VALUE PORTFOLIO
3/5/96* TO 6/30/96+++ ... 17.7 1.06+,(h),(i) 0.20+ 48.14 0.0535 18,514
- ---------------------------------------------------------------------------------------------------------------------
(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) Includes fees paid indirectly. Excluding fees paid indirectly, 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.
(h) 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 1.26% ($0.287) for the International Fixed-Income
Portfolio, 0.89% ($0.275) for the Bond Portfolio, 1.58% ($0.069) for the
Emerging Markets Portfolio, 6.04% (-$0.113) for the Global Equity Portfolio,
and 2.27% (-$.030) for the Bantam Value Portfolio.
(i) Includes fees paid indirectly. Excluding fees paid indirectly the expense
ratio would have been 0.90% for the Equity Portfolio, 0.92% for the
International Equity Portfolio, 0.80% for the Bond Portfolio, 1.08% for the
Strategic Yield Portfolio, 0.83% for the Small Cap Portfolio, 1.30% for the
Emerging Markets Portfolio, 1.05% for the Global Equity Portfolio, and 1.05%
for the Bantam Value Portfolio.
Further information about each Portfolio's performance is contained in the
Fund's annual and semi-annual reports 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
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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
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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. Slower prepayments effectively
may change a mortgage-backed security that was considered short- or
intermediate-term at the time of purchase into a long-term security. The values
of long-term securities generally fluctuate more widely in response to changes
in interest rates than short- or intermediate-term securities. Were the
prepayments on the Portfolio's mortgage-backed securities to decrease
broadly, the Portfolio's effective duration, and thus sensitivity to interest
rate fluctuations, would increase. 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
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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
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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
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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
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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
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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.
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 put and call options on stock indices
traded on national, domestic or foreign, securities exchanges, although the
Equity Portfolio currently intends to limit investments in options on stock
indices to no more than 5% of its total assets. See "Additional Permitted
Investment Activities and Risk Factors--Investment in Options on Stock Indices"
in the Statement of Additional Information for a description of options on stock
indices.
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,
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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% (33-1/3% 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.
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, brokerage and related services. Lazard Freres Asset Management provides
investment management services to client discretionary accounts with assets
totalling approximately $30.7 billion as of December 31, 1995. Its clients are
both individuals and institutions, some of whose accounts have investment
policies similar to those of several of the Portfolios.
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, except where to do so would not reflect accurately their fair value, in
which case such securities would be valued at their fair value as determined
under the supervision of the Board of Directors. Each security for which the
primary market is on a national securities exchange is valued at the last sale
price on the principal exchange on which it is traded, or, if no sales are
reported on such exchange on that day, at the closing bid price.
Any security held by 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."
INITIAL PURCHASE BY WIRE
1. Telephone toll free from any continental state: (800) 986-3455. 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
($10,000 or more for Retail Shares or $50,000 or more for Institutional Shares),
giving the wiring bank the account name(s) and assigned account number, to the
Custodian:
ABA #: 011000028 State Street Bank and Trust Company
Boston, Massachusetts
Custody and Shareholder Services Division
DDA 9905-2375
Attention: (Name of Portfolio and Class of Shares)
The Lazard Funds, Inc.
Shareholder's Name and Account Number
3. Complete a Purchase Application. Indicate the services to be used. Mail the
Purchase Application to the Transfer Agent:
Boston Financial Data Services Inc.
P.O. Box 9363
Boston, Massachusetts 02205-9363
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 ($1,000 or more for
Retail Shares or $5,000 or more for Institutional Shares) 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 Boston Financial Data Services Inc. 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 Boston Financial Data Services Inc. at
the address set forth in Item 3 above.
All purchases made by check should be in U.S. dollars and made payable to The
Lazard Funds, Inc., or in the case of a retirement account, the custodian or
trustee. Third party checks will not be accepted. When purchases are made by
check or periodic account investment, redemptions will not be allowed until the
investment being redeemed has been in the account for 15 calendar days.
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.
<PAGE>
PAGE 42 THE LAZARD FUNDS, INC.
4. Mail the letter to the Transfer Agent at the following address:
Boston Financial Data Services Inc.
P.O. Box 9363
Boston, Massachusetts 02205-9363
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
accounts, such as answering shareholder inquiries regarding the Fund and
providing reports and other information, and services related to the maintenance
of shareholder accounts. The fee payable for such services is intended to be a
"service fee" as defined in 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) 986-3455.
In order to confirm that telephone instructions for exchanges are genuine, the
Fund has established reasonable procedures to be employed by the Fund and the
Transfer Agent, including the requirement that a form of personal identification
be provided. 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 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."
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 October 1, 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. Boston Financial Data Services Inc. 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
Telephone (800) 228-0203
INVESTMENT MANAGER
Lazard Freres Asset Management
30 Rockefeller Plaza
New York, New York 10020
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
Boston Financial Data Services Inc.
P.O. Box 9363
Boston, Massachusetts 02205-9363
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 November 1, 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.
November 1, 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 would be
invested in such securities. 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 of 1933 before they may be offered or sold to the public. 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
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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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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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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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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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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
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 for hedging purposes. For additional information on the use,
risks and costs of options on foreign currencies, see Appendix B hereto.
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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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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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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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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.
- 14 -
<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
- 15 -
<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>
<CAPTION>
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.
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<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 the 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 Fund'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 Sept
30, 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, 27.13%, WDB Insurance Ltd, 7 Reid St. Box
HM1624, Hamilton, Bermuda, HMGX, 10.67%; International Equity Portfolio: Lazard
Freres Asset Management, 30 Rockefeller Plaza, New York, NY 10020, 61.49%;
International Fixed-Income Portfolio: Lazard Freres Asset Management, 30
Rockefeller Plaza, New York, NY 10020, 10.81%; Graphic Communications
International Union Supplemental Retirement & Disability Fund, 1900 L Street NW,
Washington, DC 20036-5002, 7.66%; Bond Portfolio: Lazard Freres Asset
Management, 30 Rockefeller Plaza, New York, NY 10020, 34.08%; Sachem Trust
National Association , 23 Boston Street, Gilford, CT. 06737, 9.91%, Strategic
Yield Portfolio: Lazard Freres Asset Management, 30 Rockefeller Plaza, New York,
NY 10020, 36.14%; Triarc Companies Inc., 900 Third St., New York, NY 10022,
7.33% Mellon Bank, N.A., Mutual Funds, P.O. Box 320, Pittsburgh, PA 15230-0320,
6.52%; Small Cap Portfolio: Lazard Freres Asset Management, 30 Rockefeller
Plaza, New York, NY 10020, 61.34%; International Small Cap Portfolio: Lazard
Freres Asset Management, 30 Rockefeller Plaza, New York, NY 10020, 66.87%;
Emerging Markets Portfolio: Lazard Freres Asset Management, 30 Rockefeller
Plaza, New York, NY 10020, 67.10%, Presbyterian Church, 200 East 12 Street,
Jefferson, Indiana, 47103, 9.66%; Bantam Value Portfolio, Lazard Freres Asset
Management, 30 Rockefeller Plaza, New York, New York 10020, 49.43% and Lazard
Global Equity Portfolio, Lazard Freres Asset Management, 30 Rockefeller Plaza,
New York, NY 10020, 16.64%. 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 each Class of a Portfolio are entitled to receive the assets
attributable to the applicable Class of that Portfolio that are available for
distribution based upon the relative net assets of the applicable Class.
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Fund.
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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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 June 30,
1996.
(2) For the period October 29, 1991 (commencement of operations) through June
30, 1996.
(3) For the period November 8, 1991 (commencement of operations) through June
30, 1996.
(4) For the period November 12, 1991 (commencement of operations) through June
30, 1996.
(5) For the period October 1, 1991 (commencement of operations) through June
30, 1996.
(6) For the period October 30, 1991 (commencement of operations) through June
30, 1996.
(7) For the period December 1, 1993 (commencement of operations) through June
30, 1996.
(8) For the period July 15, 1994 (commencement of operations) through June 30,
1996.
(9) For the period January 3, 1996 (commencement of operations) through
June 30, 1996.
(10) For the period March 1, 1996 (commencement of operations) through
June 30, 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.
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 expect to be lower than that of
Institutional Shares.
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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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
- 35 -
<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.
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 covered call options on
- 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
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD EQUITY PORTFOLIO
COMMON STOCKS--94.4%
AEROSPACE & DEFENSE--3.3%
Lockheed Martin Corp. .................. 52,000 $ 4,368,000
McDonnell Douglas Corp. ................ 82,600 4,006,100
------------
8,374,100
------------
AGRICULTURAL MACHINERY--1.3%
Deere & Co. ............................ 83,100 3,324,000
------------
AIRLINE--1.5%
AMR Corp. (a)........................... 41,600 3,785,600
------------
AUTOMOTIVE--2.8%
Chrysler Corp. ......................... 63,900 3,961,800
General Motors Corp. ................... 57,600 3,016,800
------------
6,978,600
------------
BANKS--8.5%
Bank of New York Company, Inc. ......... 75,000 3,843,750
BankAmerica Corp. ...................... 34,500 2,613,375
Chase Manhattan Corp. (New)............. 77,012 5,438,972
NationsBank Corp. ...................... 44,900 3,709,863
Summit Bancorp.......................... 82,200 2,887,275
Wells Fargo & Co. ...................... 11,733 2,802,720
------------
21,295,955
------------
BEVERAGES--1.0%
Cadbury Schweppes PLC (b)............... 77,500 2,499,375
------------
BROADCASTING--1.6%
Viacom, Inc. Class B (a)................ 101,600 3,949,700
------------
CHEMICALS & PLASTICS--3.8%
Du Pont (E.I.) De Nemours & Co. ........ 56,000 4,431,000
Hercules, Inc. ......................... 41,900 2,314,975
W. R. Grace & Co. ...................... 37,100 2,629,462
------------
9,375,437
------------
COMMERCIAL SERVICES--1.1%
WMX Technologies, Inc. ................. 83,200 2,724,800
------------
COMMUNICATION SERVICES--5.3%
AT&T Corp. ............................. 92,700 5,747,400
Tele-Communications, Inc. (New) TCI
Group Series A (a).................... 254,200 4,607,375
U S West, Inc. (a)...................... 157,900 2,881,675
------------
13,236,450
------------
COMPUTERS & BUSINESS EQUIPMENT--2.0%
Digital Equipment Corp. (a)............. 109,400 4,923,000
------------
CONSUMER GOODS--1.5%
Dial Corp. ............................. 129,700 3,712,663
------------
DRUGS & HEALTH CARE--4.6%
Astra AB (b)............................ 74,200 3,246,250
Columbia/HCA Healthcare Corp. .......... 82,625 4,410,109
Pharmacia & Upjohn, Inc. ............... 87,500 3,882,813
------------
11,539,172
------------
ELECTRICAL EQUIPMENT--1.3%
Arrow Electronics, Inc. (a)............. 75,800 3,268,875
------------
ENERGY--7.0%
Amoco Corp. ............................ 31,500 2,279,812
Kerr-McGee Corp. ....................... 40,000 2,435,000
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
Mobil Corp. ............................ 56,000 $ 6,279,000
Noble Affiliates, Inc. ................. 64,900 2,449,975
Royal Dutch Petroleum Co. (b)........... 26,800 4,120,500
------------
17,564,287
------------
ENTERTAINMENT--3.5%
Brunswick Corp. ........................ 157,600 3,152,000
Carnival Corp. Class A.................. 94,600 2,731,575
ITT Corp. (New) (a)..................... 43,900 2,908,375
------------
8,791,950
------------
FINANCIAL SERVICES--1.6%
Travelers Group, Inc. .................. 86,100 3,928,313
------------
FOOD PROCESSING--3.0%
Archer Daniels Midland Co. ............. 206,900 3,956,962
IBP, Inc. .............................. 132,500 3,660,313
------------
7,617,275
------------
INDUSTRIAL & MACHINERY--0.7%
ITT Industries, Inc. ................... 73,200 1,839,150
------------
INSURANCE--7.2%
Aetna Life & Casualty Co. .............. 51,100 3,653,650
Allstate Corp. ......................... 66,499 3,034,017
Cigna Corp. ............................ 26,900 3,170,837
Exel Ltd. .............................. 49,400 3,482,700
ITT Hartford Group, Inc. ............... 86,800 4,622,100
------------
17,963,304
------------
MANUFACTURING--4.4%
Allied Signal, Inc. .................... 78,200 4,467,175
General Electric Co. ................... 75,200 6,504,800
------------
10,971,975
------------
MEDICAL SUPPLIES--1.5%
Baxter International, Inc. ............. 77,000 3,638,250
------------
OFFICE EQUIPMENT--1.3%
Xerox Corp. ............................ 62,400 3,338,400
------------
PAPER PRODUCTS--2.6%
Champion International Corp. ........... 71,700 2,993,475
Kimberly-Clark Corp. ................... 45,706 3,530,789
------------
6,524,264
------------
RETAIL--7.1%
Federated Department Stores, Inc. (a)... 104,200 3,555,825
Nordstrom, Inc. ........................ 52,400 2,331,800
Sears Roebuck & Co. .................... 89,200 4,337,350
Wal-Mart Stores, Inc. .................. 147,900 3,752,962
Woolworth Corp. ........................ 164,100 3,692,250
------------
17,670,187
------------
SAVINGS & LOAN--0.8%
Great Western Financial Corp. .......... 78,800 1,881,350
------------
TECHNOLOGY--7.2%
Advanced Micro Devices, Inc. (a)........ 130,700 1,780,788
General Instrument Corp. (a)............ 127,000 3,667,125
Intel Corp. ............................ 36,200 2,658,437
International Business Machines
Corp. ................................ 47,200 4,672,800
LSI Logic Corp. (a)..................... 134,400 3,494,400
SGS-Thomson Microelectronics NV (a)..... 50,000 1,793,750
------------
18,067,300
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-1
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD EQUITY PORTFOLIO (CONTINUED)
TOBACCO--4.4%
Philip Morris Companies, Inc. .......... 75,100 $ 7,810,400
UST, Inc. .............................. 91,300 3,127,025
------------
10,937,425
------------
TRANSPORTATION--0.8%
Burlington Northern Santa Fe............ 24,800 2,005,700
------------
UTILITIES--1.7%
National Power PLC (b).................. 172,500 4,204,688
------------
TOTAL COMMON STOCKS
(Identified cost $202,005,588)............ 235,931,545
------------
PREFERRED STOCKS--1.2%
(Identified cost $2,626,127)
FINANCIAL SERVICES--1.2%
Time Warner Financing Trust............. 82,500 2,970,000
------------
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
DISCOUNT NOTES--4.3%
(Identified cost $10,662,769)
Federal Home Loan Bank Discount Notes,
5.28%, 7/12/96........................ $10,680,000 $ 10,662,770
------------
TOTAL INVESTMENTS
(Identified cost $215,294,484) (c)........ 99.9% 249,564,315
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES............................... 0.1 334,378
---- ----------
NET ASSETS................................. 100.0% $249,898,693
---- ----------
---- ----------
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) The aggregate cost for federal income tax purposes is $215,294,484;
aggregate gross unrealized appreciation is $37,895,718 and aggregate gross
unrealized depreciation is $3,625,887, resulting in net unrealized
appreciation of $34,269,831.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD INTERNATIONAL EQUITY PORTFOLIO
<CAPTION>
<S> <C> <C>
COMMON STOCKS* --92.9%
AUSTRALIA--2.3%
Coles Myer, Ltd. ..................... 2,164,500 $ 7,858,538
Westpac Bank Corp. ................... 6,221,600 27,526,608
--------------
TOTAL AUSTRALIA....................... 35,385,146
--------------
DENMARK--1.0%
Unidanmark Class A.................... 343,800 15,962,038
--------------
FINLAND--1.5%
Kymmene OY (a)........................ 1,120,300 23,244,846
--------------
FRANCE--13.4%
Accor SA.............................. 110,959 15,532,017
Alcatel Alsthom (Cie Gen El).......... 487,100 42,520,394
Banque Nationale de Paris............. 493,922 17,351,992
Cie de Saint Gobain................... 218,900 29,322,284
Generale des Eaux..................... 263,292 29,433,257
Rhone-Poulenc A (New)................. 16,690 439,023
Rhone-Poulenc SA...................... 1,064,300 27,933,840
Roussel Uclaf 144A (b)................ 131,300 15,493,400
Societe Nationale Elf Aquitaine....... 218,300 16,068,197
Total SA Class B...................... 232,281 17,241,793
--------------
TOTAL FRANCE.......................... 211,336,197
--------------
GERMANY--11.3%
Daimler-Benz AG (a)................... 57,730 30,924,752
Deutsche Bank AG (a).................. 503,300 23,832,687
Hoechst AG............................ 1,162,800 39,461,019
Mannesmann AG......................... 20,720 7,167,853
Mannesmann AG (b)..................... 64,205 21,893,905
Siemens AG............................ 533,700 28,536,540
Veba AG............................... 476,580 25,347,599
--------------
TOTAL GERMANY......................... 177,164,355
--------------
HONG KONG--2.0%
HSBC Holdings, Ltd. .................. 2,094,615 31,659,513
--------------
JAPAN--27.8%
Dai Nippon Printing................... 653,000 12,658,163
DDI Corp. ............................ 3,667 32,054,606
<CAPTION>
SHARES
-----------
<S> <C> <C>
Honda Motor Co. ...................... 1,072,000 $ 27,837,791
Matsushita Electric Industrial Co. ... 1,719,000 32,064,737
Mitsubishi Heavy Ind. ................ 3,910,000 34,071,504
Mitsui Marine & Fire.................. 990,000 7,884,515
Nintendo Co. ......................... 250,000 18,653,134
NKK Corp. (a)......................... 5,583,000 16,948,347
Omron Corp. .......................... 642,000 13,677,685
Orix Corp. ........................... 576,000 21,383,075
Promise Company, Ltd. ................ 218,600 10,793,581
Ricoh Company, Ltd. .................. 2,924,000 31,013,944
Rohm Company, Ltd. ................... 567,000 37,535,592
Sekisui Chemical Co. ................. 2,005,000 24,566,360
Sony Corp. ........................... 778,000 51,290,450
Sumitomo Trust & Banking.............. 2,250,000 30,859,964
Toyota Motor Corp. ................... 1,383,000 34,649,294
--------------
TOTAL JAPAN........................... 437,942,742
--------------
NETHERLANDS--6.0%
Heineken NV........................... 184,000 41,147,816
ING Groep NV (a)...................... 655,400 19,560,164
Royal Dutch Petroleum Co. (b)......... 222,100 34,147,875
--------------
TOTAL NETHERLANDS..................... 94,855,855
--------------
NEW ZEALAND--0.4%
Lion Nathan Ltd. ..................... 2,487,000 6,519,071
--------------
SPAIN--2.3%
ENDESA................................ 574,900 35,884,934
--------------
SWEDEN--3.0%
Astra AB Series B..................... 326,600 14,257,700
Electrolux AB Series B................ 287,300 14,473,279
Nackebro Fastighets AB (a)............ 85,520 1,059,295
Svenska Handelsbanken Series A........ 838,800 17,548,647
--------------
TOTAL SWEDEN.......................... 47,338,921
--------------
SWITZERLAND--6.2%
Baloise Holdings Ltd. ................ 8,073 17,564,038
Ciba Geigy AG......................... 25,160 30,690,289
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C>
LAZARD INTERNATIONAL EQUITY PORTFOLIO (CONTINUED)
Nestle SA............................. 26,410 $ 30,187,082
SGS Holding........................... 7,947 19,037,966
--------------
TOTAL SWITZERLAND..................... 97,479,375
--------------
UNITED KINGDOM--15.7%
Allied Domecq PLC..................... 3,039,200 21,381,544
British Aerospace Ord. PLC............ 2,237,887 33,938,448
Cadbury Schweppes PLC................. 4,092,912 32,354,282
General Electric Co. PLC.............. 2,767,900 14,894,818
Lloyds Abbey Life PLC................. 1,800,900 14,208,063
Mirror Group PLC...................... 3,323,600 10,504,001
National Power Ord. PLC............... 1,598,200 12,906,725
National Power P/P Ord. PLC (a)....... 1,699,200 10,133,449
Rank Organisation PLC................. 1,994,400 15,409,442
Redland PLC........................... 2,657,800 16,428,085
Sears PLC............................. 14,956,300 22,995,398
THORN EMI PLC......................... 553,300 15,415,751
Unilever PLC.......................... 1,377,700 27,387,110
--------------
TOTAL UNITED KINGDOM.................. 247,957,116
--------------
TOTAL COMMON STOCKS
(Identified cost $1,278,013,859)........ 1,462,730,109
--------------
PREFERRED STOCKS* --2.8%
AUSTRALIA--1.6%
News Corporation, Ltd. (b)............ 1,277,700 25,713,713
--------------
ITALY--1.2%
Fiat SPA.............................. 10,889,500 19,129,962
--------------
TOTAL PREFERRED STOCKS
(Identified cost $47,069,856)........... 44,843,675
--------------
RIGHTS--0.0%
(Identified cost $0)
GERMANY--0.0%
Daimler-Benz AG (a)................... 29,230 4,037
--------------
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
DISCOUNT NOTES--3.3%
Federal Home Loan Bank Discount Notes,
5.24%, 7/1/96..................... $40,000,000 $ 40,000,000
5.28%, 7/12/96.................... 11,865,000 11,845,858
--------------
TOTAL DISCOUNT NOTES
(Identified cost $51,845,858)........... 51,845,858
--------------
TOTAL INVESTMENTS
(Identified cost $1,376,929,573) (c).... 99.0% 1,559,423,679
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES............................. 1.0 15,750,388
---- ------------
NET ASSETS............................... 100.0% $1,575,174,067
---- ------------
---- ------------
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) The aggregate cost for federal income tax purposes is $1,376,929,573;
aggregate gross unrealized appreciation is $203,694,297 and aggregate gross
unrealized depreciation is $21,200,191, resulting in net unrealized
appreciation of $182,494,106.
* Percentages of common and preferred stocks are presented in the portfolio by
country.
Percentages by industry are as follows:
Aerospace & Defense 2.2%, Automotive 7.1%, Banks 8.7%, Chemicals & Plastics
5.9%, Computer & Business Equipment 2.0%, Construction Materials 2.9%, Drugs
& Health Care 3.8%, Electrical Equipment 11.7%, Electronics 4.4%, Energy
2.2%, Entertainment 1.0%, Financial Services 3.8%, Food & Beverage 8.4%,
Forest Products & Paper 1.5%, Household Products 1.7%, Insurance 3.7%,
International Oil 1.1%, Machinery 4.0%, Petroleum Equipment & Services 1.0%,
Publishing 2.3%, Real Estate 0.1%, Retailing 2.9%, Services 3.0%, Steel 1.1%,
Telephone 2.0%, Utilities 7.2%.
Forward Foreign Currency Contracts open at June 30, 1996:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- -------------- ---------------- -------- --------------
<S> <C> <C> <C>
$ 2,891,510 FRF 14,833,085 7/31/96 $ (7,716)
$ 1,832,112 AUD 2,321,774 7/5/96 (7,535)
$ 1,311,679 AUD 1,660,564 7/3/96 (6,717)
SEK 2,933,963 $ 440,998 7/1/96 (2,192)
--------------
$(24,160)
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------------
<S> <C> <C> <C>
LAZARD INTERNATIONAL FIXED-INCOME
PORTFOLIO
CURRENCY DENOMINATED BONDS*--96.8%
ARGENTINA PESO--0.4%
GOVERNMENT OBLIGATION
Republic of Argentina, 3.36%,
4/1/01 (a).................... ARP 200,000 $ 212,085
-----------
AUSTRALIAN DOLLAR--0.7%
CORPORATE BOND
Bayerische Vereinsbank, 10.00%,
12/16/99...................... AUD 210,000 170,805
GOVERNMENT OBLIGATION
Commonwealth of Australia,
9.00%, 9/15/04................ 297,000 $ 235,831
-----------
TOTAL AUSTRALIAN DOLLAR......... 406,636
-----------
AUSTRIAN SCHILLING--1.3%
GOVERNMENT OBLIGATION
Republic of Austria, 8.00%,
3/18/02....................... ATS 7,320,000 747,078
-----------
BRAZILIAN REAL--0.6%
CORPORATE BONDS
Chase Brazil Note, 17.638%,
9/16/96....................... BRL 168,034 167,933
Chase Brazil Note, 24.78%,
7/1/96 (a).................... 161,224 156,742
-----------
TOTAL BRAZILIAN REAL............ 324,675
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C> <C>
LAZARD INTERNATIONAL FIXED-INCOME
PORTFOLIO (CONTINUED)
BRITISH POUND--8.1%
CORPORATE BONDS
Barclays Bank PLC, 12.75%,
11/26/97...................... GBP 310,000 $ 520,257
Bayerische Landesbank
Girozentrale, 8.50%,
2/26/03....................... 275,000 436,694
Birmingham Midshires Building
Society, 9.125%, 1/5/06....... 500,000 778,615
Merrill Lynch & Company, 7.375%,
12/6/01....................... 775,000 1,170,504
West LB Finance Curacao NV,
8.50%, 6/2/03................. 820,000 1,299,342
The Woolwich Building Society,
11.625%, 12/18/01............. 250,000 445,285
-----------
TOTAL BRITISH POUND............. 4,650,697
-----------
CANADIAN DOLLAR--2.2%
CORPORATE BONDS
NHA Mortgage Backed, 7.00%,
5/1/06........................ CAD 298,595 211,879
Quebec Housing, 8.95%,
5/13/13....................... 415,000 318,836
GOVERNMENT OBLIGATION
Government of Canada, 4.25%,
12/1/21 (a)................... 1,010,000 729,703
-----------
TOTAL CANADIAN DOLLAR........... 1,260,418
-----------
COLOMBIAN PESO--0.2%
CORPORATE BOND
Cargil BA Colombia, 0.00%,
10/17/96...................... COP 130,000,000 110,770
-----------
CZECH KORUNA--1.2%
CORPORATE BOND
Skofin, 11.625%, 2/9/98......... CZK 20,000,000 721,114
-----------
DANISH KRONE--8.4%
CORPORATE BONDS
Kreditforen Denmark, 10.20%,
4/15/04 (a)................... DKK 5,000,000 948,195
Nykredit, 6.00%, 10/1/26........ 3,718,520 513,490
GOVERNMENT OBLIGATION
Kingdom of Denmark, 9.00%,
11/15/98...................... 18,350,000 3,397,812
-----------
TOTAL DANISH KRONE.............. 4,859,497
-----------
DUTCH GUILDER--1.9%
CONVERTIBLE BOND
Koninklijke Nedlloyd Groep NV,
4.25%, 3/15/01................ NLG 575,000 321,973
GOVERNMENT OBLIGATION
Government of Netherlands,
8.75%, 1/15/07................ 1,113,000 760,273
-----------
TOTAL DUTCH GUILDER............. 1,082,246
-----------
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C> <C>
FRENCH FRANC--7.1%
GOVERNMENT OBLIGATIONS
Government of France, 7.50%,
4/25/05....................... FRF 4,700,000 $ 979,639
Government of France, 8.50%,
11/25/02...................... 7,060,000 1,553,622
Government of France, 8.50%,
4/25/03....................... 4,300,000 943,666
Government of France, 8.50%,
10/25/19...................... 2,850,000 635,759
-----------
TOTAL FRENCH FRANC.............. 4,112,686
-----------
GERMAN MARK--9.1%
CORPORATE BONDS
Autobahn Tank & Rast, 6.00%,
10/16/00...................... DEM 610,000 407,603
Baden Wurttemberg, 6.75%,
6/22/05....................... 914,000 604,724
Bank Nederlandse Gemeenten,
6.50%, 11/4/08................ 2,000,000 1,269,319
International Bank
Reconstruction & Development,
7.125%, 4/12/05............... 1,700,000 1,158,302
Land Hessen, 6.00%, 11/29/13.... 1,000,000 648,019
GOVERNMENT OBLIGATION
Federal Republic of Germany,
6.00%, 2/16/06................ 1,885,000 1,190,135
-----------
TOTAL GERMAN MARK............... 5,278,102
-----------
GREEK DRACHMA--0.2%
GOVERNMENT OBLIGATIONS
Greek Treasury Bill, 0.00%,
7/17/96....................... GRD 25,000,000 103,335
Greek Treasury Bill, 0.00%,
1/31/97....................... 3,500,000 13,404
-----------
TOTAL GREEK DRACHMA............. 116,739
-----------
HUNGARIAN FORINT--0.3%
CORPORATE BOND
Unilever, 0.00%, 8/16/96........ HUF 10,000,000 64,686
GOVERNMENT OBLIGATION
Hungarian Treasury Bill, 0.00%,
10/11/96...................... 15,200,000 94,408
-----------
TOTAL HUNGARIAN FORINT.......... 159,094
-----------
INDONESIAN RUPIAH--0.3%
CORPORATE BOND
Bank Dagang Nasional Indonesia,
0.00%, 2/11/97................ IDR 500,000,000 195,610
-----------
IRISH POUND--1.8%
GOVERNMENT OBLIGATION
Republic of Ireland, 8.00%,
10/18/00...................... IEP 610,000 1,016,667
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C> <C>
LAZARD INTERNATIONAL FIXED-INCOME
PORTFOLIO (CONTINUED)
ITALIAN LIRA--8.1%
GOVERNMENT OBLIGATIONS
Republic of Italy, 11.50%,
3/1/03........................ ITL 1,965,000,000 $ 1,436,744
Republic of Italy, 12.00%,
1/17/99....................... 1,395,000,000 979,620
Republic of Italy, 12.00%,
9/1/01........................ 3,080,000,000 2,261,047
-----------
TOTAL ITALIAN LIRA.............. 4,677,411
-----------
JAPANESE YEN--25.9%
CORPORATE BONDS
Export-Import Bank of Japan,
4.375%, 10/1/03............... JPY 205,000,000 2,033,786
Isveimer, 4.15%, 3/23/99........ 177,000,000 1,671,356
Sumitomo Bank International,
0.75%, 5/31/01................ 45,000,000 444,384
GOVERNMENT OBLIGATIONS
Government of Japan, 4.50%,
6/20/03....................... 762,000,000 7,660,760
Republic of Austria, 4.50%,
9/28/05....................... 80,000,000 805,559
Republic of Austria, 6.25%,
10/16/03...................... 15,000,000 165,958
Republic of Italy, 3.50%,
6/20/01....................... 230,000,000 2,183,228
-----------
TOTAL JAPANESE YEN.............. 14,965,031
-----------
MEXICAN PESO--0.2%
GOVERNMENT OBLIGATION
Mexican Cetes, 0.00%,
7/18/96....................... MXN 900,000 116,951
-----------
NORWEGIAN KRONE--1.7%
CORPORATE BOND
Sparebanken Norway,
10.25%, 6/23/03 (a)............. NOK 6,000,000 982,324
-----------
POLISH ZLOTY--0.2%
GOVERNMENT OBLIGATION
Poland Treasury Bill, 0.00%,
8/14/96....................... PLZ 350,000 125,814
-----------
PORTUGUESE ESCUDO--0.2%
GOVERNMENT OBLIGATION
Republic of Portugal, 11.875%,
2/23/00....................... PTE 13,000,000 92,841
-----------
SOUTH AFRICAN RAND--0.3%
GOVERNMENT OBLIGATION
Republic of South Africa,
11.50%, 5/30/00............... ZAR 705,500 149,293
-----------
SPANISH PESETA--3.7%
GOVERNMENT OBLIGATION
Kingdom of Spain, 8.00%,
5/30/04....................... ESP 289,000,000 2,149,354
-----------
SWEDISH KRONA--1.4%
GOVERNMENT OBLIGATION
Kingdom of Sweden, 10.25%,
5/5/00........................ SEK 4,900,000 816,622
-----------
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C> <C>
THAILAND BAHT--0.4%
CORPORATE BONDS
Peregrine THB Note, 0.00%,
1/6/97........................ THB 3,000,000 $ 112,860
Thai Fuji Finance Local, 0.00%,
7/5/96........................ 3,000,000 118,060
-----------
TOTAL THAILAND BAHT............. 230,920
-----------
TURKISH LIRA--0.2%
GOVERNMENT OBLIGATION
Turkish Treasury Bill, 0.00%,
9/25/96....................... TRL 12,000,000,000 121,346
-----------
UNITED STATES DOLLAR--10.7%
COLLATERALIZED MORTGAGE OBLIGATION
Federal National Mortgage
Association, Series 23, Class
2, 10.00%, 9/1/17............. 678,141 219,972
CORPORATE BONDS
Americold Corp., 12.875%,
5/1/08........................ USD 105,000 107,100
Argosy Gaming Co. 144A, 13.25%,
6/1/04........................ 200,000 202,500
Asia Invest Interest Ltd.,
0.00%, 1/13/97................ 130,000 121,530
Big 5 Holdings Inc., 13.625%,
9/15/02....................... 130,000 121,550
Cablevision Systems Corp.,
10.50%, 5/15/16............... 200,000 193,500
Calpine Corp. 144A, 10.50%,
5/15/06....................... 210,000 210,525
Carrols Corp., 11.50%, 8/15/03.. 300,000 303,000
Cobb Theaters 144A, 10.625%,
3/1/03........................ 500,000 507,500
Commodore Media Inc., 7.50%,
5/1/03 (a).................... 400,000 414,000
County Seat Stores Inc., 12.00%,
10/1/02....................... 130,000 107,900
Courtyard By Marriott II Ltd.
144A, 10.75%, 2/1/08.......... 50,000 48,875
Dade International Inc. 144A,
11.125%, 5/1/06............... 290,000 300,150
Eagle Food Centers Inc., 8.625%,
4/15/00....................... 90,000 78,300
GI Holdings Inc. 144A, 10.00%,
2/15/06....................... 2,000 1,990
Hayes Wheels International Inc.,
11.00%, 7/15/06............... 183,000 185,516
Hills Stores Co. 144A, 12.50%,
7/1/03........................ 90,000 88,200
ICF Kaiser International Inc.,
13.00%, 12/31/03 (a).......... 90,000 85,950
KCS Energy Inc., 11.00%,
1/15/03....................... 100,000 105,500
Paribas LBP Participation,
0.00%, 11/28/96............... 108,288 100,860
Plains Resources Inc., 10.25%,
3/15/06....................... 95,000 93,813
Poindexter (J.B.) & Co., 12.50%,
5/15/04....................... 250,000 215,000
Reliance Industries Ltd. 144A,
9.375%, 6/24/26............... 250,000 252,500
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C> <C>
LAZARD INTERNATIONAL FIXED-INCOME
PORTFOLIO (CONTINUED)
Remington Product Co. 144A,
11.00%, 5/15/06............... 150,000 $ 149,250
Smith's Food & Drug Centers,
Inc., 11.25%, 5/15/07......... 200,000 201,500
Terex Corp. 144A, 13.75%,
5/15/02....................... 65,000 67,844
Unisys Corp. 144A, 12.00%,
4/15/03....................... 211,000 215,747
Univision Network Holding LP,
7.00%, 12/17/02............... 40,000 33,200
Waxman Industries Inc., 12.75%,
6/1/04........................ 95,000 63,650
FOREIGN GOVERNMENT OBLIGATIONS
Morocco Restructuring &
Consolidation Agreement,
6.438%, 1/1/09 (a)............ 250,000 180,625
Venezuela FLIRB, 6.50%, 3/31/07
(a)(b)........................ 750,000 546,562
YANKEE BONDS
Den Norske Credit, 5.75%,
11/29/49 (a).................. 700,000 574,875
Hong Kong & Shanghai Bank,
5.563%, 8/29/49 (a)........... 100,000 84,610
-----------
TOTAL UNITED STATES DOLLAR...... 6,183,594
-----------
TOTAL CURRENCY DENOMINATED BONDS*
(Identified cost $55,484,069)..... 55,865,615
-----------
<CAPTION>
SHARES
---------------
<S> <C> <C> <C>
PREFERRED STOCK--0.4%
(Identified cost $250,937)
Cablevision Systems Corp.,
144A.......................... 2,500 242,500
-----------
COMMERCIAL PAPER--0.8%
Ford Motor Credit Corp., 5.38%,
10/1/96....................... 105,000 103,556
General Motors Acceptance Corp.,
5.32%, 11/27/96............... 90,000 88,018
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C> <C>
General Motors Acceptance Corp.,
5.34%, 7/12/96................ $ 120,000 $ 119,804
General Motors Acceptance Corp.,
5.37%, 7/19/96................ 65,000 64,826
General Motors Acceptance Corp.,
5.53%, 12/12/96............... 70,000 68,237
-----------
TOTAL COMMERCIAL PAPER
(Identified cost $444,441)........ 444,441
-----------
TOTAL INVESTMENTS
(Identified cost $56,179,447)
(c)............................. 98.0% 56,552,556
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES....................... 2.0 1,144,517
---- ---------
NET ASSETS......................... 100.0% $57,697,073
---- ---------
---- ---------
</TABLE>
(a) Variable rate security. Interest shown is the current rate.
(b) Front Loaded Interest Reduction Bond.
(c) The aggregate cost for federal income tax purposes is $56,179,447; aggregate
gross unrealized appreciation is $1,016,064 and aggregate gross unrealized
depreciation is $642,955, resulting in net unrealized appreciation of
$373,109.
* Percentages of holdings are presented in the portfolio by currency
denomination.
Percentages by country are as follows:
Argentina 0.4%, Australia 0.7%, Austria 1.3%, Brazil 0.6%, Canada 2.2%,
Colombia 0.2%, Czech Republic 1.2%, Denmark 8.4%, France 7.1%, Germany 9.1%,
Greece 0.2%, Hong Kong 0.1%, Hungary 0.3%, Indonesia 0.3%, Ireland 1.8%,
Italy 8.1%, Japan 25.9%, Mexico 0.2%, Morocco 0.3%, Netherlands 1.9%, Norway
2.7%, Poland 0.2%, Portugal 0.2%, South Africa 0.3%, Spain 3.7%, Sweden 1.4%,
Thailand 0.4%, Turkey 0.2%, United Kingdom 8.1%, United States 8.4%,
Venezuela 0.9%.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME
PORTFOLIO (CONTINUED)
Forward Foreign Currency Contracts open at June 30, 1996:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ------------------- ------------------- --------- --------------
<S> <C> <C> <C>
$ 70,000 CNY 617,967 3/26/97 $ 2,364
$ 70,000 COP 82,048,400 12/12/96 1,968
$ 90,000 CLP 39,265,200 11/29/96 1,688
$ 261,000 ATS 2,803,140 9/12/96 2,012
ATS 2,926,129 $ 274,234 9/12/96 (318)
$ 365,007 AUD 464,053 9/12/96 (1,886)
$ 1,530,000 BEL 48,303,630 9/12/96 20,433
$ 788,000 CAD 1,073,492 9/12/96 (490)
$ 355,000 CHF 447,406 9/12/96 5,092
$ 1,348,417 DEM 2,058,538 9/12/96 11,617
DEM 15,835 $ 10,500 9/12/96 38
DKK 14,805,705 $ 2,512,564 9/12/96 (23,090)
$ 900,005 ESP 115,650,656 9/12/96 (19)
ESP 99,694,800 $ 765,000 9/12/96 (10,818)
$ 2,153,273 FRF 11,134,880 9/12/96 19,086
FRF 2,453,819 $ 478,094 9/12/96 (633)
$ 173,351 GBP 111,800 9/12/96 196
GBP 221,239 $ 340,000 9/12/96 (3,429)
IEP 666,632 $ 1,055,175 9/12/96 (9,733)
$ 1,295,321 ITL 2,025,622,500 9/12/96 18,952
ITL 1,124,939,075 $ 724,430 9/12/96 (5,458)
$ 2,735,777 JPY 294,750,935 9/12/96 (11,534)
JPY 363,596,632 $ 3,372,142 9/12/96 11,588
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ------------------- ------------------- --------- --------------
<S> <C> <C> <C>
$ 1,586,405 NLG 2,709,805 9/12/96 $ 11,043
NOK 6,610,968 $ 1,008,000 9/12/96 (12,148)
$ 370,444 SEK 2,491,438 9/12/96 5,717
XEU 93,958 $ 116,000 9/12/96 (1,332)
$ 65,000 CLP 26,751,471 7/22/96 (242)
$ 118,979 SKK 3,608,964 7/12/96 (2,437)
$ 22,000 CLP 9,136,380 7/11/96 189
$ 1,690,510 JPY 184,882,645 7/10/96 0
JPY 78,663,003 $ 719,270 7/10/96 0
$ 763,279 ATS 8,176,033 7/8/96 515
$ 957,301 FRF 4,927,929 7/8/96 769
$ 324,994 IEP 203,625 7/8/96 78
ATS 5,249,905 $ 490,108 7/8/96 (331)
FRF 2,474,110 $ 480,622 7/8/96 (386)
$ 2,010,223 JPY 219,023,800 7/5/96 (7,536)
$ 112,950 THB 2,865,648 7/5/96 (62)
JPY 317,734,415 $ 2,916,199 7/5/96 10,933
$ 2,177,264 ESP 278,842,242 7/3/96 1,106
ESP 394,492,898 $ 3,080,281 7/3/96 (1,564)
PLN 243,966 $ 89,998 7/3/96 209
--------------
$ 32,147
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD BOND PORTFOLIO
ASSET-BACKED SECURITIES--13.4%
Advanta Home Equity Loan Trust, Series
1993-2, Class A2, 6.15%, 10/25/09... $ 562,197 $ 542,694
American Financial Home Equity Loan,
Series 1991-1, Class A, 8.00%,
7/25/06............................. 59,440 59,942
Banc One Credit Card Master Trust,
Series 1994-C, Class A, 7.80%,
12/15/00............................ 750,000 772,965
Chase Manhattan Credit Card Master
Trust, Series 1996-3, Class A,
7.04%, 2/15/04 (a).................. 1,700,000 1,719,652
Chase Manhattan Grantor Trust, Series
1995-B, Class A, 5.90%, 11/15/01.... 309,330 308,072
Chase Manhattan Grantor Trust, Series
1996-A, Class A, 5.20%, 2/15/02..... 557,551 548,663
EQCC Home Equity Loan Trust, Series
1994-2, Class A2, 7.35%, 6/15/14.... 125,000 125,547
First Chicago Master Trust II, Series
1992-E, Class A, 6.25%, 8/15/99..... 400,000 399,748
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
Ford Credit Grantor Trust, Series
1995-A, Class A, 5.90%, 5/15/00..... $ 352,338 $ 351,344
G E Home Equity Loan, Inc., Series
1991-1, Class A, 7.20%, 9/15/11..... 39,945 40,045
Green Tree Financial Corp., Series
1994-3, Class A, 6.60%, 6/15/19..... 206,455 207,035
Green Tree Financial Corp., Series
1994-6, Class A2, 7.25%, 1/15/20.... 523,760 526,704
Green Tree Financial Corp., Series
1996-1, Class A1, 5.50%, 3/15/27.... 403,092 396,791
Lehman FHA Title I Loan Trust, Series
1996-2, Class A2, 6.78%, 3/25/08.... 1,014,000 1,017,961
Money Store Home Equity Trust, Series
1996-B, Class A13, 6.90%, 4/15/10... 273,000 273,256
Olympic Automobile Receivable Trust,
Series 1994-B, Class A2, 6.85%,
6/15/01............................. 216,079 217,632
Premier Auto Trust, Series 1995-4,
Class A3, 5.90%, 7/6/99............. 252,000 251,604
Sears Credit Account Master Trust,
Series 1995-2, Class A, 8.10%,
6/15/04............................. 779,000 812,349
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD BOND PORTFOLIO (CONTINUED)
Security Pacific Home Equity Loan,
Series 1991-1, Class A, 7.85%,
5/15/98............................. $ 18,776 $ 18,926
-------------
TOTAL ASSET-BACKED SECURITIES
(Identified cost $8,592,939)............ 8,590,930
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS--1.3%
Asset Securitization Corp., Series
1996-D2, Class ACS2, 1.492%, 2/28/26
(a)................................. 2,125,000 213,496
Merrill Lynch Mortgage Investors Inc.
144A, Series 1996-C1, Class IO,
0.567%, 4/25/98 (a)................. 4,808,005 148,375
Federal National Mortgage Association,
Series 23, Class 2, 10.00%,
9/1/17.............................. 1,416,371 459,435
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Identified cost $825,915).............. 821,306
-------------
CORPORATE BONDS--17.2%
AEROSPACE & DEFENSE--1.1%
BE Aerospace, Inc. 144A, 9.875%,
2/1/06.............................. 125,000 122,813
Lockheed Martin Corporation, 7.45%,
6/15/04............................. 328,000 332,546
McDonnell Douglas Finance Corp.,
6.83%, 5/21/01...................... 287,000 281,346
-------------
736,705
-------------
AUTOMOTIVE--0.4%
General Motors Acceptance Corp.,
6.70%, 4/18/01...................... 282,000 279,338
-------------
AUTO PARTS--1.1%
Hayes Wheels International Inc.,
11.00%, 7/15/06..................... 610,000 618,387
Walbro Corp. 144A, 9.875%,
7/15/05............................. 100,000 98,000
-------------
716,387
-------------
BROADCASTING--1.8%
Cablevision Systems Corp., 10.50%,
5/15/16............................. 400,000 387,000
Comcast Corp., 9.50%, 1/15/08......... 184,000 177,560
Cox Communications Inc., 6.50%,
11/15/02............................ 265,000 256,069
Paxson Communications Corp. 144A,
11.625%, 10/1/02.................... 160,000 166,400
Sullivan Broadcasting, 10.25%,
12/15/05............................ 170,000 161,925
-------------
1,148,954
-------------
CHEMICALS & PLASTICS--0.2%
Harris Chemical North America Inc.,
10.75%, 10/15/03.................... 121,000 118,277
-------------
COMPUTERS--0.7%
Unisys Corp. 144A, 12.00%, 4/15/03.... 465,000 475,462
-------------
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
DRUGS & HEALTH CARE--0.3%
Columbia/HCA Healthcare Corp., 7.15%,
3/30/04............................. $ 182,000 $ 182,015
-------------
ELECTRONICS--0.8%
Alpine Group Inc. 144A, 12.25%,
7/15/03............................. 368,000 370,760
Texas Instruments Inc., 6.125%,
2/1/06.............................. 164,000 151,003
-------------
521,763
-------------
ENTERTAINMENT--2.3%
AMF Group Inc. 144A, 10.875%,
3/15/06............................. 400,000 394,000
Argosy Gaming Co. 144A, 13.25%,
6/1/04.............................. 38,000 38,475
Cobb Theaters 144A, 10.625%,
3/1/03.............................. 415,000 421,225
Hollywood Casino Inc., 12.75%,
11/1/03............................. 315,000 315,000
Walt Disney Co. Series B, 6.75%,
3/30/06............................. 295,000 285,457
-------------
1,454,157
-------------
FINANCIAL SERVICES--2.9%
Avco Financial Services Inc., 6.35%,
9/15/00............................. 128,000 125,334
Bankamerica Corp., 7.20%, 9/15/02..... 105,000 105,575
Citicorp, 6.75%, 8/15/05.............. 107,000 102,654
Finova Capital Corp., 5.98%,
2/27/01............................. 125,000 120,529
Fleet Norstar Financial, 7.25%,
9/1/99.............................. 161,000 162,929
Household Finance Corp., 9.625%,
7/15/00............................. 149,000 162,607
Keycorp, 7.50%, 6/15/06............... 139,000 139,662
MBNA Corp., 6.50%, 9/15/00............ 196,000 192,362
Nationsbank Corp., 5.75%, 1/17/01..... 159,000 151,996
Norwest Corporation Medium Term Note,
6.125%, 10/15/00.................... 149,000 144,926
Salomon Inc., 8.55%, 2/17/97.......... 265,000 268,220
Sears Roebuck Acceptance Corp., 6.34%,
10/12/00............................ 169,000 165,909
-------------
1,842,703
-------------
MANUFACTURING--0.7%
Silgan Corp., 11.75%, 6/15/02......... 434,000 440,510
-------------
OIL & GAS--0.4%
Plains Resources Inc. 144A, 10.25%,
3/15/06............................. 145,000 143,188
Tenneco, Inc., 7.875%, 10/1/02........ 134,000 137,946
-------------
281,134
-------------
OTHER--0.1%
Remington Product Co., 144A, 11.00%,
5/15/06............................. 75,000 74,625
-------------
PAPER PRODUCTS--0.6%
Crown Paper Co., 11.00%, 9/1/05....... 105,000 100,013
Williamhouse Regency Delaware Inc.
144A, 13.00%, 11/15/05.............. 238,000 269,535
-------------
369,548
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD BOND PORTFOLIO (CONTINUED)
RESTAURANTS, LODGING &
ENTERTAINMENT--1.8%
Carrols Corp., 11.50%, 8/15/03........ $ 467,000 $ 471,670
Courtyard By Marriott II Ltd. 144A,
10.75%, 2/1/08...................... 525,000 513,188
ITT Corp., 6.25%, 11/15/00............ 169,000 164,033
-------------
1,148,891
-------------
RETAIL GROCERY--0.3%
Pueblo Xtra International, 9.50%,
8/1/03.............................. 73,000 65,700
Smith's Food & Drug Centers, Inc.,
11.25%, 5/15/07..................... 100,000 100,750
-------------
166,450
-------------
RETAIL--0.5%
Hills Stores Co. 144A, 12.50%,
7/1/03.............................. 96,000 94,080
Mothers Work Inc. 144A, 12.625%,
8/1/05.............................. 217,000 228,935
-------------
323,015
-------------
UTILITIES--1.2%
Calpine Corp. 144A, 10.50%,
5/15/06............................. 275,000 275,687
KCS Energy Inc. 144A, 11.00%,
1/15/03............................. 130,000 137,150
Texas New Mexico Power Co., 9.25%,
9/15/00............................. 80,000 81,935
Texas Utilities Electric Co., 7.375%,
8/1/01.............................. 247,000 250,203
-------------
744,975
-------------
TOTAL CORPORATE BONDS
(Identified Cost $11,080,439)........... 11,024,909
-------------
MORTGAGE PASS-THROUGH SECURITIES--37.0%
Federal Home Loan Mortgage Corp.,
7.00%, 3/1/11....................... 87,634 86,456
6.50%, 4/1/11....................... 90,863 87,938
7.00%, 4/1/26....................... 320,887 308,953
7.00%, 1/1/26....................... 984,887 948,258
7.00%, 9/1/25....................... 605,708 583,181
7.00%, 1/1/11....................... 719,733 711,111
6.50%, 2/1/11....................... 799,477 773,742
7.00%, 12/1/99...................... 870,000 858,307
6.50%, 12/1/99...................... 982,000 950,390
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
7.00%, 8/1/25....................... $ 988,002 $ 951,258
7.00%, 1/1/99....................... 3,334,000 3,210,009
Federal National Mortgage Association,
7.50%, 3/1/26....................... 177,623 175,235
7.50%, 12/1/25...................... 289,838 285,943
8.00%, 10/1/25...................... 351,333 353,968
7.50%, 10/1/25...................... 466,761 460,487
8.00%, 1/1/26....................... 591,463 595,899
7.50%, 9/1/25....................... 799,368 788,624
8.00%, 9/1/25....................... 1,298,564 1,308,303
7.50%, 12/1/99...................... 1,989,000 1,962,268
8.00%, 1/1/99....................... 2,609,000 2,628,568
Government National Mortgage
Association,
9.00%, 9/15/25...................... 121,751 127,420
8.50%, 12/15/99..................... 616,000 633,322
7.00%, 1/20/99...................... 1,150,000 1,165,273
6.50%, 1/15/99...................... 3,715,000 3,721,967
-------------
TOTAL MORTGAGE PASS-THROUGH SECURITIES
(Identified Cost $23,823,988)........... 23,676,880
-------------
U.S. GOVERNMENT OBLIGATIONS--27.9%
United States Treasury Notes,
8.875%, 11/15/98.................... 2,952,000 3,121,267
6.25%, 8/31/00...................... 3,005,000 2,983,875
7.375%, 11/15/97.................... 3,195,000 3,251,903
7.75%, 12/31/99..................... 7,700,000 8,022,399
United States Treasury Strips, 0.00%,
8/15/02............................. 700,000 471,170
-------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified Cost $17,855,654)........... 17,850,614
-------------
DISCOUNT NOTES--31.2%
(Identified Cost $19,977,717)
Federal Home Loan Bank Discount Notes,
5.28%, 7/12/96...................... 20,010,000 19,977,717
-------------
TOTAL INVESTMENTS
(Identified cost $82,156,652)(b)........ 128.0% 81,942,356
-------------
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS.................................. (28.0) (17,908,644)
---- ----------
NET ASSETS............................... 100.0% $ 64,033,712
---- ----------
---- ----------
</TABLE>
(a) Variable rate security. Interest shown is the current rate.
(b) The aggregate cost for federal income tax purposes is $82,156,652; aggregate
gross unrealized appreciation is $206,508 and aggregate gross unrealized
depreciation is $420,804, resulting in net unrealized depreciation of
$214,296.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
LAZARD STRATEGIC YIELD PORTFOLIO
<CAPTION>
<S> <C> <C> <C>
CURRENCY DENOMINATED BONDS*--86.2%
ARGENTINA PESO--1.4%
GOVERNMENT OBLIGATION
Republic of Argentina, 3.36%,
4/1/01 (a).................... ARP 1,500,000 $ 1,590,636
------------
AUSTRALIAN DOLLAR--2.0%
GOVERNMENT OBLIGATIONS
Commonwealth of Australia,
7.00%, 8/15/98................ AUD 1,791,000 $ 1,376,839
Commonwealth of Australia,
9.00%, 9/15/04................ 1,023,000 812,306
------------
TOTAL AUSTRALIAN DOLLAR......... 2,189,145
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C>
LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED)
BRAZILIAN REAL--3.0%
CORPORATE BONDS
Chase Brazil Note, 17.638%,
9/16/96....................... BRL 1,244,539 $ 1,243,792
Chase Brazil Note, 24.782%,
7/1/96........................ 1,154,953 1,122,846
Metalurgica Gerdau SA, 144A,
11.125%, 5/24/04.............. 1,000,000 995,000
------------
TOTAL BRAZILIAN REAL............ 3,361,638
------------
BRITISH POUND--2.5%
CORPORATE BONDS
Birmingham Midshires Building
Society, 9.125%, 1/5/06....... GBP 350,000 545,030
Merrill Lynch & Co., 7.375%,
12/6/01....................... 1,025,000 1,548,086
GOVERNMENT OBLIGATION
United Kingdom Treasury, 1.00%,
7/17/24....................... 350,000 638,177
------------
TOTAL BRITISH POUND............. 2,731,293
------------
CANADIAN DOLLAR--3.5%
CORPORATE BONDS
NHA Mortgage Backed, 6.75%,
4/1/03........................ CAD 650,144 461,668
NHA Mortgage Backed, 7.00%,
5/1/06........................ 1,148,731 815,125
GOVERNMENT OBLIGATIONS
Canada Government, 4.25%,
12/1/21 (a)................... 3,245,000 2,344,443
Quebec Housing, 8.95%,
5/13/13....................... 390,000 299,629
------------
TOTAL CANADIAN DOLLAR........... 3,920,865
------------
COLOMBIAN PESO--0.7%
GOVERNMENT OBLIGATION
Cargil BA Colombia, 0.00%,
10/17/96...................... COP 900,000,000 766,869
------------
CZECH KORUNA--1.6%
CORPORATE BONDS
CEZ AS, 11.30%, 6/6/05.......... CZK 23,000,000 833,043
Skofin, 11.625%, 2/9/98......... 25,000,000 901,392
------------
TOTAL CZECH KORUNA.............. 1,734,435
------------
DANISH KRONE--1.6%
CORPORATE BONDS
Kreditforen Denmark, 10.20%,
4/15/04 (a)................... DKK 9,590,000 1,818,638
Nykredit, 6.00%, 10/1/26........ 34,480 4,761
------------
TOTAL DANISH KRONE.............. 1,823,399
------------
DUTCH GUILDER--0.6%
CORPORATE BOND
Koninklijke Nedlloyd Groep NV,
4.25%, 3/15/01................ NLG 1,094,000 612,589
------------
GERMAN MARK--0.6%
CORPORATE BOND
Autobahn Tank & Rast, 6.00%,
10/16/00...................... DEM 1,050,000 701,611
------------
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C> <C>
GREEK DRACHMA--0.9%
GOVERNMENT OBLIGATIONS
Greek Treasury Bill, 0.00%,
7/17/96....................... GRD 130,000,000 $ 537,341
Greek Treasury Bill, 0.00%,
1/31/97....................... 110,000,000 421,286
------------
TOTAL GREEK DRACHMA............. 958,627
------------
HUNGARIAN FORINT--0.9%
CORPORATE BOND
Unilever, 0.00%, 8/16/96........ HUF 90,000,000 582,172
GOVERNMENT OBLIGATION
Hungarian Treasury Bill, 0.00%,
10/11/96...................... 75,900,000 471,421
------------
TOTAL HUNGARIAN FORINT.......... 1,053,593
------------
INDONESIAN RUPIAH--1.5%
CORPORATE BONDS
Bakrie & Brothers, 0.00%,
9/9/96........................ IDR 3,000,000,000 1,249,979
Medco Energi Corp., 0.00%,
1/13/97....................... 1,000,000,000 391,536
------------
TOTAL INDONESIAN RUPIAH......... 1,641,515
------------
ITALIAN LIRA--2.6%
GOVERNMENT OBLIGATIONS
Republic of Italy, 12.00%,
1/17/99....................... ITL 2,405,000,000 1,688,879
Republic of Italy, 12.00%,
9/1/01........................ 1,700,000,000 1,247,981
------------
TOTAL ITALIAN LIRA.............. 2,936,860
------------
JAPANESE YEN--1.3%
CONVERTIBLE BOND
Sumitomo Bank, 0.75%, 5/31/01... JPY 85,000,000 839,391
CORPORATE BOND
Isveimer, 4.15%, 3/23/99........ 64,000,000 604,332
------------
TOTAL JAPANESE YEN.............. 1,443,723
------------
MEXICAN PESO--1.0%
GOVERNMENT OBLIGATION
Mexican Cetes, 0.00%,
7/18/96....................... MXN 8,506,070 1,105,329
------------
NEW ZEALAND DOLLAR--1.3%
GOVERNMENT OBLIGATION
Government of New Zealand,
10.00%, 7/15/97............... NZD 2,035,000 1,405,893
------------
NORWEGIAN KRONE--1.5%
CORPORATE BOND
Sparebanken Norway, 10.25%,
6/23/03 (a)................... NOK 10,000,000 1,637,207
------------
POLISH ZLOTY--1.3%
GOVERNMENT OBLIGATIONS
Poland Treasury Bill, 0.00%,
8/14/96....................... PLZ 2,460,000 884,291
Poland Treasury Bill, 0.00%,
11/13/96...................... 1,800,000 612,653
------------
TOTAL POLISH ZLOTY.............. 1,496,944
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C>
LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED)
PORTUGUESE ESCUDO--0.7%
GOVERNMENT OBLIGATION
Republic of Portugal, 11.875%,
2/23/00....................... PTE 106,500,000 $ 760,585
------------
SOUTH AFRICAN RAND--0.7%
GOVERNMENT OBLIGATION
Republic of South Africa,
11.50%, 5/30/00............... ZAR 3,632,200 768,621
------------
SPANISH PESETA--2.9%
GOVERNMENT OBLIGATION
Government of Spain, 9.40%,
4/30/99....................... ESP 394,080,000 3,214,705
------------
THAILAND BAHT--0.8%
CORPORATE BONDS
Peregrine, 0.00%, 10/22/96...... THB 10,000,000 382,732
Peregrine THB Note, 0.00%,
1/6/97........................ 3,000,000 112,860
Thai Fuji Finance, 0.00%,
12/20/96...................... 10,000,000 376,600
------------
TOTAL THAILAND BAHT............. 872,192
------------
TURKISH LIRA--0.7%
GOVERNMENT OBLIGATION
Turkish Treasury Bill, 0.00%,
9/25/96....................... TRL 81,000,000,000 819,084
------------
UNITED STATES DOLLAR--50.1%
COLLATERALIZED MORTGAGE OBLIGATIONS
Asset Securitization Corp.,
Series 1995-MD4, Class ACS2,
2.417%, 8/13/29 (a)........... USD $ 3,971,012 704,234
Asset Securitization Corp.,
Series 1996-D2, Class ACS2,
1.608%, 2/28/26 (a)........... 5,720,000 574,681
Federal National Mortgage
Association,
Series 23, Class 2, 10.00%,
9/1/17...................... 5,030,262 1,631,691
Series 70, Class 2, 10.00%,
1/15/20..................... 3,073,492 1,043,911
Lennar Central Partners Ltd.
144A, Series 1994-1, Class D,
9.89%, 9/15/04................ 370,000 369,787
Merrill Lynch Mortgage
Investments Inc. 144A, Series
1996-C1, Class I0, 0.567%,
4/25/28 (a)................... 15,384,617 474,770
CONVERTIBLE BOND
Burns Philp 144A, 5.50%,
4/30/04....................... 800,000 674,000
CORPORATE BONDS
Alpine Group, Inc. 144A, 12.25%,
7/15/03....................... 1,098,000 1,106,235
Americold Corp., 12.875%,
5/1/08........................ 195,000 198,900
AMF Group, Inc., 144A, 10.875%,
3/15/06....................... 950,000 935,750
Argentina Bocon, 6.25%, 9/1/02
(a)........................... 1,250,000 1,187,500
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C> <C>
Argosy Gaming Co., 144A, 13.25%,
6/1/04........................ $ 462,000 $ 467,775
Asia Invest Interest, Ltd.,
0.00%, 1/13/97................ 1,025,000 958,214
BE Aerospace, Inc., 144A,
9.875%, 2/1/06................ 845,000 830,213
Big 5 Holdings, Inc., 13.625%,
9/15/02....................... 200,000 187,000
Cablevision Systems Corp.,
10.50%, 5/15/16............... 250,000 241,875
Calpine Corp. 144A, 10.50%,
5/15/06....................... 380,000 380,950
Carrols Corp., 11.50%, 8/15/03.. 820,000 828,200
Ce Casecnan Water & Energy Inc.
Series B 144A, 11.95%,
11/15/10...................... 1,150,000 1,157,187
Cobb Theaters, 144A, 10.625%,
3/1/03........................ 1,000,000 1,015,000
Comcast Corp., 9.50%,
1/15/08....................... 479,000 462,235
Commodore Media, Inc. 144A,
7.50%, 5/1/03 (a)............. 900,000 931,500
County Seat Stores Inc., 12.00%,
10/1/02....................... 650,000 539,500
Courtyard By Marriott II Ltd.,
144A, 10.75%, 2/1/08.......... 900,000 879,750
Croatia Principal, 6.375%,
12/31/10 144A (a)............. 1,000,000 875,000
Crown Paper Co., 11.00%,
9/1/05........................ 210,000 200,025
CRV Finance Jersey Ltd., 10.21%,
2/14/97 (a)................... 1,519,090 1,601,121
Dade International, Inc. 144A,
11.125%, 5/1/06............... 200,000 207,000
Den Norske Credit, 5.75%,
11/29/49 (a).................. 800,000 657,000
Dynacare, Inc., 10.75%,
1/15/06....................... 1,215,000 1,218,037
Eagle Food Centers, Inc.,
8.625%, 4/15/00............... 200,000 174,000
Export-Import Bank of Japan,
8.00%, 6/4/00................. 391,875 390,170
Fundy Cable Ltd., 11.00%,
11/15/05...................... 475,000 479,750
G I Holdings, Inc. 144A, 10.00%,
2/15/06....................... 250,000 248,750
Harris Chemical North America,
Inc., 10.75%, 10/15/03........ 368,000 359,720
Hayes Wheels International,
Inc., 11.00%, 7/15/06......... 915,000 927,581
Haynes International, Inc.,
13.50%, 8/15/99............... 240,000 243,600
Hills Stores Co., 144A, 12.50%,
7/1/03........................ 170,000 166,600
Hollywood Casino, Corp., 12.75%,
11/1/03....................... 1,391,000 1,391,000
Hong Kong & Shanghai Bank,
5.563%, 8/29/49 (a)........... 1,200,000 1,015,320
ICF Kaiser International, Inc.,
13.00%, 12/31/03 (a).......... 200,000 191,000
ING Ecuador Note, 0.00%,
4/17/97....................... 765,000 688,714
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C>
LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED)
Isveimer, 6.347%, 12/18/97 (a).. $ 475,000 $ 470,488
KCS Energy, Inc., 144A, 11.00%,
1/15/03....................... 565,000 596,075
Mothers Work, Inc. 144A,
12.625%, 8/1/05............... 492,000 519,060
Paribas LBP Participation,
0.00%, 11/28/96............... 839,441 781,855
Pathmark Stores, Inc., 11.625%,
6/15/02....................... 850,000 845,750
Paxson Communications Corp.
144A, 11.625%, 10/1/02........ 805,000 837,200
Plains Resources, Inc. 144A,
10.25%, 3/15/06............... 315,000 311,063
Poindexter J.B., Inc., 12.50%,
5/15/04....................... 345,000 296,700
Pueblo Xtra International,
9.50%, 8/1/03................. 476,000 428,400
Reliance Industries Ltd. 144A,
8.125%, 9/27/05............... 100,000 94,500
Reliance Industries Ltd. 144A,
9.375%, 6/24/26............... 1,000,000 1,010,000
Reliance Industries, Ltd. 144A,
8.125%, 9/27/05............... 600,000 567,000
Remington Product Co. 144A,
11.00%, 5/15/06............... 925,000 920,375
Silgan Corp., 11.75%, 6/15/02... 767,000 778,505
Smith's Food & Drug Centers,
Inc., 11.25%, 5/15/07......... 710,000 715,325
Sullivan Broadcasting, 10.25%,
12/15/05...................... 400,000 381,000
Terex Corp. 144A, 13.75%,
5/15/02....................... 325,000 339,219
Unisys Corp., 15.00%, 7/1/97
(a)........................... 600,000 634,500
Unisys Corp. 144A, 12.00%,
4/15/03....................... 761,000 778,123
Univision Network Holding LP,
7.00%, 12/17/02............... 440,000 365,200
Walbro Corp. 144A, 9.875%,
7/15/05....................... 260,000 254,800
Waxman Industries, Inc. 144A,
12.75%, 6/1/04................ 220,000 147,400
Williamhouse Regency Delaware
Inc. 144A, 13.00%,
11/15/05...................... 575,000 651,188
FOREIGN GOVERNMENT OBLIGATIONS
Morocco Restructuring &
Consolidation Agreement,
6.438%, 1/1/09 (a)............ 1,500,000 1,083,750
Republic of Ecuador, 6.625%,
12/21/04 (a).................. 475,000 349,125
Republic of Slovenia 144A,
6.50%, 12/11/06 (a)........... 1,000,000 992,500
Republic of Venezuela, 6.375%,
3/31/07 (a)................... 1,750,000 1,268,750
Venezuela FLIRB, 6.50%, 3/31/07
(a),(b)....................... 250,000 182,187
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE BACKED SECURITIES
Federal Home Loan Mortgage
Corp.,
7.556%, 2/1/24 (a)............ $ 1,349,815 $ 1,385,669
8.00%, 5/1/25................. 1,396,678 1,408,452
Federal National Mortgage
Association, 11.50%,
2/1/20........................ 3,455,308 3,894,754
Government National Mortgage
Association,
6.00%, 7/20/25 (a)............ 271,314 274,112
6.00%, 10/20/25 (a)........... 1,706,039 1,713,512
6.00%, 11/20/25 (a)........... 954,027 958,205
U.S. GOVERNMENT OBLIGATIONS
United States Treasury Notes,
6.875%, 3/31/97............... 510,000 514,381
------------
TOTAL UNITED STATES DOLLAR...... 55,564,369
------------
VENEZUELAN BOLIVAR--0.5%
CORPORATE BOND
ING VEB Note, 0.00%, 7/19/96
(a)........................... VEB 260,000,000 538,687
------------
TOTAL CURRENCY DENOMINATED BONDS*
(Identified cost $95,196,319)..... 95,650,414
------------
<CAPTION>
SHARES
--------------
<S> <C> <C> <C>
PREFERRED STOCKS--0.7%
(Identified cost $803,000)
Cablevision Systems Corp.
144A.......................... USD 8,000 776,000
------------
<CAPTION>
PRINCIPAL
AMOUNT
--------------
<S> <C> <C> <C>
COMMERCIAL PAPER--2.9%
Ford Motor Credit Corp., 5.38%,
10/1/96....................... $ 775,000 764,345
General Motors Acceptance Corp.,
5.32%, 7/12/96................ 425,000 424,309
5.32%, 11/27/96............... 450,000 440,091
5.33%, 7/11/96................ 305,000 304,548
5.34%, 7/12/96................ 450,000 449,266
5.37%, 7/19/96................ 415,000 413,886
5.53%, 12/12/96............... 460,000 448,412
------------
TOTAL COMMERCIAL PAPER
(Identified cost $3,244,857)...... 3,244,857
------------
DISCOUNT NOTES--13.5%
(Identified cost $14,950,840)
Federal Home Loan Bank Discount
Notes, 5.28%, 7/12/96......... 14,975,000 14,950,840
------------
TOTAL INVESTMENTS
(Identified cost
$114,195,016)(c)................ 103.3% 114,622,111
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS...................... (3.3) (3,658,008)
---- ----------
NET ASSETS......................... 100.0% $110,964,103
---- ----------
---- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED)
</TABLE>
(a) Variable rate security. Interest shown is the current rate.
(b) Front Loaded Interest Reduction Bond.
(c) The aggregate cost for federal income tax purposes is $114,195,016;
aggregate gross unrealized appreciation is $1,669,902 and aggregate gross
unrealized depreciation is $1,242,807, resulting in net unrealized
appreciation of $427,095.
* Percentages of holdings are presented in the portfolio by currency
denomination.
Percentages by country are as follows:
Argentina 2.5%, Australia 2.0%, Brazil 3.0%, Canada 5.0%, Colombia 0.7%,
Czech Republic 1.6%, Denmark 1.6%, Ecuador 0.9%, Germany 0.6%, Greece 0.9%,
Hong Kong 1.8%, Hungary 0.9%, Indonesia 1.5%, Italy 3.0%, Japan 1.7%, Mexico
1.0%, Morocco 1.0%, Netherlands 0.6%, New Zealand 1.3%, Norway 2.1%,
Philippines 1.0%, Poland 1.3%, Portugal 0.7%, South Africa 0.7%, Spain 2.9%,
Thailand 0.8%, Turkey 0.7%, United Kingdom 3.2%, United States 39.4%,
Venezuela 1.8%.
Percentages by industry are as follows:
Aerospace & Defense 0.7%, Automotive 1.7%, Banking 5.4%, Broadcasting &
Media 2.6%, Building & Building Materials 1.6%, Chemicals & Chemical
Manufacturing 1.8%, Communications 0.8%, Computers & Computer Equipment
1.3%, Electronics 1.0%, Energy Services 1.0%, Entertainment 3.4%,
Environmental Services 0.2%, Finance 11.7%, Food & Beverages 2.3%, Holdings
Company 1.1%, Hotels 0.8%, Household Products 0.5%, Industrial & Machinery
0.3%, Manufacturing 1.8%, Medical & Health Care 1.3%, Miscellaneous 0.9%,
Oil & Gas Equipment 1.2%, Paper Manufacturing & Products 0.8%, Retail 2.7%,
Utilities 0.8%, Collateralized Mortgage Obligation 1.2%, Mortgage Backed
Securities 1.2%, U.S. Government Obligations 11.6%, Foreign Government
Obligations 24.5%
Forward Foreign Currency Contracts open at June 30, 1996:
<TABLE>
<CAPTION>
In Unrealized
Contracts Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ------------------- ---------------- ------------ ------------------
<S> <C> <C> <C>
$ 510,000 CNY 4,502,331 3/26/97 $ 17,224
$ 460,000 COP 539,175,200 12/12/96 12,936
$ 450,000 CLP 196,326,000 11/29/96 8,441
AUD 3,439,011 2$,715,000 9/12/96 23,968
CAD 5,370,936 3$,942,965 9/12/96 2,867
$ 139,400 DEM 210,634 9/12/96 (238)
DEM 8,171,751 5$,346,500 9/12/96 (52,409)
$ 1,219,195 DKK 7,146,797 9/12/96 4,780
DKK 17,950,023 3$,038,000 9/12/96 (36,156)
ESP 411,035,539 3$,162,041 9/12/96 (36,612)
GBP 1,910,140 2$,935,357 9/12/96 (29,756)
ITL 4,479,745,500 2$,862,000 9/12/96 (44,569)
$ 50,000 JPY 5,386,250 9/12/96 (217)
JPY 247,398,660 2$,292,049 9/12/96 5,459
$ 293,288 NLG 499,205 9/12/96 997
NLG 1,459,486 8$54,000 9/12/96 (6,377)
NOK 11,424,907 1$,742,000 9/12/96 (20,993)
XEU 1,270,857 1$,569,000 9/12/96 (18,022)
$ 2,319,053 JPY 222,420,361 9/3/96 (265,706)
JPY 222,420,361 2$,364,916 9/3/96 311,569
$ 415,000 CLP 170,797,856 7/22/96 (1,544)
$ 868,585 SKK 26,544,820 7/12/96 (11,388)
$ 326,000 CLP 135,384,540 7/11/96 2,803
$ 611,258 JPY 66,850,222 7/10/96 0
$ 3,258,937 ESP 418,196,616 7/5/96 8,096
$ 112,950 THB 2,865,648 7/5/96 (62)
$ 105,367 ZAR 459,335 7/5/96 642
ESP 331,266,917 2$,581,509 7/5/96 (5,397)
--------------
$ (129,664)
================
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------
<CAPTION>
<S> <C> <C>
LAZARD SMALL CAP PORTFOLIO
COMMON STOCKS--90.5%
AEROSPACE & DEFENSE--1.2%
Alliant Techsystems, Inc. (a)........... 219,900 $ 10,362,788
-------------
AIRLINE--1.1%
USAir Group, Inc. (a)................... 516,400 9,295,200
-------------
APPAREL & TEXTILES--0.4%
Fab Industries, Inc. ................... 8,600 234,350
Garan, Inc. ............................ 80,000 1,360,000
Superior Surgical Manufacturing
Co., Inc. ............................ 100,000 1,187,500
Weyco Group, Inc. ...................... 10,000 395,000
-------------
3,176,850
-------------
AUTOMOTIVE--0.1%
Oshkosh Truck Corp. Class B............. 22,000 310,750
Wynn's International, Inc. ............. 26,250 741,563
-------------
1,052,313
-------------
AUTO PARTS--1.2%
Durakon Industries, Inc. (a)............ 430,000 6,288,750
Republic Automotive Parts, Inc. (a)..... 15,000 221,250
Standard Motor Products, Inc. Class A... 215,000 3,843,125
-------------
10,353,125
-------------
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
BANKING & FINANCIAL SERVICES--3.7%
ALBANK Financial Corp. ................. 202,800 $ 5,348,850
Coast Savings Financial, Inc. (a)....... 310,000 10,152,500
Cullen/Frost Bankers, Inc. ............. 272,000 7,548,000
Hibernia Corp. Class A.................. 899,600 9,783,150
North Fork Bancorp., Inc. .............. 2,900 75,768
-------------
32,908,268
-------------
BROADCASTING--2.0%
Cablevision Systems Corp. Class A (a)... 169,600 7,844,000
Home Shopping Network, Inc. (a)......... 648,900 7,786,800
Katz Media Group, Inc. (a).............. 150,300 2,160,563
-------------
17,791,363
-------------
BUSINESS SERVICES AND SUPPLIES--0.2%
Ennis Business Forms, Inc. ............. 90,000 1,023,750
Grey Advertising, Inc. ................. 4,000 884,000
-------------
1,907,750
-------------
CHEMICALS & PLASTICS--1.5%
Aceto Corp. ............................ 50,000 762,500
MacDermid, Inc. ........................ 19,700 1,369,150
Mississippi Chemical Corp. ............. 478,000 9,560,000
NCH Corp. .............................. 22,000 1,413,500
-------------
13,105,150
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------
<CAPTION>
<S> <C> <C>
LAZARD SMALL CAP PORTFOLIO (CONTINUED)
COMMERCIAL SERVICES--0.8%
AFA Protective Systems, Inc. ........... 15,100 $ 1,698,750
Pittston Brink's Group.................. 183,300 5,338,613
-------------
7,037,363
-------------
COMMUNICATIONS--2.9%
Associated Group, Inc. Class A (a)...... 56,650 1,713,662
Associated Group, Inc. Class B (a)...... 256,650 7,667,419
Cellular Communications of Puerto Rico,
Inc. (a).............................. 230,058 7,476,885
International CableTel, Inc. (a)........ 296,000 8,732,000
-------------
25,589,966
-------------
COMPUTERS & BUSINESS EQUIPMENT--3.6%
Lexmark International Group, Inc. Class
A (a)................................. 545,100 10,970,137
Stratus Computer, Inc. (a).............. 407,300 11,811,700
Wang Laboratories, Inc. (a)............. 476,000 8,984,500
-------------
31,766,337
-------------
CONSTRUCTION MATERIALS--0.1%
Florida Rock Industries, Inc. .......... 3,500 90,563
Puerto Rican Cement Co., Inc. .......... 35,000 1,089,375
-------------
1,179,938
-------------
CONSUMER DURABLES--1.4%
Boston Acoustics, Inc. ................. 40,000 850,000
Briggs & Stratton Corp. ................ 289,300 11,897,463
-------------
12,747,463
-------------
CONTAINERS & PACKAGING--0.8%
American Filtrona Corp. ................ 15,000 453,750
Ball Corp. ............................. 220,700 6,345,125
-------------
6,798,875
-------------
COSMETICS & TOILETRIES--1.3%
Alberto Culver Co. Class A.............. 276,900 11,076,000
-------------
DRUGS & HEALTH CARE--5.8%
FHP International Corp. (a)............. 267,100 7,311,862
Integrated Health Services, Inc. ....... 378,200 8,982,250
Lincare Holdings, Inc. (a).............. 367,000 14,404,750
Magellan Health Services, Inc. (a)...... 577,800 12,422,700
Perrigo Co. (a)......................... 699,000 7,863,750
-------------
50,985,312
-------------
ELECTRICAL EQUIPMENT--5.2%
American Power Conversion Corp. (a)..... 1,184,300 12,139,075
Amphenol Corp. Class A (a).............. 683,800 15,727,400
Anixter International, Inc. (a)......... 667,600 9,930,550
Belden, Inc. ........................... 252,900 7,587,000
-------------
45,384,025
-------------
ELECTRONICS--1.4%
Allen Organ Co. Class B................. 35,000 1,321,250
Lattice Semiconductor Corp. (a)......... 459,800 11,092,675
-------------
12,413,925
-------------
FOOD & BEVERAGE--0.2%
Farmer Brothers Co. .................... 15,000 2,010,000
-------------
HOUSEHOLD APPLIANCES & HOME
FURNISHINGS--1.7%
Ethan Allen Interiors, Inc. (a)......... 298,000 7,375,500
Haverty Furniture Co., Inc. ............ 12,500 128,125
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
National Presto Industries, Inc. ....... 42,000 $ 1,596,000
Sunbeam Corp., Inc. .................... 364,100 5,370,475
Virco Manufacturing Corp. .............. 80,000 770,000
-------------
15,240,100
-------------
INDUSTRIAL & MACHINERY--4.7%
Astec Industries, Inc. (a).............. 18,000 157,500
Brenco, Inc. ........................... 20,000 320,000
Duriron Co., Inc. ...................... 410,100 9,842,400
Manitowoc Co., Inc. .................... 313,000 11,228,875
Measurex Corp. ......................... 250,200 7,318,350
Paul Mueller Co. ....................... 10,000 317,500
Penn Engineering & Manufacturing
Corp. ................................ 12,000 283,500
Penn Engineering & Manufacturing Corp.
(a)................................... 36,000 679,500
United Dominion Industries, Ltd......... 500,000 11,500,000
-------------
41,647,625
-------------
INSURANCE--5.4%
American Bankers Insurance Group,
Inc. ................................. 208,600 9,100,175
Hilb, Rogal & Hamilton Co. ............. 45,500 631,312
NAC Re Corp. ........................... 240,000 8,040,000
Penncorp Financial Group, Inc. ......... 339,300 10,772,775
Reliance Group Holdings, Inc. .......... 1,180,000 8,850,000
Western National Corp. ................. 531,000 9,757,125
-------------
47,151,387
-------------
LEISURE TIME--1.3%
Polaris Industries, Inc. ............... 330,000 11,261,250
-------------
MANUFACTURING--8.1%
Alltrista Corp. (a)..................... 358,400 8,512,000
Amtrol, Inc. ........................... 20,000 390,000
Carlisle Companies, Inc. ............... 186,000 9,881,250
Crane Co. .............................. 271,400 11,127,400
Graco, Inc. ............................ 4,000 81,000
Herman Miller, Inc. .................... 276,700 8,473,937
Mark IV Industries, Inc. ............... 479,985 10,859,661
Robbins & Myers, Inc. .................. 9,500 422,750
Standex International Corp. ............ 3,000 85,500
Tranzonic Co. Class A................... 80,000 990,000
Tranzonic Co. Class B................... 40,000 460,000
TRINOVA Corp. .......................... 380,400 12,695,850
Varlen Corp. ........................... 343,970 7,223,370
-------------
71,202,718
-------------
MEDICAL SUPPLIES--1.2%
Dentsply International, Inc. ........... 240,000 10,200,000
Isomedix, Inc. (a)...................... 10,000 148,750
-------------
10,348,750
-------------
METALS--1.2%
Titanium Metals Corp. (a)............... 400,000 10,350,000
-------------
OIL & GAS--3.1%
Diamond Shamrock, Inc. ................. 200,000 5,775,000
Helmerich & Payne, Inc. ................ 306,500 11,225,562
RPC, Inc. (a)........................... 18,500 212,750
Vintage Petroleum, Inc. ................ 410,500 10,467,750
-------------
27,681,062
-------------
PUBLISHING--3.1%
Banta Corp. ............................ 437,650 11,050,662
Scientific Games Holdings Corp. (a)..... 171,100 4,961,900
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD SMALL CAP PORTFOLIO (CONTINUED)
Value Line, Inc. ....................... 20,000 $ 680,000
World Color Press, Inc. (a)............. 402,000 10,200,750
-------------
26,893,312
-------------
REAL ESTATE--5.3%
Alexander's, Inc. (a)................... 80,000 5,810,000
Avalon Properties, Inc. ................ 238,600 5,189,550
Bay Apartment Communities, Inc. ........ 175,000 4,528,125
Crescent Real Estate Equities, Inc. .... 193,900 7,125,825
FelCor Suite Hotels, Inc. .............. 330,000 10,065,000
Liberty Property Trust.................. 271,500 5,396,062
Reckson Associates Reality Corp. ....... 260,000 8,580,000
-------------
46,694,562
-------------
RESTAURANTS, LODGING & ENTERTAINMENT--2.4%
IHOP Corp. (a).......................... 297,500 8,032,500
Players International, Inc. (a)......... 570,000 5,557,500
Sbarro, Inc. ........................... 301,300 7,570,162
-------------
21,160,162
-------------
RETAIL--4.0%
Fingerhut Cos., Inc. ................... 452,200 7,065,625
Fred Meyer, Inc. (a).................... 388,000 11,397,500
Revco D.S., Inc. (a).................... 261,362 6,240,018
Sotheby's Holdings, Inc. Class A........ 693,200 10,051,400
-------------
34,754,543
-------------
RETAIL TRADE--1.7%
Carson Pirie Scott & Co. (a)............ 431,200 11,534,600
Dress Barn, Inc. (a).................... 120,000 1,260,000
Proffitts, Inc. (a)..................... 48,800 1,732,400
-------------
14,527,000
-------------
SERVICES--0.8%
GTECH Holdings Corp. (a)................ 237,700 7,041,863
-------------
STEEL--2.9%
Huntco, Inc. Class A.................... 308,600 5,709,100
Lukens, Inc. ........................... 356,600 8,513,825
Pitt-Des Moines, Inc. .................. 1,500 63,750
UCAR International, Inc. (a)............ 275,000 11,446,875
-------------
25,733,550
-------------
TECHNOLOGY--0.8%
Intelligent Electronics, Inc. .......... 855,600 7,272,600
Verbex Voice Systems, Inc. (a),(b)...... 103,840 0
Verbex Voice Systems, Inc. (a),(b)...... 76,661 0
-------------
7,272,600
-------------
TELECOMMUNICATION EQUIPMENT--4.1%
Allen Group, Inc. ...................... 541,700 11,781,975
Oak Industries, Inc. (a)................ 455,900 13,506,037
Scientific-Atlanta, Inc. ............... 710,000 11,005,000
-------------
36,293,012
-------------
TEXTILES, SHOES AND APPAREL--0.8%
Warnaco Group, Inc. Class A............. 265,000 6,823,750
-------------
TRANSPORTATION--2.1%
Air Express International Corp. ........ 388,600 10,977,950
Rollins Truck Leasing Co. .............. 685,800 7,115,175
-------------
18,093,125
-------------
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
TRUCKING & FREIGHT FORWARDING--0.9%
Kysor Industrial Corp. Delaware......... 9,000 $ 218,250
Pittston Burlington Group............... 353,700 7,648,763
-------------
7,867,013
-------------
TOTAL COMMON STOCKS
(Identified cost $689,234,533)............ 794,979,395
-------------
PREFERRED STOCKS--0.0%
(Identified cost $1,500,000)
TECHNOLOGY--0.0%
Verbex Voice Systems, Inc. Series F
(conv.) (a),(b)....................... 687,285 0
-------------
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
CORPORATE BONDS--0.6%
(Identified cost $5,589,000)
COMMUNICATIONS--0.6%
International CabelTel, Inc., 7.00%,
6/15/08............................... $ 5,589,000 5,519,138
-------------
CONVERTIBLE BONDS--0.5%
COMMUNICATIONS--0.5%
International CableTel, Inc. 144A,
7.25%, 4/15/05........................ 3,400,000 4,071,500
-------------
RESTAURANTS, LODGING & ENTERTAINMENT--0.0%
Interactive Light Holdings, Inc., 8.00%,
1/25/99 (a),(b)....................... 1,000,000 500,000
-------------
TECHNOLOGY--0.0%
Verbex Voice Systems, Inc., 10.00%,
6/30/96 (a),(b)....................... 100,000 0
-------------
TOTAL CONVERTIBLE BONDS
(Identified cost $4,644,040).............. 4,571,500
-------------
DISCOUNT NOTES--8.1%
Federal Home Loan Bank Discount Notes,
5.24%, 7/1/96......................... 20,000,000 20,000,000
5.28%, 7/12/96........................ 51,315,000 51,232,212
-------------
TOTAL DISCOUNT NOTES
(Identified cost $71,232,212)............. 71,232,212
-------------
TOTAL INVESTMENTS
(Identified cost $772,199,785)(c)......... 99.7% 876,302,245
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES............................... 0.3 2,682,354
---- ----------
NET ASSETS................................. 100.0% $ 878,984,599
---- ----------
---- ----------
</TABLE>
(a) Non-income producing security.
(b) Private placement (note 6).
(c) The aggregate cost for federal income tax purposes is $772,199,785;
aggregate gross unrealized appreciation is $127,530,438 and aggregate gross
unrealized depreciation is $23,427,978, resulting in net unrealized
appreciation of $104,102,460.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
COMMON STOCKS* --82.7%
ARGENTINA--3.1%
Capex SA, 144A (a),(c)................. 218,800 $ 3,610,200
-------------
AUSTRALIA--3.6%
Bibury Ltd. (a),(d).................... 472,100 0
Energy Equity Corp. Ltd. (a)........... 1,506,000 840,283
Pacific Mutual Ltd..................... 991,200 1,822,718
Pasminco Ltd........................... 1,084,500 1,525,544
-------------
TOTAL AUSTRALIA........................ 4,188,545
-------------
BELGIUM--3.2%
Audiofina.............................. 46,500 2,228,327
Quick Restaurants SA................... 14,400 1,426,130
-------------
TOTAL BELGIUM.......................... 3,654,457
-------------
CANADA--0.9%
Maple Leaf Foods, Inc. ................ 202,200 1,036,695
-------------
DENMARK--2.3%
Spar Nord Holding...................... 51,000 1,488,606
Sparekassen Bikuben Girobank........... 36,200 1,235,811
-------------
TOTAL DENMARK.......................... 2,724,417
-------------
FINLAND--5.2%
Finnair OY............................. 159,700 1,096,481
Huhtamaki Group........................ 65,200 2,181,967
Sampo Insurance Company Ltd. .......... 46,500 2,700,687
-------------
TOTAL FINLAND.......................... 5,979,135
-------------
FRANCE--3.7%
Axime (Ex Segin) (a)................... 9,000 1,259,818
Klepierre.............................. 14,600 1,788,242
Societe des Immeubles de France........ 19,300 1,245,742
Societe des Immuebles de France (a).... 315 20,332
-------------
TOTAL FRANCE........................... 4,314,134
-------------
GERMANY--2.1%
Cewe Color Holding AG.................. 3,600 1,314,041
Wuerttembergische Metallwarenfabrik
AG................................... 5,700 1,162,118
-------------
TOTAL GERMANY.......................... 2,476,159
-------------
HONG KONG--2.3%
China Apollo Holdings Ltd. (a)......... 4,041,000 522,039
Peregrine Investment................... 1,499,000 2,159,189
-------------
TOTAL HONG KONG........................ 2,681,228
-------------
IRELAND--2.6%
Fitzwilton PLC......................... 2,289,400 2,192,912
Unidare PLC (a)........................ 241,600 875,530
-------------
TOTAL IRELAND.......................... 3,068,442
-------------
ITALY--3.5%
Arnoldo Mondadori Editore SPA.......... 245,300 1,858,273
Editoriale L' Espresso SPA (a)......... 429,800 1,199,931
Mediolanum SPA (a)..................... 100,000 995,918
-------------
TOTAL ITALY............................ 4,054,122
-------------
JAPAN--8.1%
Aderans Company Ltd. .................. 90,000 2,402,963
Cowboy Company Ltd. ................... 131,000 1,772,779
Dowa Fire & Marine Insurance Co. ...... 190,000 1,038,906
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
FCC Company Ltd. ...................... 23,000 $ 855,941
Kanamoto Company Ltd. ................. 70,000 1,164,907
Nisshin Fire & Marine Insurance Co. ... 217,000 1,071,458
Zenitaka Corp. (a)..................... 146,000 1,065,313
-------------
TOTAL JAPAN............................ 9,372,267
-------------
NEW ZEALAND--6.2%
Fisher & Paykel Industries Ltd. ....... 575,516 1,853,054
Tranz Rail Holdings Ltd. (a)........... 82,600 1,146,075
Warehouse Group Ltd. .................. 1,140,800 2,040,647
Wrightson Ltd. ........................ 2,873,200 2,115,118
-------------
TOTAL NEW ZEALAND...................... 7,154,894
-------------
NORWAY--3.3%
Aker AS Class B........................ 94,700 1,692,870
Fokus Bank AS (a)...................... 390,800 2,131,932
-------------
TOTAL NORWAY........................... 3,824,802
-------------
PAKISTAN--0.0%
Lever Brothers Ltd. ................... 540 12,341
Packages............................... 750 2,078
-------------
TOTAL PAKISTAN......................... 14,419
-------------
SOUTH KOREA--1.9%
Chosun Brewery (a)..................... 32,000 1,020,592
Shinhan Bank........................... 50,900 1,142,238
-------------
TOTAL SOUTH KOREA...................... 2,162,830
-------------
SPAIN--3.5%
Acerinox SA............................ 10,400 1,084,645
Corporacion Financiera Reunida
SA (a)............................... 1,070,400 2,993,658
-------------
TOTAL SPAIN............................ 4,078,303
-------------
SWEDEN--4.8%
Althin Medical AB...................... 55,000 1,287,745
Getinge Industries AB.................. 66,198 1,249,944
TV 4 AB Series A....................... 172,900 3,055,739
-------------
TOTAL SWEDEN........................... 5,593,428
-------------
SWITZERLAND--6.2%
Attisholz Holding AG (a)............... 2,600 1,218,685
Liechtenstein Global Trust............. 5,000 2,439,610
Logitech International SA (a).......... 14,300 1,795,793
Swisslog Holding AG.................... 5,690 1,683,970
-------------
TOTAL SWITZERLAND...................... 7,138,058
-------------
TAIWAN--3.3%
ASE Test Ltd. (a)...................... 20,000 1,046,250
Yageo Corp. (a),(c).................... 371,000 2,830,730
-------------
TOTAL TAIWAN........................... 3,876,980
-------------
UNITED KINGDOM--12.9%
Anglian Group PLC...................... 491,350 1,488,014
Bell Cablemedia PLC (a),(b)............ 75,400 1,262,950
Berisford PLC.......................... 740,000 2,057,152
Greycoat PLC........................... 1,018,175 2,221,674
London Clubs International PLC......... 121,300 1,654,824
McDonnell Information Systems PLC...... 1,347,000 1,527,116
School PLC............................. 736,400 2,962,069
Takare PLC............................. 869,000 1,756,282
-------------
TOTAL UNITED KINGDOM................... 14,930,081
-------------
TOTAL COMMON STOCK
(Identified cost $95,356,097)............ 95,933,596
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD INTERNATIONAL SMALL CAP
PORTFOLIO (CONTINUED)
PREFERRED STOCKS* --8.2%
AUSTRIA--1.8%
Bau Holdings AG........................ 32,000 $ 2,031,436
-------------
GERMANY--4.5%
Hornbach Holding AG.................... 34,300 2,953,146
Moebel Walther AG...................... 50,770 2,305,933
-------------
TOTAL GERMANY.......................... 5,259,079
-------------
UNITED KINGDOM--1.9%
Signet Group PLC (a),(b)............... 23 2,208,000
-------------
TOTAL PREFERRED STOCKS
(Identified cost $7,341,607)............. 9,498,515
-------------
WARRANTS--0.0%
(Identified cost $0)
HONG KONG--0.0%
Peregrine Investment Holdings
Ltd. (a)............................. 149,900 18,590
-------------
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
CONVERTIBLE BONDS* --3.4%
PHILIPPINES--1.6%
Bacnotan Consolidated Industries 144A,
5.50%, 6/21/04....................... $ 2,000,000 1,880,000
-------------
UNITED STATES--1.8%
International CableTel Inc. 144A,
7.25%, 4/15/05....................... 1,700,000 2,035,750
-------------
TOTAL CONVERTIBLE BONDS
(Identified cost $3,700,000)............. 3,915,750
-------------
DISCOUNT NOTES--2.8%
(Identified cost $3,244,757)
Federal Home Loan Bank Discount Notes,
5.28%, 7/12/96....................... 3,250,000 3,244,757
-------------
TOTAL INVESTMENTS
(Identified cost $109,642,461)(e)........ 97.1% 112,611,208
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES.............................. 2.9 3,383,846
---- ----------
NET ASSETS................................ 100.0% $ 115,995,054
---- ----------
---- ----------
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) Global Depository Receipts.
(d) Bankrupt security valued at zero.
(e) The aggregate cost for federal income tax purposes is $109,642,461;
aggregate gross unrealized appreciation is $10,007,606 and aggregate gross
unrealized depreciation is $7,038,859, resulting in net unrealized
appreciation of $2,968,747.
* Percentages of common stocks, preferred stocks, and convertible bonds are
presented in the portfolio by currency denomination.
Percentages by industry are as follows:
Agriculture 1.8%, Auto Parts 0.7%, Banks 1.0%, Brewery 0.9%, Broadcasting
5.6%, Building & Construction 0.9%, Computers & Business Equipment 3.9%,
Construction Materials 4.4%, Cosmetics & Toiletries 2.6%, Electrical
Equipment 0.8%, Electronics 4.9%, Engineering & Construction 1.8%,
Entertainment 1.4%, Financial Services 11.2%, Food & Beverage 5.1%, Health
Care 1.5%, Hotel & Restaurant 1.2%, Household Products 1.0%, Industrial &
Machinery 2.6%, Insurance 5.0%, Leisure Time 1.1%, Medical Supplies 1.1%,
Metals 2.2%, Miscellaneous 8.6%, Oil & Gas Exploration 0.7%, Paper Products
1.1%, Real Estate 3.0%, Retailing 8.3%, Retail Trade 2.0%, Telecommunication
1.8%, Telephone 1.1%, Transportation & Freight Services 1.9%, Venture
Capital 3.1%.
Forward Foreign Currency Contracts open at June 30, 1996:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ----------------- ----------------- -------- --------------
<S> <C> <C> <C>
BEL 191,296,000 $ 6,100,000 9/13/96 $ (40,516)
DEM 10,451,210 $ 6,860,000 9/13/96 (45,298)
FIM 28,641,330 $ 6,100,000 9/13/96 (108,747)
FRF 24,170,244 $ 4,676,000 9/13/96 (39,694)
$ 52,328 NZD 76,114 7/5/96 37
$ 1,162,283 FRF 5,971,812 7/3/96 (1,266)
$ 2,336,182 JPY 255,087,674 7/2/96 (3,738)
$ 711,014 NZD 1,040,254 7/2/96 4,675
JPY 179,266,978 $ 1,637,739 7/1/96 (1,422)
--------------
$ (235,969)
================
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES
------------
<S> <C> <C>
LAZARD EMERGING MARKETS PORTFOLIO
COMMON STOCKS* --78.8%
ARGENTINA--4.3%
Capex SA.............................. 224,900 $ 1,822,419
Metrogas SA Class B (b)............... 103,400 1,085,700
Quilmes Industrial Quinsasa (b)....... 61,900 634,475
YPF Sociedad Anonima Class D (b)...... 46,300 1,041,750
-------------
TOTAL ARGENTINA....................... 4,584,344
-------------
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
BRAZIL--1.3%
Light Participacoes SA (a)............ 1,200,000 $ 193,850
Pao de Acucar 144A (a),(c)............ 73,800 1,199,250
-------------
TOTAL BRAZIL.......................... 1,393,100
-------------
CHILE--5.5%
AFP Provida SA (b).................... 59,300 1,445,437
Banco BHIF (a),(b).................... 97,400 1,960,175
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD EMERGING MARKETS PORTFOLIO (CONTINUED)
Chilectra SA (a),(b).................. 21,500 $ 1,182,992
Compania De Telecomunicaciones de
Chile (b)........................... 13,500 1,324,688
-------------
TOTAL CHILE........................... 5,913,292
-------------
COLOMBIA--1.1%
Banco De Bogota....................... 226,401 1,198,534
-------------
CZECH REPUBLIC--1.3%
Komercni Banka AS 144A (a),(c)........ 51,700 1,395,900
-------------
ECUADOR--1.2%
La Cemento Nacional CA
144A (a),(c)........................ 7,300 1,292,100
-------------
GREECE--2.5%
Ergo Bank SA.......................... 19,100 1,052,156
Papastratos Cigarette SA (a).......... 24,300 692,034
Titan Cement Co. SA................... 19,300 954,047
-------------
TOTAL GREECE.......................... 2,698,237
-------------
HONG KONG--5.9%
Chen Hsong Holdings................... 2,936,000 1,574,049
Guangshen Railway Co., Ltd. ADS
(a),(b)............................. 78,800 1,507,050
Peregrine Investment Holdings, Ltd.... 846,000 1,218,595
Tingyi (Cayman Island) Holdings Co.
(a)................................. 4,600,000 1,262,790
Yue Yuen Industrial Holdings.......... 2,862,000 813,404
-------------
TOTAL HONG KONG....................... 6,375,888
-------------
HUNGARY--3.4%
Cofinec (a)........................... 16,400 783,100
Egis Gyogyszergyar.................... 21,400 1,279,282
MOL Magyar Olaj-es Gazipari 144A
(a),(c)............................. 105,700 1,167,985
Zagrebacka Banka (a),(c).............. 36,200 412,680
-------------
TOTAL HUNGARY......................... 3,643,047
-------------
INDIA--1.4%
Ashok Leyland Ltd. 144A (a),(c)....... 58,600 820,400
Hindalco Industries Ltd. 144A
(a),(c)............................. 19,200 729,600
-------------
TOTAL INDIA........................... 1,550,000
-------------
INDONESIA--11.5%
Astra International................... 1,141,500 1,655,236
Bank Bali............................. 591,750 1,271,214
Citra Marga Nusaphala Persada......... 1,014,000 1,546,595
Kawasan Industries Jababeka........... 707,250 1,033,147
Matahari Putra Prima.................. 380,000 693,878
Ramayana Lestari (a).................. 1,215 3,883,824
Steady Safe........................... 927,000 1,194,844
Trias Sentosa......................... 558,500 1,091,805
-------------
TOTAL INDONESIA....................... 12,370,543
-------------
MALAYSIA--5.4%
Edaran Otomobil Nasional Berhad....... 160,000 1,532,973
IOI Properties Berhad................. 343,000 1,079,395
Rashid Hussain Berhad................. 389,000 1,426,879
Sistem Televisyen Malaysia Berhad
(a)................................. 238,000 486,590
Sistem Televisyen Malaysia Berhad A
Shares (a).......................... 140,000 286,230
Southern Bank Berhad.................. 417,000 1,019,723
-------------
TOTAL MALAYSIA........................ 5,831,790
-------------
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
MEXICO--7.5%
Cemex SA de CV........................ 435,900 $ 1,563,148
Corporacion Geo SA de CV 144A
(a),(b)............................. 75,000 1,312,500
Elamex SA de CV (a)................... 111,100 1,111,000
Fomento Economico Mexicano SA de CV
Series B............................ 551,000 1,583,626
Grupo Embotelladoras de Mexico SA de
CV (a),(b).......................... 139,500 1,482,187
Pan American Beverages, Inc. Class A
(b)................................. 21,700 971,075
-------------
TOTAL MEXICO.......................... 8,023,536
-------------
MOROCCO--1.3%
Banque Marocaine de Commerce 144A
(a),(c)............................. 100,000 1,400,000
-------------
PAKISTAN--0.9%
Hub Power Ltd. 144A (a),(c)........... 38,000 921,500
-------------
PERU--1.2%
Cerveceria Backus & Johnston.......... 1,014,041 1,282,598
-------------
PHILIPPINES--3.3%
Alaska Milk Corp. (a)................. 8,624,000 1,053,313
Benpres Holdings Corp. 144A (a),(c)... 134,600 1,094,298
Fil-Estate Land Inc................... 1,080,000 1,380,916
-------------
TOTAL PHILIPPINES..................... 3,528,527
-------------
PORTUGAL--3.3%
Banco Totta e Acores.................. 61,900 1,211,500
Investec-Consultadoria Internacional
SA (a).............................. 37,200 1,236,038
Portugal Telecom SA (a),(b)........... 40,400 1,060,500
-------------
TOTAL PORTUGAL........................ 3,508,038
-------------
RUSSIA--0.8%
First NIS Regional Fund (a)........... 88,000 880,000
-------------
SOUTH AFRICA--6.9%
Amalgamated Banks of South Africa..... 275,000 1,523,194
Barlow Ltd. .......................... 148,400 1,549,758
JD Group Ltd. ........................ 295,354 1,601,851
Kersaf Investments Ltd. .............. 100,800 1,032,892
Malbak Ltd. .......................... 324,390 1,609,597
Malbak Ltd. 144A (c).................. 8,610 40,897
-------------
TOTAL SOUTH AFRICA.................... 7,358,189
-------------
SOUTH KOREA--6.5%
Chosun Brewery (a).................... 29,569 943,059
Korea Chemical Company, Ltd. ......... 3,760 406,383
Korea Mobile Telecom Corp. ........... 1,106 1,352,505
New Korea Trust (a)................... 50,000 819,000
Pohang Iron & Steel Co., Ltd. ........ 12,000 978,846
Samsung Electronics Ltd. 144A
(a),(d)............................. 13,900 333,600
Samsung Electronics Ltd. 144A
(a),(e)............................. 4,189 75,402
Samsung Electronics Ltd. (Bonus
Shares) 144A (a),(c)................ 62 2,418
Samsung Electronics Ltd. 144A
(a),(f)............................. 204 10,404
Seoul City Gas Co. ................... 16,400 1,283,777
Shinhan Bank.......................... 35,800 803,382
-------------
TOTAL SOUTH KOREA..................... 7,008,776
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD EMERGING MARKETS PORTFOLIO (CONTINUED)
TAIWAN--1.6%
Siliconware Precision Industries Inc.
144A (a),(c)........................ 58,720 $ 462,420
Yageo Corp. (a),(c)................... 167,300 1,276,499
-------------
TOTAL TAIWAN.......................... 1,738,919
-------------
VENEZUELA--0.7%
Venezolana de Cementos................ 392,000 747,852
-------------
TOTAL COMMON STOCKS
(Identified cost $76,315,521)........... 84,644,710
-------------
PREFERRED STOCKS* --7.5%
ARGENTINA--0.5%
Quilmes Industrial Quinsasa (a),(b)... 55,650 570,412
-------------
BRAZIL--6.0%
Banco Itau SA......................... 3,300,000 1,340,736
Cemig Cia Energetica de Minas Gerais.. 47,908,000 1,273,793
Companhia Cervejaria Brahma (a)....... 2,814,400 1,678,775
Companhia Cimento Portla Itau......... 4,100,000 1,159,530
Dixie Toga SA......................... 1,004,500 970,290
-------------
TOTAL BRAZIL.......................... 6,423,124
-------------
COLOMBIA--1.0%
Gran Cadena de Almacenes Class B 144A
(b)................................. 77,400 1,025,550
-------------
TOTAL PREFERRED STOCKS
(Identified cost $7,504,483)............ 8,019,086
-------------
WARRANTS--0.0%
HONG KONG--0.0%
Peregrine Investment Holdings Ltd.
(a)................................. 65,900 8,258
-------------
INDONESIA--0.0%
Bank Bali (a)......................... 29,000 15,575
-------------
TOTAL WARRANTS
(Identified cost $0).................... 23,833
-------------
RIGHTS--0.0%
(Identified cost $0)
MALAYSIA--0.0%
South Bank Berhad..................... 63,750 0
-------------
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
BONDS* --1.7%
(Identified cost $1,770,750)
SOUTH AFRICA--1.7%
Republic of South Africa, 11.50%,
5/30/00............................. $ 8,725,000 1,852,374
-------------
CONVERTIBLE BONDS* --1.2%
PHILIPPINES--0.8%
Bacnotan Consolidated Industries,
5.50%, 6/21/04...................... 950,000 893,000
-------------
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
TAIWAN--0.4%
United Micro Electronics (a), 1.25%,
6/8/04.............................. $ 285,000 $ 363,375
-------------
TOTAL CONVERTIBLE BONDS
(Identified cost $1,406,575)............ 1,256,375
-------------
DISCOUNT NOTES--16.1%
(Identified cost $17,327,001)
Federal Home Loan Bank Discount Notes,
5.28%, 7/12/96...................... 17,355,000 17,327,001
-------------
TOTAL INVESTMENTS
(Identified cost $104,324,330) (g)...... 105.3% 113,123,379
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS.................................. (5.3) (5,695,242)
---- ----------
NET ASSETS............................... 100.0% $ 107,428,137
---- ----------
---- ----------
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) Global Depository Receipts ("GDR").
(d) GDR. One GDR represents 1/2 of a non-voting share.
(e) GDR. One GDR represents 1/2 of a non-voting preferred share.
(f) GDR. One GDR represents 1/2 of a common share.
(g) The aggregate cost for federal income tax purposes is $104,324,330;
aggregate gross unrealized appreciation is $11,178,633 and aggregate gross
unrealized depreciation is $2,379,584, resulting in net unrealized
appreciation of $8,799,049.
* Percentages of stocks and bonds are presented in the portfolio by currency
denomination.
Percentage by industry are as follows:
Apparel & Textiles 0.8%, Automotive 1.4%, Banks 10.0%, Brewery 3.0%,
Broadcasting 0.8%, Business Services & Supplies 1.1%, Chemicals & Plastics
1.4%, Commercial Services 1.4%, Communications 5.2%, Conglomerates 3.0%,
Construction Materials 5.5%, Domestic Oil 1.0%, Drugs & Health Care 1.2%,
Electronics 2.4%, Financial Services 8.4%, Food & Beverages 7.1%, Holding
Company--Diversified 2.6%, Homebuilders 1.2%, Industrial & Machinery 3.5%,
International Oil 2.1%, Leisure Time 1.0%, Metals 0.7%, Miscellaneous 4.9%,
Real Estate 2.3%, Registered Investment Company 0.8%, Retailing 7.7%, Steel
0.9%, Tobacco 0.6%, Transportation 1.4%, Trusts 0.8%, Utilities 3.3%,
Foreign Government Obligations 1.7%.
Forward Foreign Currency Contracts open at June 30, 1996:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ----------- ----------------- -------- --------------
<S> <C> <C> <C>
$3,890,000 IDR 9,039,600,000 7/17/96 $ (6,176)
$ 514,442 IDR 1,195,563,578 7/3/96 (773)
$ 52,590 IDR 122,323,639 7/2/96 (34)
$ 84,322 MYR 210,637 7/2/96 118
$3,890,000 IDR 9,039,600,000 7/1/96 (6,176)
$ 141,246 MYR 352,196 7/1/96 (56)
$2,008,862 ZAR 8,658,196 7/1/96 (10,664)
--------------
$(23,761)
================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD GLOBAL EQUITY PORTFOLIO
COMMON STOCKS--95.8%
AUSTRALIA--1.1%
Westpac Bank Corp. .......................... 12,100 $ 53,535
-----------
FINLAND--0.9%
Kymmene OY (a)............................... 2,212 45,896
-----------
FRANCE--7.6%
Accor SA..................................... 340 47,593
Alcatel Alsthom (Cie Gen El)................. 750 65,470
Cie de Saint Gobain.......................... 330 44,204
Generale des Eaux............................ 630 70,427
Rhone-Poulenc A.............................. 48 1,263
Rhone-Poulenc SA............................. 2,800 73,489
Societe Nationale Elf Aquitaine.............. 1,100 80,967
-----------
TOTAL FRANCE................................. 383,413
-----------
GERMANY--8.0%
Daimler Benz AG (a).......................... 180 96,422
Hoechst AG................................... 2,500 84,841
Mannesmann AG................................ 235 81,296
Siemens AG................................... 1,350 72,183
Veba AG...................................... 1,320 70,206
-----------
TOTAL GERMANY................................ 404,948
-----------
HONG KONG--1.5%
HSBC Holdings, Ltd. ......................... 4,863 73,503
-----------
JAPAN--17.4%
DDI Corp. ................................... 8 69,931
Honda Motor Co. ............................. 3,000 77,904
Matsushita Electric Industrial Co. .......... 4,000 74,613
Mitsubishi Heavy Ind. ....................... 6,000 52,284
Mitsui Marine & Fire......................... 3,000 23,892
NKK Corp. (a)................................ 19,000 57,678
Omron Corp. ................................. 2,000 42,610
Promise Company Ltd. ........................ 1,000 49,376
Ricoh Company, Ltd. ......................... 7,000 74,247
Rohm Company, Ltd. .......................... 1,000 66,200
Sekisui Chemical Co. ........................ 4,000 49,010
Sony Corp. .................................. 1,300 85,704
Sumitomo Trust & Banking..................... 6,000 82,293
Toyota Motor Corp. .......................... 3,000 75,161
-----------
TOTAL JAPAN.................................. 880,903
-----------
NETHERLANDS--4.1%
Heineken NV.................................. 330 73,798
ING Groep NV................................. 2,050 61,181
Royal Dutch Petroleum Co. (b)................ 480 73,800
-----------
TOTAL NETHERLANDS............................ 208,779
-----------
SPAIN--0.9%
ENDESA....................................... 740 46,190
-----------
SWEDEN--2.0%
Astra AB Series B............................ 1,180 51,513
Nackebro Fastighets AB (a)................... 150 1,858
Svenska Handelsbanken Series A............... 2,400 50,211
-----------
TOTAL SWEDEN................................. 103,582
-----------
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
SWITZERLAND--3.5%
Baloise Holdings Ltd. ....................... 21 $ 45,689
Ciba Geigy AG................................ 60 73,188
Nestle SA.................................... 50 57,151
-----------
TOTAL SWITZERLAND............................ 176,028
-----------
UNITED KINGDOM--11.2%
Allied Domecq PLC............................ 6,900 48,543
British Aerospace PLC........................ 4,850 73,552
Cadbury Schweppes PLC........................ 8,951 70,757
General Electric Co. PLC..................... 8,600 46,279
Lloyds Abbey Life PLC........................ 7,700 60,749
Mirror Group PLC............................. 16,200 51,199
National Power P/P Ord. PLC.................. 10,700 63,811
Redland PLC.................................. 5,500 33,996
Sears PLC.................................... 33,300 51,199
Thorn EMI PLC................................ 870 24,240
Unilever PLC................................. 2,180 43,336
-----------
TOTAL UNITED KINGDOM......................... 567,661
-----------
UNITED STATES--37.6%
Aetna Life & Casualty Co. ................... 1,000 71,500
Allied Signal, Inc. ......................... 1,100 62,838
Amoco Corp. ................................. 990 71,650
AMR Corp. (a)................................ 500 45,500
Archer Daniels Midland Co. .................. 2,750 52,594
AT&T Corp. .................................. 1,960 121,520
BankAmerica Corp. ........................... 930 70,447
Champion International Corp. ................ 980 40,915
Chase Manhattan Corp. ....................... 1,550 109,469
Columbia/HCA Healthcare Corp. ............... 980 52,308
Deere & Co. ................................. 1,200 48,000
Digital Equipment Corp. (a).................. 1,730 77,850
Du Pont (E.I.) De Nemours & Co. ............. 1,060 83,872
General Electric Co. ........................ 900 77,850
International Business Machines Corp. ....... 820 81,180
ITT Industries, Inc. ........................ 1,780 44,723
Kimberly-Clark Corp. ........................ 980 75,705
Lockheed Martin Corp. ....................... 1,400 117,600
Mobil Corp. ................................. 900 100,912
Philip Morris Companies, Inc. ............... 1,100 114,400
Sears Roebuck & Co. ......................... 1,620 78,772
Travelers Group, Inc. ....................... 1,650 75,281
U S West, Inc. (a)........................... 2,130 38,873
UST, Inc. ................................... 1,600 54,800
Viacom, Inc. Class B (a)..................... 1,270 49,371
Xerox Corp. ................................. 1,590 85,065
-----------
TOTAL UNITED STATES.......................... 1,902,995
-----------
TOTAL COMMON STOCKS
(Identified cost $4,652,678)................... 4,847,433
-----------
PREFERRED STOCKS--1.0%
(Identified cost $51,492)
ITALY--1.0%
Fiat SPA..................................... 27,000 47,432
-----------
RIGHTS--0.0%
(Identified cost $0)
GERMANY--0.0%
Daimler Benz AG (a).......................... 80 11
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD GLOBAL EQUITY PORTFOLIO (CONTINUED)
DISCOUNT NOTES--3.9%
(Identified cost $199,677)
Federal Home Loan Bank Discount Notes, 5.28%,
7/12/96.................................... $ 200,000 $ 199,678
-----------
TOTAL INVESTMENTS
(Identified cost $4,903,847)(c)................ 100.7% 5,094,554
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS......................................... (0.7) (36,103)
---- --------
NET ASSETS...................................... 100.0% $ 5,058,451
---- --------
---- --------
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) The aggregate cost for federal income tax purposes is $4,903,847; aggregate
gross unrealized appreciation is $272,706 and aggregate gross unrealized
depreciation is $81,999, resulting in net unrealized appreciation of
$190,707.
* Percentages of common and preferred stocks are presented in the portfolio by
country.
Percentages by industry are as follows:
Aerospace & Defense 5.0%, Agricultural Machinery 0.9%, Airline 0.9%,
Automotive 5.9%, Banks 6.5%, Broadcasting 1.0%, Business Services & Supplies
1.4%, Chemicals & Plastics 7.3%, Computer & Business Equipment 6.3%,
Conglomerates 0.9%, Construction Materials 0.7%, Containers & Glass 0.9%,
Drugs & Health Care 2.1%, Electrical Equipment 6.0%, Electronics 1.3%,
Energy 4.9%, Financial Services 5.9%, Food & Beverages 6.0%, Forest Products
& Paper 0.9%, Gas Exploration 1.6%, Household Appliances & Home Furnishings
3.6%, Household Products 0.9%, Industrial & Machinery 2.6%, Insurance 4.0%,
Leisure Time 0.9%, Newspapers 1.0%, Paper Products 2.3%, Retail Trade 2.6%,
Steel 1.1%, Telephone 4.6%, Tobacco 3.3%, Utilities 3.5%.
Forward Foreign Currency Contracts open at June 30, 1996:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ---------- -------------- -------- --------------
<S> <C> <C> <C>
$ 69,561 FRF 358,563 7/31/96 $150
$ 19,670 GBP 12,759 7/2/96 116
---
$266
---
---
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD BANTAM VALUE PORTFOLIO
COMMON STOCKS--96.3%
AEROSPACE & DEFENSE--3.0%
AAR Corp.................................... 12,500 $ 254,688
Power Control Technologies, Inc. (a)........ 33,400 304,775
------------
559,463
------------
AIRLINE--2.0%
World Airways, Inc. (a)..................... 53,700 375,900
------------
AUTO PARTS--3.6%
APS Holding Corp. (a)....................... 18,400 404,800
Keystone Automotive Industries, Inc. (a).... 25,000 259,375
------------
664,175
------------
CHEMICALS & PLASTICS--2.4%
Mississippi Chemical Corp................... 21,900 438,000
------------
COMPUTER SOFTWARE--2.3%
BancTec, Inc. (a)........................... 21,100 427,275
------------
CONSUMER GOODS--4.7%
Fedders Corp................................ 74,500 437,688
Toro Co..................................... 13,000 430,625
------------
868,313
------------
CONTAINERS & GLASS--1.9%
United States Can Corp. (a)................. 21,400 347,750
------------
DRUGS & HEALTH CARE--2.3%
Integrated Health Services, Inc............. 18,000 427,500
------------
ELECTRICAL EQUIPMENT--4.5%
Berg Electronics Corp. (a).................. 17,800 422,750
Esterline Technologies Corp. (a)............ 16,600 415,000
------------
837,750
------------
FINANCIAL SERVICES--10.6%
ALBANK Financial Corp....................... 8,400 221,550
Bay View Capital Corp....................... 12,800 435,200
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
Coast Savings Financial, Inc. (a)........... 13,500 $ 442,125
National Auto Credit, Inc. (a).............. 39,350 447,606
Trans Financial, Inc........................ 24,000 420,000
------------
1,966,481
------------
HOTELS & RESTAURANTS--3.2%
Bally's Grand, Inc. (a)..................... 5,000 212,500
Davco Restaurants, Inc. (a)................. 43,000 376,250
------------
588,750
------------
INDUSTRIAL & MACHINERY--9.8%
Applied Power, Inc.......................... 16,900 473,200
Gardner Denver Machinery, Inc. (a).......... 16,500 435,187
Graco, Inc. ................................ 22,500 455,625
Scotsman Industries, Inc.................... 22,000 442,750
------------
1,806,762
------------
INSURANCE--4.8%
Delphi Financial Group, Inc. Class A (a).... 16,400 442,800
MMI Cos., Inc............................... 14,700 453,862
------------
896,662
------------
MANUFACTURING--6.7%
ABC Rail Products Corp. (a)................. 20,500 443,312
Regal-Beloit Corp........................... 22,900 452,275
Varlen Corp................................. 16,500 346,500
------------
1,242,087
------------
MEDICAL SUPPLIES--4.0%
SpaceLabs Medical, Inc. (a)................. 14,000 325,500
Sunrise Medical, Inc. (a)................... 21,100 406,175
------------
731,675
------------
PETROLEUM EQUIPMENT & SERVICES--2.3%
Coflexip SA (a), (b)........................ 24,500 425,688
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD BANTAM VALUE PORTFOLIO (CONTINUED)
PUBLISHING--5.0%
Mecklermedia Corp. (a)...................... 25,000 $ 506,250
Scientific Games Holdings Corp. (a)......... 14,300 414,700
------------
920,950
------------
REAL ESTATE--1.3%
JDN Realty Corp............................. 11,000 246,125
------------
RETAIL--2.4%
Big B, Inc. ................................ 47,200 448,400
------------
STEEL--4.5%
Schnitzer Steel Industries, Inc. Class A.... 17,200 460,100
The Carbide/Graphite Group, Inc. (a)........ 20,000 375,000
------------
835,100
------------
TELECOMMUNICATION EQUIPMENT--4.1%
Allen Group, Inc. .......................... 14,400 313,200
Elamex SA de C.V. (a)....................... 45,200 452,000
------------
765,200
------------
TOYS & AMUSEMENTS--2.4%
Toy Biz, Inc. (a)........................... 21,800 441,450
------------
TRANSPORTATION--5.9%
Genesee & Wyoming Inc. Class A (a).......... 30,000 615,000
RailTex, Inc. (a)........................... 18,600 478,950
------------
1,093,950
------------
TRUCKING & FREIGHT FORWARDING--2.6%
Pittston Burlington Group................... 22,300 482,238
------------
TOTAL COMMON STOCKS
(Identified cost $16,926,068)................. 17,837,644
------------
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
DISCOUNT NOTES--3.7%
(Identified cost $678,903)
Federal Home Loan Bank Discount Notes,
5.28%, 7/12/96............................ $ 680,000 $ 678,903
------------
TOTAL INVESTMENTS
(Identified cost $17,604,971)(c).............. 100.0% 18,516,547
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS........................................ 0.0 (2,132)
---- ---------
NET ASSETS..................................... 100.0% $ 18,514,415
---- ---------
---- ---------
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) The aggregate cost for federal income tax purposes is $17,604,971; aggregate
gross unrealized appreciation is $1,190,801 and aggregate gross unrealized
depreciation is $279,225, resulting in net unrealized appreciation of
$911,576.
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD
LAZARD INTERNATIONAL INTERNATIONAL
EQUITY EQUITY FIXED-INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value*..................... $ 249,564,315 $1,559,423,679 $ 56,552,556
Cash..................................................... 20,636 18,547,320 --
Net foreign currency contracts (note 2).................. -- -- 32,147
Receivables for:
Investments sold....................................... -- 5,675,928 7,890,584
Dividends and interest................................. 399,320 10,480,038 1,372,035
Capital stock sold..................................... 203,197 1,986,343 1,088,260
Due from Manager (note 3)................................ -- -- --
Deferred organizational expenses (note 2)................ -- 4,531 4,962
------------- -------------- ------------
Total assets............................................. 250,187,468 1,596,117,839 66,940,544
------------- -------------- ------------
LIABILITIES
Payables for:
Investments purchased.................................. -- 17,199,931 8,817,482
Capital stock repurchased.............................. 44,100 1,207,486 124,885
Dividends declared..................................... 788 4,276 54,885
Investment management fees payable (note 3).............. 166,672 951,480 58,373
Net foreign currency contracts (note 2).................. -- 24,160 --
Due to Custodian......................................... -- -- 120,317
Due to Manager........................................... -- -- --
Accrued directors fees payable........................... 2,875 2,875 2,878
Accrued expenses and other payables...................... 74,340 1,553,564 64,651
------------- -------------- ------------
Total liabilities........................................ 288,775 20,943,772 9,243,471
------------- -------------- ------------
Net assets, at value..................................... 249,898,693 1,575,174,067 57,697,073
------------- -------------- ------------
------------- -------------- ------------
NET ASSETS
Paid in capital.......................................... 205,839,631 1,331,638,375 57,446,598
Undistributed investment income--net..................... 719,348 19,654,932 24,128
Unrealized appreciation (depreciation) on:
Investments--net....................................... 34,269,831 182,494,106 373,109
Foreign currency--net.................................. -- 18,973 30,699
Accumulated realized gain (loss)--net.................... 9,069,883 41,367,681 (177,461)
------------- -------------- ------------
NET ASSETS, AT VALUE..................................... $ 249,898,693 $1,575,174,067 $ 57,697,073
------------- -------------- ------------
------------- -------------- ------------
Shares of capital stock outstanding**.................... 13,517,069 116,861,655 5,514,213
------------- -------------- ------------
------------- -------------- ------------
NET ASSET VALUE PER SHARE................................ $ 18.49 $ 13.48 $ 10.46
------------- -------------- ------------
------------- -------------- ------------
</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-23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD LAZARD LAZARD LAZARD
LAZARD STRATEGIC LAZARD INTERNATIONAL EMERGING GLOBAL BANTAM
BOND YIELD SMALL CAP SMALL CAP MARKETS EQUITY VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 81,942,356 $ 114,622,111 $ 876,302,245 $ 112,611,208 $ 113,123,379 $ 5,094,554 $ 18,516,547
42,972 639,581 2,473,300 1,472,707 4,083,584 24,285 2,860
-- -- -- -- -- 266 --
2,510,314 4,247,750 8,076,106 6,814,070 -- -- --
757,845 2,062,329 771,485 284,071 300,118 19,267 12,230
21,402 1,469,335 1,296,357 276,114 588,149 -- 60,337
-- -- -- -- -- 63,501 8,632
5,034 3,487 4,567 8,523 12,171 -- --
------------ ------------- ------------- ------------- ------------- ----------- ------------
85,279,923 123,044,593 888,924,060 121,466,693 118,107,401 5,201,873 18,600,606
------------ ------------- ------------- ------------- ------------- ----------- ------------
20,932,101 11,325,419 9,023,068 5,061,364 10,405,115 90,571 47,616
155,000 337,339 157,220 18,668 -- -- --
63,978 102,696 160 -- 98 -- --
57,889 102,111 527,384 62,187 128,796 -- --
-- 129,664 -- 235,969 23,761 -- --
-- -- -- -- -- -- --
-- -- -- -- 20,680 -- --
2,875 2,875 5,956 2,875 2,875 2,875 1,689
34,368 80,386 225,673 90,576 97,939 49,976 36,886
------------ ------------- ------------- ------------- ------------- ----------- ------------
21,246,211 12,080,490 9,939,461 5,471,639 10,679,264 143,422 86,191
------------ ------------- ------------- ------------- ------------- ----------- ------------
64,033,712 110,964,103 878,984,599 115,995,054 107,428,137 5,058,451 18,514,415
------------ ------------- ------------- ------------- ------------- ----------- ------------
------------ ------------- ------------- ------------- ------------- ----------- ------------
65,443,626 111,967,798 717,289,979 109,911,662 98,972,674 4,831,252 16,445,547
40,199 64,096 2,546,589 889,397 767,415 42,524 9,210
(214,296) 427,095 104,102,460 2,968,747 8,799,049 190,707 911,576
-- (140,838) -- (245,875) (39,799) (204) --
(1,235,817) (1,354,048) 55,045,571 2,471,123 (1,071,202) (5,828) 1,148,082
------------ ------------- ------------- ------------- ------------- ----------- ------------
$ 64,033,712 $ 110,964,103 $ 878,984,599 $ 115,995,054 $ 107,428,137 $ 5,058,451 $ 18,514,415
------------ ------------- ------------- ------------- ------------- ----------- ------------
------------ ------------- ------------- ------------- ------------- ----------- ------------
6,597,785 11,503,057 49,674,109 10,118,936 9,663,479 480,216 1,572,762
------------ ------------- ------------- ------------- ------------- ----------- ------------
------------ ------------- ------------- ------------- ------------- ----------- ------------
$ 9.71 $ 9.65 $ 17.70 $ 11.46 $ 11.12 $ 10.53 $ 11.77
------------ ------------- ------------- ------------- ------------- ----------- ------------
------------ ------------- ------------- ------------- ------------- ----------- ------------
</TABLE>
F-24
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD
LAZARD INTERNATIONAL INTERNATIONAL
EQUITY EQUITY FIXED-INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Interest......................................................... $ 363,074 $ 2,128,418 $ 1,720,203
Dividends........................................................ 2,201,147 24,170,469 --
------------ ------------- -------------
Total investment income*........................................... 2,564,221 26,298,887 1,720,203
------------ ------------- -------------
EXPENSES:
Management fees (note 3)......................................... 829,443 5,490,910 189,480
Administration fees (note 3)..................................... 40,793 138,761 23,638
Custodian fees (note 2).......................................... 40,993 860,808 47,067
Professional services............................................ 19,122 66,486 11,115
Registration fees................................................ 35,733 74,310 21,371
Shareholder services............................................. 15,977 24,056 8,716
Directors' fees and expenses..................................... 6,912 6,911 6,915
Shareholders' reports............................................ 2,986 5,314 1,523
Amortization of organizational expenses (note 2)................. -- 6,734 6,734
Other............................................................ 5,599 37,293 2,108
------------ ------------- -------------
Total expenses before fees waived and expenses reimbursed.......... 997,558 6,711,583 318,667
Management fees waived and expenses reimbursed (note 3).......... -- -- (53,394)
Administration fees waived (note 3).............................. -- -- --
Fees paid indirectly (note 2).................................... (3,302) (4,327) --
------------ ------------- -------------
Expenses--net...................................................... 994,256 6,707,256 265,273
------------ ------------- -------------
INVESTMENT INCOME--NET............................................. 1,569,965 19,591,631 1,454,930
------------ ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NET
Realized gain (loss) on:
Investments--net++............................................ 9,069,883 47,514,915 7,990
Foreign exchange transactions--net............................ -- (1,463,261) (181,661)
Net unrealized appreciation (depreciation) during the period on:
Investments--net.............................................. 9,113,322 55,583,927 (1,390,147)
Foreign currency--net......................................... -- 54,720 17,023
------------ ------------- -------------
Realized and unrealized gain (loss) on investments--net.......... 18,183,205 101,690,301 (1,546,795)
------------ ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.... $ 19,753,170 $ 121,281,932 $ (91,865)
------------ ------------- -------------
------------ ------------- -------------
*Net of foreign withholding taxes of:.............................. $ 66,440 $ 4,633,653 $ 14,654
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
+ Does not include the operations of the Special Equity Portfolio from January
1, 1996 through June 28, 1996 (acquisition date). See note 8.
++ Net of foreign withholding taxes of $91, $1,128, and $13 for the
International Fixed-Income Portfolio, Strategic Yield Portfolio, and
Emerging Markets Portfolio, respectively.
+++ For the period January 4, 1996 and March 5, 1996 (commencement of
operations) through June 30, 1996 for the Global Equity Portfolio and the
Bantam Value Portfolio, respectively.
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD LAZARD LAZARD LAZARD
LAZARD STRATEGIC LAZARD INTERNATIONAL EMERGING GLOBAL BANTAM
BOND YIELD SMALL CAP SMALL CAP MARKETS EQUITY VALUE
PORTFOLIO PORTFOLIO PORTFOLIO+ PORTFOLIO PORTFOLIO PORTFOLIO+++ PORTFOLIO+++
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,795,841 $ 4,386,028 $ 1,399,938 $ 232,433 $ 283,940 $ 10,459 $ 26,042
-- -- 4,328,579 1,297,584 940,874 52,446 31,471
------------ ----------- ------------ ------------ ------------- ------------ ------------
1,795,841 4,386,028 5,728,517 1,530,017 1,224,814 62,905 57,513
------------ ----------- ------------ ------------ ------------- ------------ ------------
136,565 347,296 2,870,644 419,233 351,846 14,558 34,502
24,221 28,052 96,205 29,833 25,864 19,127 13,664
31,322 76,091 73,718 114,055 114,835 34,598 14,945
11,910 13,047 38,613 14,255 12,259 9,950 6,564
13,531 16,220 48,891 8,670 28,567 22,319 17,800
8,893 10,582 22,730 14,473 9,838 7,979 8,983
6,911 6,911 7,046 6,911 6,911 5,685 4,417
1,624 2,516 6,130 4,162 2,421 1,538 911
6,734 6,734 6,734 1,760 2,503 -- --
1,598 3,246 19,074 4,743 1,734 1,529 2,582
------------ ----------- ------------ ------------ ------------- ------------ ------------
243,309 510,695 3,189,785 618,095 556,778 117,283 104,368
(14,182) -- -- -- (90,226) (78,059) (43,134)
(9,375) -- -- -- (6,250) (18,750) (12,500)
(1,248) (4,829) (7,857) -- (2,903) (93) (431)
------------ ----------- ------------ ------------ ------------- ------------ ------------
218,504 505,866 3,181,928 618,095 457,399 20,381 48,303
------------ ----------- ------------ ------------ ------------- ------------ ------------
1,577,337 3,880,162 2,546,589 911,922 767,415 42,524 9,210
------------ ----------- ------------ ------------ ------------- ------------ ------------
(1,206,315) 1,461,307 56,732,742 3,101,116 823,993 (1,047) 1,148,082
-- 574,445 -- 625,500 (70,682) (4,781) --
(557,950) (780,188) 26,726,788 5,408,735 9,738,091 190,707 911,576
-- (148,897) -- (272,969) (38,230) (204) --
------------ ----------- ------------ ------------ ------------- ------------ ------------
(1,764,265) 1,106,667 83,459,530 8,862,382 10,453,172 184,675 2,059,658
------------ ----------- ------------ ------------ ------------- ------------ ------------
$ (186,928) $ 4,986,829 $ 86,006,119 $ 9,774,304 $ 11,220,587 $227,199 $ 2,068,868
------------ ----------- ------------ ------------ ------------- ------------ ------------
------------ ----------- ------------ ------------ ------------- ------------ ------------
$ -- $ 13,618 $ 4,683 $ 166,745 $ 97,015 $ 5,728 $ --
------------ ----------- ------------ ------------ ------------- ------------ ------------
------------ ----------- ------------ ------------ ------------- ------------ ------------
</TABLE>
F-26
<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
--------------------------- ------------------------------- --------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
------------ ------------ -------------- -------------- ----------- ------------
1996+ 1995 1996+ 1995 1996+ 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Investment income--net.............. $ 1,569,965 $ 1,900,843 $ 19,591,631 $ 19,111,995 $ 1,454,930 $ 2,523,430
Realized gain (loss) on investments
and foreign exchange
transactions...................... 9,069,883 17,975,165 46,051,654 17,969,742 (173,671) 2,718,341
Unrealized appreciation
(depreciation)--net............... 9,113,322 20,838,939 55,638,647 104,009,885 (1,373,124) 1,908,806
---------- ----------- ------------ ------------ --------- -----------
Net increase (decrease) in net assets
resulting from operations........... 19,753,170 40,714,947 121,281,932 141,091,622 (91,865) 7,150,577
---------- ----------- ------------ ------------ --------- -----------
Distributions to shareholders:
From investment income--net......... (850,617) (1,412,326) -- (6,515,474) (1,454,839) (2,523,430)
From realized gains--net............ (6,665,393) (11,452,652) (7,553,725) (14,115,900) (160,803) (801,842)
In excess of investment
income--net....................... -- -- -- -- -- (1,799,275)
In excess of realized gains--net.... -- -- -- -- -- --
---------- ----------- ------------ ------------ --------- -----------
(7,516,010) (12,864,978) (7,553,725) (20,631,374) (1,615,642) (5,124,547)
---------- ----------- ------------ ------------ --------- -----------
Capital stock transactions:
Net proceeds from sales............. 78,238,020 55,622,979 440,160,153 497,338,051 16,001,828 13,752,209
Net proceeds from reinvestment of
distributions..................... 7,006,802 12,294,787 7,029,897 19,395,497 1,265,527 4,630,486
Cost of shares redeemed............. (11,370,277) (21,085,965) (285,293,637) (169,521,331) (3,487,078) (10,587,176)
---------- ----------- ------------ ------------ --------- -----------
Net increase (decrease) in net assets
from capital stock transactions..... 73,874,545 46,831,801 161,896,413 347,212,217 13,780,277 7,795,519
---------- ----------- ------------ ------------ --------- -----------
Total increase in net assets......... 86,111,705 74,681,770 275,624,620 467,672,465 12,072,770 9,821,549
Net assets at beginning of period.... 163,786,988 89,105,218 1,299,549,447 831,876,982 45,624,303 35,802,754
---------- ----------- ------------ ------------ --------- -----------
Net assets at end of period*......... $249,898,693 $163,786,988 $1,575,174,067 $1,299,549,447 $57,697,073 $45,624,303
---------- ----------- ------------ ------------ --------- -----------
---------- ----------- ------------ ------------ --------- -----------
Shares issued and repurchased:
Shares outstanding at beginning of
period.............................. 9,405,110 6,482,310 103,988,517 74,103,632 4,204,312 3,499,078
---------- ----------- ------------ ------------ --------- -----------
Shares sold......................... 4,355,109 3,491,105 34,364,883 42,535,462 1,520,689 1,219,616
Shares issued to shareholders from
reinvestment of distributions..... 379,567 710,986 526,284 1,554,544 120,541 418,379
Shares repurchased.................. (622,717) (1,279,291) (22,018,029) (14,205,121) (331,329) (932,761)
---------- ----------- ------------ ------------ --------- -----------
Net increase......................... 4,111,959 2,922,800 12,873,138 29,884,885 1,309,901 705,234
---------- ----------- ------------ ------------ --------- -----------
Shares outstanding at end of
period.............................. 13,517,069 9,405,110 116,861,655 103,988,517 5,514,213 4,204,312
---------- ----------- ------------ ------------ --------- -----------
---------- ----------- ------------ ------------ --------- -----------
* Includes undistributed
(overdistributed) net investment
income of:.......................... $ 719,348 $ -- $ 19,654,932 $ 63,301 $ 24,128 $ 24,037
---------- ----------- ------------ ------------ --------- -----------
---------- ----------- ------------ ------------ --------- -----------
<CAPTION>
LAZARD
BOND
PORTFOLIO
--------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
----------- ------------
1996+ 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Investment income--net.............. $ 1,577,337 $ 1,992,173
Realized gain (loss) on investments
and foreign exchange
transactions...................... (1,206,315) 1,538,947
Unrealized appreciation
(depreciation)--net............... (557,950) 1,262,427
--------- ----------
Net increase (decrease) in net assets
resulting from operations........... (186,928) 4,793,547
--------- ----------
Distributions to shareholders:
From investment income--net......... (1,577,337) (1,992,173)
From realized gains--net............ (398,228) (16,046)
In excess of investment
income--net....................... -- --
In excess of realized gains--net.... -- --
--------- ----------
(1,975,565) (2,008,219)
--------- ----------
Capital stock transactions:
Net proceeds from sales............. 24,564,990 24,539,689
Net proceeds from reinvestment of
distributions..................... 1,730,049 1,820,886
Cost of shares redeemed............. (6,182,237) (7,556,034)
--------- ----------
Net increase (decrease) in net assets
from capital stock transactions..... 20,112,802 18,804,541
--------- ----------
Total increase in net assets......... 17,950,309 21,589,869
Net assets at beginning of period.... 46,083,403 24,493,534
--------- ----------
Net assets at end of period*......... $64,033,712 $46,083,403
--------- ----------
--------- ----------
Shares issued and repurchased:
Shares outstanding at beginning of
period.............................. 4,560,693 2,650,557
--------- ----------
Shares sold......................... 2,482,443 2,500,066
Shares issued to shareholders from
reinvestment of distributions..... 176,103 186,028
Shares repurchased.................. (621,454) (775,958)
--------- ----------
Net increase......................... 2,037,092 1,910,136
--------- ----------
Shares outstanding at end of
period.............................. 6,597,785 4,560,693
--------- ----------
--------- ----------
* Includes undistributed
(overdistributed) net investment
income of:.......................... $ 40,199 $ 40,199
--------- ----------
--------- ----------
</TABLE>
+ Unaudited
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD
LAZARD LAZARD INTERNATIONAL EMERGING
STRATEGIC SMALL CAP SMALL CAP MARKETS
YIELD PORTFOLIO PORTFOLIO PORTFOLIO
PORTFOLIO ----------------------------- --------------------------- ---------------------------
- -------------------------------
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
------------ ------------ ------------- ------------- ------------ ------------ ------------ ------------
1996+ 1995 1996+ 1995 1996+ 1995 1996+ 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 3,880,162 $ 5,620,832 $ 2,546,589 $ 4,858,913 $ 911,922 $ 1,529,624 $ 767,415 $ 288,483
2,035,752 (216,880) 56,732,742 48,772,968 3,726,616 (214,539) 753,311 (1,803,813)
(929,085) 3,498,234 26,726,788 45,544,351 5,135,766 502,925 9,699,861 591,707
---------- ----------- ----------- ----------- ---------- ----------- ---------- ----------
4,986,829 8,902,186 86,006,119 99,176,232 9,774,304 1,818,010 11,220,587 (923,623)
---------- ----------- ----------- ----------- ---------- ----------- ---------- ----------
(3,879,034) (5,620,832) -- (4,858,913) -- -- (3,727) (136,100)
-- -- (1,555,291) (48,772,968) -- -- -- --
-- (88,052) -- -- -- -- -- --
-- -- -- (778,930) -- (594,717) -- --
---------- ----------- ----------- ----------- ---------- ----------- ---------- ----------
(3,879,034) (5,708,884) (1,555,291) (54,410,811) -- (594,717) (3,727) (136,100)
---------- ----------- ----------- ----------- ---------- ----------- ---------- ----------
52,747,178 22,589,307 257,509,908 239,938,336 17,550,514 45,713,631 62,467,781 28,211,253
3,620,310 5,445,026 1,227,607 54,147,470 (5,114) 584,483 3,240 113,328
(24,985,104) (15,082,042) (110,574,748) (122,152,846) (26,859,089) (15,419,174) (1,476,002) (9,073,505)
---------- ----------- ----------- ----------- ---------- ----------- ---------- ----------
31,382,384 12,952,291 148,162,767 171,932,960 (9,313,689) 30,878,940 60,995,019 19,251,076
---------- ----------- ----------- ----------- ---------- ----------- ---------- ----------
32,490,179 16,145,593 232,613,595 216,698,381 460,615 32,102,233 72,211,879 18,191,353
78,473,924 62,328,331 646,371,004 429,672,623 115,534,439 83,432,206 35,216,258 17,024,905
---------- ----------- ----------- ----------- ---------- ----------- ---------- ----------
$110,964,103 $78,473,924 $ 878,984,599 $ 646,371,004 $115,995,054 $115,534,439 $107,428,137 $35,216,258
---------- ----------- ----------- ----------- ---------- ----------- ---------- ----------
---------- ----------- ----------- ----------- ---------- ----------- ---------- ----------
8,245,403 6,846,915 40,536,196 29,940,743 10,986,319 8,034,455 3,812,846 1,727,237
---------- ----------- ----------- ----------- ---------- ----------- ---------- ----------
5,481,189 2,439,621 15,286,027 14,336,125 1,591,539 4,381,937 5,992,504 3,079,834
376,308 590,779 68,373 3,421,484 (492) 56,201 300 12,192
(2,599,843) (1,631,912) (6,216,487) (7,162,156) (2,458,430) (1,486,274) (142,171) (1,006,417)
---------- ----------- ----------- ----------- ---------- ----------- ---------- ----------
3,257,654 1,398,488 9,137,913 10,595,453 (867,383) 2,951,864 5,850,633 2,085,609
---------- ----------- ----------- ----------- ---------- ----------- ---------- ----------
11,503,057 8,245,403 49,674,109 40,536,196 10,118,936 10,986,319 9,663,479 3,812,846
---------- ----------- ----------- ----------- ---------- ----------- ---------- ----------
---------- ----------- ----------- ----------- ---------- ----------- ---------- ----------
$ 64,096 $ 62,968 $ 2,546,589 $ -- $ 889,397 $ (22,525) $ 767,415 $ 3,727
---------- ----------- ----------- ----------- ---------- ----------- ---------- ----------
---------- ----------- ----------- ----------- ---------- ----------- ---------- ----------
<CAPTION>
LAZARD LAZARD
GLOBAL BANTAM
EQUITY VALUE
PORTFOLIO PORTFOLIO
- ---- ------------ ------------
PERIOD ENDED PERIOD ENDED
JUNE 30, JUNE 30,
------------ ------------
1996+ 1996+
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 42,524 $ 9,210
(5,828) 1,148,082
190,503 911,576
--------- ----------
227,199 2,068,868
--------- ----------
-- --
-- --
-- --
--
--------- ----------
-- --
--------- ----------
4,869,175 16,679,956
-- --
(37,923) (234,409)
--------- ----------
4,831,252 16,445,547
--------- ----------
5,058,451 18,514,415
-- --
--------- ----------
$5,058,451 $18,514,415
--------- ----------
--------- ----------
-- --
--------- ----------
484,072 1,592,475
-- --
(3,856) (19,713)
--------- ----------
480,216 1,572,762
--------- ----------
480,216 1,572,762
--------- ----------
--------- ----------
$ 42,524 $ 9,210
--------- ----------
--------- ----------
</TABLE>
F-28
<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, INVESTMENT AND UNREALIZED MENT IN EXCESS OF FROM VALUE,
BEGINNING INCOME- GAIN (LOSS) OPERA- INVESTMENT REALIZED END OF
PERIOD OF PERIOD NET ON INVESTMENTS TIONS INCOME- NET GAINS PERIOD
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
LAZARD EQUITY PORTFOLIO
Six months ended
6/30/96+++............... $ 17.41 $ 0.122 $ 1.568 $ 1.690 $(0.069) $(0.541) $18.49
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
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS TO AVERAGE
NET ASSETS
-------------------- NET
INVEST- ASSETS,
MENT PORTFOLIO AVERAGE END OF
TOTAL INCOME- TURNOVER COMMISSION PERIOD
PERIOD RETURN++ EXPENSES NET RATE RATE** (000'S)
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
LAZARD EQUITY PORTFOLIO
Six months ended
6/30/96+++............... 9.7 % 0.90%+,(i) 1.42%+ 25.68% $0.0588 $249,899
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
Six months ended
6/30/96+++............... 12.50 0.168 0.877 1.045 -- (0.065) 13.48
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
Six months ended
6/30/96+++............... 10.85 0.298 (0.357) (0.059) (0.299) (0.032) 10.46
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
Six months ended
6/30/96+++............... 10.10 0.280 (0.318) (0.038) (0.282) (0.070) 9.71
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
Six months ended
6/30/96+++............... 9.52 0.388 0.132 0.520 (0.390) -- 9.65
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
Six months ended
6/30/96+++***............ 15.95 0.051 1.733 1.784 -- (0.034) 17.70
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
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
LAZARD INTERNATIONAL EQUITY
Six months ended
6/30/96+++............... 8.4 0.92+,(i) 2.68+ 24.99 0.0216 1,575,174
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+,(b) 2.19+ 0.18 4,967
- -------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-I
Six months ended
6/30/96+++............... (0.5) 1.05+,(h) 5.76+ 159.81 -- 57,697
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
Six months ended
6/30/96+++............... (0.4) 0.80+, h),(i) 5.78+ 166.78 -- 64,034
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(e) 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 PORTF
Six months ended
6/30/96+++............... 5.5 1.09+,(i) 8.25+ 96.85 -- 110,964
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
Six months ended
6/30/96+++***............ 11.1 0.83+,(i) 0.67+ 27.73 0.0570 878,985
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
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<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, INVESTMENT AND UNREALIZED MENT IN EXCESS OF FROM VALUE,
BEGINNING INCOME- GAIN (LOSS) OPERA- INVESTMENT REALIZED END OF
PERIOD OF PERIOD NET ON INVESTMENTS TIONS INCOME- NET GAINS PERIOD
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Six months ended
6/30/96+++............... $ 10.52 $ 0.090 $ 0.850 $ 0.940 $ -- $ -- $11.46
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
Six months ended
6/30/96+++............... 9.24 0.079 1.802 1.881 (0.001) -- 11.12
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
- -------------------------------------------------------------------------------------------------------------------------------
LAZARD GLOBAL EQUITY PORTFOLIO
1/4/96* to 6/30/96+++.... 10.00 0.089 0.441 0.530 -- -- 10.53
- -------------------------------------------------------------------------------------------------------------------------------
LAZARD BANTAM VALUE PORTFOLIO
3/5/96* to 6/30/96+++.... 10.00 0.006 1.764 1.770 -- -- 11.77
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS TO AVERAGE
NET ASSETS
-------------------- NET
INVEST- ASSETS,
MENT PORTFOLIO AVERAGE END OF
TOTAL INCOME- TURNOVER COMMISSION PERIOD
PERIOD RETURN++ EXPENSES NET RATE RATE** (000'S)
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL C
Six months ended
6/30/96+++............... 9.1 % 1.11%+ 1.63%+ 52.50% $0.0148 $115,995
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 PORT
Six months ended
6/30/96+++............... 20.4 1.31+, h),(i) 2.18+ 28.00 0.0048 107,428
Year ended
12/31/95................. (5.9) 1.30(f),(g) 1.22 102.22 35,216
7/15/94* to 12/31/94..... (1.4) 1.30+,(e) 0.31+ 30.68 17,025
- -------------------------------------------------------------------------------------------------------------------------------
LAZARD GLOBAL EQUITY PORTFOL
1/4/96* to 6/30/96+++.... 5.3 1.05+, h),(i) 2.19+ 23.77 0.0305 5,058
- -------------------------------------------------------------------------------------------------------------------------------
LAZARD BANTAM VALUE PORTFOLI
3/5/96* to 6/30/96+++.... 17.7 1.06+, h),(i) 0.20+ 48.14 0.0535 18,514
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
** The average commission rate paid is applicable for Portfolios that invest
greater than 10% of average assets in equity security transactions on which
commissions are charged. This disclosure is required for fiscal periods
beginning on or after September 1, 1995.
*** Does not include the operations of the Special Equity Portfolio from January
1, 1996 through June 28, 1996 (acquisition date). See Note 8.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
+++ Unaudited.
(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%+ ($0.293) for the International
Fixed-Income Portfolio, 7.80%+ ($.0114) 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.
(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 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, and 2.00% ($0.034) for the
Emerging Markets Portfolio.
(g) Includes fees paid indirectly. Excluding fees paid indirectly, 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, and 1.30% for the Emerging Markets Portfolio.
(h) 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 1.26% ($0.287) for the International Fixed-Income
Portfolio, 0.89% ($0.275) for the Bond Portfolio, 1.58% ($0.069) for the
Emerging Markets Portfolio, 6.04% (-$0.113) for the Global Equity Portfolio,
and 2.27% (-$.030) for the Bantam Value Portfolio.
(i) Includes fees paid indirectly. Excluding fees paid indirectly the expense
ratio would have been 0.90% for the Equity Portfolio, 0.92% for the
International Equity Portfolio, 0.80% for the Bond Portfolio, 1.08% for the
Strategic Yield Portfolio, 0.83% for the Small Cap Portfolio, 1.30% for the
Emerging Markets Portfolio, 1.05% for the Global Equity Portfolio, and 1.05%
for the Bantam Value Portfolio.
F-30
<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. On June
28, 1996, the Small Cap Portfolio acquired the net assets of the Special Equity
Portfolio (see Note 8). The per share data for the Equity Portfolio includes per
share data for the Old Fund and New Fund.
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 and Lazard Bantam Value Portfolio commenced
investment operations on January 4, 1996, and March 5, 1996, respectively.
The Equity Portfolio is 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 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.
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.
(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. Interest income is accrued
daily. The Portfolios
F-31
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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, Emerging Markets Portfolio and the Global
Equity 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 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 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 daily on shares of the International Fixed-Income Portfolio,
the Bond Portfolio and the Strategic Yield Portfolio 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, Global Equity Portfolio and the
Bantam Value 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 will result in reclassifications and may affect the
allocation between investment income--net and realized gains--net, and paid in
capital.
F-32
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(G) ORGANIZATIONAL EXPENSES--Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight line basis
over a five-year period from the date of commencement of operations of each
Portfolio. 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%; Emerging Markets Portfolio, 1.00%; Global Equity Portfolio,
0.75% and Bantam Value Portfolio, 0.75%. The investment management fees are
accrued daily and payable monthly.
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 not to exceed 1.30%; Bond Portfolio not to exceed
0.80%; Global Equity Portfolio not to exceed 1.05% and Bantam Value Portfolio
not to exceed 1.05% 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 six months ended June 30, 1996, the Manager did not impose all or part
of its management fee amounting to $53,394 for International Fixed-Income
Portfolio, $14,182 for Bond Portfolio, $90,226 for Emerging Markets Portfolio,
$14,558 for Global Equity Portfolio and $34,502 for Bantam Value Portfolio. For
the same period the Manager reimbursed expenses amounting to $63,501 and $8,632
for Global Equity Portfolio and Bantam Value Portfolio, respectively.
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, Emerging Markets, Global Equity and Bantam Value 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
F-33
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 six months ended June 30, 1996 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------- -------------
<S> <C> <C>
Equity $ 116,275,870 $ 53,369,942
International Equity 523,000,932 350,816,495
International Fixed-
Income 92,555,910 77,996,222
Bond(1) 110,007,690 88,995,319
Strategic Yield(2) 105,114,932 83,369,193
Small Cap 329,087,327 200,710,614
International Small Cap 55,965,943 64,783,249
Emerging Markets 71,675,697 18,229,793
Global Equity 5,521,528 816,368
Bantam Value 21,306,467 5,528,506
</TABLE>
(1) Includes purchases and sales of U.S. Government securities of $65,495,269
and $66,187,881 respectively.
(2) Includes purchase and sales of U.S. Government securities of $1,670,856 and
$2,345,974 respectively.
For the period, the Global Equity Portfolio and Bantam Value Portfolio paid
brokerage commissions of $86 and $2,635, respectively, to Lazard Freres & Co.
LLC for portfolio transactions executed on behalf of the Portfolios.
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
elected 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 International Equity
Portfolio redesignated $2,679,708 of ordinary income dividends to long-term
capital gain distributions.
6. PRIVATE PLACEMENTS
At June 30, 1996, the Small Cap Portfolio held the following securities which
were private placements and therefore restricted as to resale, and represented
0.06% (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 0
Verbex Voice Systems, Inc. 6/7/94 0
Verbex Voice Systems, Inc.
10.00%, 6/30/96 3/17/95 0
--------
$500,000
--------
--------
</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.
7. LINE OF CREDIT
The Fund has entered into a $50 million Line of Credit Agreement (the
"Agreement") with State Street Bank and Trust Company effective April 24, 1996,
primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities. Interest on borrowings is payable at the bank's Cost of Funds plus
0.75%, on an annualized basis. Under this Agreement, the Fund has agreed to pay
a 0.125% per annum fee on the unused portion of the commitment, payable
quarterly in arrears. At June 30, 1996, the Fund had no borrowings under this
Agreement.
8. REORGANIZATION
On June 28, 1996, the Lazard Special Equity Portfolio transferred its net assets
to the Small
F-34
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Cap Portfolio in exchange for Small Cap Portfolio shares having an aggregate net
asset value equal to the value of the net assets of the Special Equity Portfolio
acquired, pursuant to a plan of reorganization approved by the Special Equity
Portfolio's shareholders on June 21, 1996. The total shares issued by the Small
Cap Portfolio were 1,717,733, and, prior to the acquisition, the total net
assets of the Special Equity Portfolio and Small Cap Portfolio were $30,392,878
and $848,629,559, respectively. The total net assets of the Small Cap Portfolio
after the acquisition were $879,022,437.
The following is financial information for the Lazard Special Equity Portfolio
for the period January 1, 1996 through June 28, 1996 (acquisition date):
<TABLE>
<S> <C>
Investment income:
Dividends $ 431,270
Interest 86,177
-------------
Total investment income 517,447
-------------
Expenses:
Management fees* 269,813
Administration fees* 22,348
Custodian fees 21,854
Professional services 30,465
Registration fees 8,543
Shareholder services 34,412
Directors' fees and expenses 6,983
Shareholders' reports 1,526
Other 14,800
Management fees waived and expenses
reimbursed* (139,117)
Fees paid indirectly (1,849)
-------------
Total expenses 269,778
-------------
Net investment income 247,669
-------------
Net realized gain on investments 2,288,120
Net unrealized depreciation (1,780,657)
-------------
Net realized and unrealized gain on
investments 507,463
-------------
Net increase in net assets resulting
from operations $ 755,132
===========
Net increase in net assets resulting
from operations $ 755,132
Distributions to shareholders:
From net investment income (247,669)
From net realized gains (4,548,049)
Capital stock redemptions in excess
of sales and reinvestment of
distributions (12,586,739)
-------------
Total decrease in net assets (16,627,325)
Net assets at beginning of period 47,020,203
-------------
Net assets at end of period 30,392,878
-------------
Net assets transferred to Small Cap
Portfolio (30,392,878)
-------------
Ending net assets $ 0
-------------
</TABLE>
* For the period indicated, the Manager did not impose part of its management
fee amounting to $116,769 and reimbursed $22,348 for Administration fees.
F-35
<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-36
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
LAZARD EQUITY PORTFOLIO (CONTINUED)
UTILITIES--1.4%
National Power PLC (b)................... 142,500 $ 1,353,750
Southern Electric PLC (b)................ 35,500 1,007,313
-------------
2,361,063
-------------
TOTAL COMMON STOCKS
(Identified cost $130,480,451)............. 155,671,871
-------------
PREFERRED STOCKS--1.3%
(Identified cost $2,175,536)
FINANCIAL SERVICES--1.3%
Time Warner Financing Trust.............. 68,500 2,140,625
-------------
<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-37
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
LAZARD INTERNATIONAL EQUITY PORTFOLIO (CONTINUED)
NEW ZEALAND--1.9%
Fletcher Challenge.................... 5,504,000 $ 12,702,092
Lion Nathan Ltd. ..................... 5,031,100 12,005,436
--------------
TOTAL NEW ZEALAND..................... 24,707,528
--------------
NORWAY--0.8%
Aker AS Class A....................... 401,700 5,327,166
Aker AS Class B....................... 467,600 5,684,343
--------------
TOTAL NORWAY.......................... 11,011,509
--------------
SPAIN--2.3%
Banco Santander SA.................... 225,100 11,301,393
ENDESA................................ 323,500 18,321,888
--------------
TOTAL SPAIN........................... 29,623,281
--------------
SWEDEN--3.9%
Astra AB Series B..................... 601,900 23,841,394
Electrolux AB Series B................ 324,300 13,309,600
Volvo AB Series B..................... 691,900 14,172,086
--------------
TOTAL SWEDEN.......................... 51,323,080
--------------
SWITZERLAND--7.1%
Baloise Holdings...................... 6,428 13,374,252
Ciba Geigy AG......................... 32,820 28,879,324
Nestle SA............................. 23,630 26,139,471
SGS Holding........................... 11,706 23,239,480
--------------
TOTAL SWITZERLAND..................... 91,632,527
--------------
UNITED KINGDOM--15.1%
Allied Domecq PLC..................... 1,425,500 11,600,590
British Aerospace Ord. PLC............ 2,114,187 26,129,779
Cadbury Schweppes PLC................. 3,493,230 28,834,474
Lloyds Abbey Life PLC................. 1,917,400 13,400,062
Midlands Electric PLC................. 1,441,300 17,011,772
Mirror Group PLC...................... 4,500,900 12,302,507
National Grid Group PLC (a)........... 1,166,011 3,603,606
National Power Ord. PLC............... 1,292,600 9,023,508
National Power P/P Ord. PLC........... 2,020,800 4,833,098
Rank Organisation PLC................. 3,441,200 24,904,476
Sears PLC............................. 11,817,700 19,087,448
Thorn EMI PLC......................... 1,107,100 26,074,191
--------------
TOTAL UNITED KINGDOM.................. 196,805,511
--------------
TOTAL COMMON STOCKS
(Identified cost $1,080,502,927) 1,204,601,472
--------------
PREFERRED STOCKS--2.1%
(Identified cost $24,881,403)
AUSTRALIA--2.1%
News Corporation, Ltd. (b)............ 1,409,000 27,123,250
--------------
WARRANTS--0.0%
(Identified cost $0)
UNITED KINGDOM--0.0%
British Aerospace PLC (a)............. 117,216 569,787
--------------
<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-38
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
LAZARD INTERNATIONAL FIXED-INCOME
PORTFOLIO
CURRENCY DENOMINATED BONDS*--93.2%
AUSTRALIAN DOLLAR--1.0%
CORPORATE BOND
Bayerische Vereinsbank, 10.00%,
12/16/99........................ AUD 210,000 $ 166,403
GOVERNMENT OBLIGATION
Commonwealth of Australia, 9.50%,
8/15/03......................... 345,000 277,126
-----------
TOTAL AUSTRALIAN DOLLAR........... 443,529
-----------
AUSTRIAN SCHILLING--0.9%
GOVERNMENT OBLIGATION
Republic of Austria, 5.625%,
12/14/00........................ ATS 4,000,000 404,227
-----------
BELGIAN FRANC--1.4%
GOVERNMENT OBLIGATION
Belgium Kingdom, 6.50%,
3/31/05......................... BEL 19,000,000 637,078
-----------
BRAZILIAN REAL--0.4%
CORPORATE BOND
Chase Brazil Note, 27.152%, 3/1/96
(a)............................. BRL 198,729 195,410
-----------
BRITISH POUND--6.2%
CORPORATE BONDS
Barclays Bank PLC, 12.75%,
11/26/97........................ GBP 310,000 531,993
Bayerische Landesbank
Girozentrale, 8.50%, 2/26/03.... 275,000 446,517
Tokyo Electric Power, 11.00%,
6/5/01.......................... 100,000 179,667
West LB Finance Curacao NV, 8.50%,
6/2/03.......................... 820,000 1,319,717
GOVERNMENT OBLIGATION
United Kingdom Treasury, 8.50%,
7/16/07......................... 200,000 333,903
-----------
TOTAL BRITISH POUND............... 2,811,797
-----------
CANADIAN DOLLAR--3.1%
CORPORATE BOND
Quebec Housing, 8.95%,
5/13/13......................... CAD 419,000 332,985
GOVERNMENT OBLIGATIONS
Government of Canada, 7.50%,
12/1/03......................... 800,000 603,752
Government of Canada, 9.00%,
12/1/04......................... 600,000 494,983
-----------
TOTAL CANADIAN DOLLAR............. 1,431,720
-----------
CZECH KORUNA--3.8%
CORPORATE BONDS
CEZ AS, 14.375%, 1/27/01.......... CZK 10,000,000 401,260
Czech Trade Bank, 11.125%,
8/26/97......................... 5,000,000 188,630
Skofin, 11.625%, 2/9/98........... 30,000,000 1,137,966
-----------
TOTAL CZECH KORUNA................ 1,727,856
-----------
<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-39
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
LAZARD INTERNATIONAL FIXED-INCOME
PORTFOLIO (CONTINUED)
IRISH POUND--2.7%
GOVERNMENT OBLIGATION
Republic of Ireland, 6.25%,
4/1/99.......................... IEP 770,000 $ 1,222,310
-----------
ITALIAN LIRA--8.9%
GOVERNMENT OBLIGATIONS
Republic of Italy, 8.50%,
8/1/99.......................... ITL 5,885,000,000 3,517,011
Republic of Italy, 12.00%,
5/1/97.......................... 400,000,000 256,907
Republic of Italy, 12.00%,
1/1/02.......................... 400,000,000 268,216
-----------
TOTAL ITALIAN LIRA................ 4,042,134
-----------
JAPANESE YEN--26.0%
CORPORATE BOND
Export-Import Bank of Japan,
4.375%, 10/1/03................. JPY 205,000,000 2,181,537
GOVERNMENT OBLIGATIONS
Credit Local De France, 6.00%,
10/31/01........................ 80,000,000 923,002
Government of Japan, 5.50%,
9/20/02......................... 475,000,000 5,391,768
Republic of Austria, 4.50%,
9/28/05......................... 80,000,000 863,923
Republic of Austria, 6.25%,
10/16/03........................ 15,000,000 179,600
Republic of Italy, 3.50%,
6/20/01......................... 230,000,000 2,337,591
-----------
TOTAL JAPANESE YEN................ 11,877,421
-----------
NORWEGIAN KRONE--2.2%
CORPORATE BOND
Sparebanken Norway, 10.25%,
6/23/03 (a)..................... NOK 6,000,000 1,022,560
-----------
PORTUGUESE ESCUDO--0.2%
GOVERNMENT OBLIGATION
Republic of Portugal, 11.875%,
2/23/00......................... PTE 13,000,000 93,525
-----------
SOUTH AFRICAN RAND--0.2%
GOVERNMENT OBLIGATION
Republic of South Africa, 11.50%,
5/30/00......................... ZAR 405,500 102,085
-----------
SPANISH PESETA--3.2%
GOVERNMENT OBLIGATION
Kingdom of Spain, 12.25%,
3/25/00......................... ESP 160,000,000 1,448,178
-----------
SWEDISH KRONA--1.1%
GOVERNMENT OBLIGATION
Kingdom of Sweden, 10.25%,
5/5/00.......................... SEK 3,000,000 484,969
-----------
THAILAND BAHT--0.3%
CORPORATE BOND
Industrial Group Finance of
Thailand, 11.25%, 5/14/96....... THB 3,000,000 119,177
-----------
<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-40
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
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-41
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
LAZARD BOND PORTFOLIO (CONTINUED)
FINANCIAL SERVICES--1.7%
Avco Financial Services Inc., 6.35%,
9/15/00................................. $ 128,000 $ 130,479
Bank of Boston Corp., 6.625%, 2/1/04...... 104,000 105,618
Citicorp, 8.00%, 2/1/03................... 126,000 139,258
Norwest Corporation Medium Term Note,
6.125%, 10/15/00........................ 149,000 151,235
Salomon Inc., 8.55%, 2/17/97.............. 265,000 271,919
------------
798,509
------------
FOREST PRODUCTS--0.5%
Williamhouse Regency Delaware Inc. 144A,
13.00%, 11/15/05........................ 238,000 249,900
------------
MANUFACTURING--1.0%
Silgan Corp., 11.75%, 6/15/02............. 434,000 465,465
------------
PAPER PRODUCTS--0.4%
Crown Paper Co., 11.00%, 9/1/05........... 215,000 188,125
------------
RESTAURANTS, LODGING & ENTERTAINMENT--0.7%
Flagstar Corp., 10.75%, 9/15/01........... 335,000 306,525
------------
RETAIL GROCERY--0.2%
Pueblo Xtra International, 9.50%,
8/1/03.................................. 73,000 69,715
------------
RETAIL--0.9%
D.R. Structured Finance Corp., Series
1994-K2, Class A2, 9.35%,
8/15/19................................. 600,000 396,000
------------
RETAIL TRADE--0.7%
Mothers Work Inc. 144A, 12.625%,
8/1/05.................................. 328,000 323,080
------------
UTILITIES--0.2%
Texas New Mexico Power Co., 9.25%,
9/15/00................................. 80,000 82,800
------------
TOTAL CORPORATE BONDS
(Identified cost $5,980,173)................ 5,837,175
------------
FEDERAL AGENCIES--5.2%
Federal Home Loan Mortgage Corp., 8.50%,
1/1/99.................................. 362,000 377,272
Federal Home Loan Mortgage Corp., 7.00%,
1/1/99.................................. 367,000 369,408
Federal Home Loan Mortgage Corp., 7.00%,
9/1/25.................................. 619,485 625,098
Federal Home Loan Mortgage Corp., 7.00%,
8/1/25.................................. 1,012,108 1,021,277
------------
TOTAL FEDERAL AGENCIES
(Identified cost $2,342,473)................ 2,393,055
------------
MUNICIPAL BOND--0.9%
(Identified cost $379,772)
Allegheny County Pennsylvania Hospital
Development, 5.375%, 12/1/25............ 400,000 393,256
------------
MORTGAGE PASS-THROUGH SECURITIES--13.4%
Federal National Mortgage Association,
9.00%, 1/1/99........................... 55,000 57,956
Federal National Mortgage Association,
9.00%, 10/1/25.......................... 173,675 182,901
<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-42
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
LAZARD BOND PORTFOLIO (CONTINUED)
U.S. GOVERNMENT OBLIGATION--0.8%
United States Treasury Bills, 4.65%,
1/11/96................................. $ 385,000 $ 384,503
------------
TOTAL SHORT TERM INVESTMENTS
(Identified cost $2,505,151)................ 2,505,152
------------
TOTAL INVESTMENTS
(Identified cost $45,042,777) (b)........... 98.5% 45,386,431
<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-43
<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-44
<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-45
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
LAZARD SMALL CAP PORTFOLIO
COMMON STOCKS--91.4%
AUTO PARTS--5.3%
A.O. Smith Class B...................... 300,000 $ 6,225,000
Carlisle Companies, Inc. ............... 133,000 5,369,875
Durakon Industries, Inc. (a)............ 430,000 5,375,000
Lear Seating Corp. (a).................. 224,800 6,519,200
Masland Corp. .......................... 528,000 7,392,000
Standard Motor Products, Inc. Class A... 215,000 3,225,000
-------------
34,106,075
-------------
BANKS--4.7%
Albank Financial Corp. ................. 169,000 5,070,000
Baybanks, Inc. ......................... 59,600 5,855,700
Cullen Frost Bankers, Inc. ............. 136,000 6,800,000
Hibernia Corp. Class A.................. 580,000 6,235,000
Signet Banking Corp. ................... 274,600 6,521,750
-------------
30,482,450
-------------
BROADCASTING--2.2%
Cablevision Systems Corp. Class A (a)... 84,600 4,589,550
Evergreen Media Corp. Class A (a)....... 100,000 3,200,000
Katz Media Group, Inc. (a).............. 348,200 6,137,025
-------------
13,926,575
-------------
BUILDING & CONSTRUCTION--1.7%
Centex Construction Products, Inc.
(a)................................... 288,400 4,145,750
Redman Industries, Inc. (New) (a)....... 200,000 6,750,000
-------------
10,895,750
-------------
CHEMICALS & PLASTICS--3.6%
Crompton & Knowles Corp. ............... 563,700 7,469,025
Fuller H B Co. ......................... 237,400 8,249,650
Mississippi Chemical Corp. ............. 319,000 7,416,750
-------------
23,135,425
-------------
COMMUNICATIONS--3.0%
Associated Group, Inc. Class A (a)...... 56,650 1,069,269
Associated Group, Inc. Class B (a)...... 256,650 4,876,350
Cellular Communications of Puerto Rico,
Inc. (a).............................. 230,058 6,384,109
International CableTel, Inc. (a)........ 296,000 7,252,000
-------------
19,581,728
-------------
COMPUTERS & BUSINESS EQUIPMENT--1.7%
Wang Labs, Inc. (a)..................... 643,100 10,691,538
-------------
COMPUTER SOFTWARE--0.9%
Ameridata Technologies, Inc. (a)........ 610,000 5,871,250
-------------
COSMETICS & TOILETRIES--2.9%
Alberto Culver Co. Class A.............. 276,900 8,445,450
Maybelline, Inc. ....................... 291,800 10,577,750
-------------
19,023,200
-------------
DRUGS & HEALTH CARE--1.7%
FHP International Corp. (a)............. 132,500 3,776,250
Perrigo Co. (a)......................... 618,000 7,338,750
-------------
11,115,000
-------------
ELECTRICAL EQUIPMENT--2.4%
Belden, Inc. ........................... 252,900 6,512,175
UCAR International, Inc. (a)............ 275,000 9,281,250
-------------
15,793,425
-------------
<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-46
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
LAZARD SMALL CAP PORTFOLIO (CONTINUED)
PUBLISHING--2.4%
Banta Corp. ............................ 211,100 $ 9,288,400
Houghton Mifflin Co. ................... 144,000 6,192,000
-------------
15,480,400
-------------
REAL ESTATE--4.8%
Avalon Properties, Inc. ................ 238,600 5,129,900
Bay Apartment Communities, Inc. ........ 175,000 4,243,750
Crescent Real Estate Equities, Inc. .... 193,900 6,616,837
FelCor Suite Hotels, Inc. .............. 330,000 9,157,500
Liberty Property Trust.................. 271,500 5,633,625
-------------
30,781,612
-------------
RESTAURANTS, LODGING & ENTERTAINMENT--2.2%
IHOP Corp. (New) (a).................... 297,500 7,735,000
Sbarro, Inc. ........................... 301,300 6,477,950
-------------
14,212,950
-------------
RETAIL--8.4%
Alexander's, Inc. (a)................... 80,000 5,560,000
Carson Pirie Scott & Co. (a)............ 431,200 8,570,100
Fred Meyer, Inc. (a).................... 119,300 2,684,250
Good Guys, Inc. (a)..................... 175,800 1,582,200
Home Shopping Network, Inc. (a)......... 648,900 5,840,100
Intelligent Electronics, Inc. .......... 855,600 5,133,600
Jones Apparel Group, Inc. (a)........... 232,600 9,158,625
Revco D.S., Inc. (a).................... 217,062 6,132,001
Sothebys Holdings, Inc. ................ 693,200 9,878,100
-------------
54,538,976
-------------
SERVICES--3.0%
Gtech Holdings Corp. (a)................ 321,700 8,364,200
The Pittston Services Group............. 356,400 11,182,050
-------------
19,546,250
-------------
STEEL--2.0%
Huntco, Inc. Class A.................... 301,300 4,632,488
Lukens, Inc. ........................... 298,800 8,590,500
-------------
13,222,988
-------------
TECHNOLOGY--0.0%
Verbex Voice Systems, Inc. (a),(b)...... 180,501 180,501
-------------
TELECOMMUNICATION--0.5%
CAI Wireless Systems, Inc. (a).......... 330,000 3,176,250
-------------
TELECOMMUNICATION EQUIPMENT--1.3%
Scientific Atlanta, Inc. ............... 575,000 8,625,000
-------------
TEXTILES, SHOES & APPAREL--2.2%
Authentic Fitness Corp. ................ 275,000 5,706,250
Warnaco Group, Inc. Class A............. 265,000 6,625,000
Westpoint Stevens, Inc. Class A (a)..... 90,300 1,811,644
-------------
14,142,894
-------------
TOTAL COMMON STOCKS
(Identified cost $511,858,156)............ 590,635,485
-------------
<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-47
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
LAZARD INTERNATIONAL SMALL CAP
PORTFOLIO
COMMON STOCKS--87.9%
ARGENTINA--2.0%
Capex SA 144A (c)....................... 158,200 $ 2,293,900
-------------
AUSTRALIA--1.2%
Bibury Ltd. (a),(d)..................... 472,100 0
Pacific Mutual Ltd. .................... 991,200 1,436,628
-------------
TOTAL AUSTRALIA......................... 1,436,628
-------------
AUSTRIA--1.3%
Vae Eisenbahnsyst....................... 17,400 1,467,480
-------------
BRAZIL--1.7%
Capco Automotive Products Corp. ........ 275,200 1,960,800
-------------
DENMARK--2.4%
Spar Nord Holding....................... 39,100 1,323,872
Sparekassen Bikube...................... 45,200 1,497,848
-------------
TOTAL DENMARK........................... 2,821,720
-------------
FINLAND--2.6%
Finnair................................. 296,700 2,217,030
Sampo Insurance Company Ltd. ........... 14,500 776,774
-------------
TOTAL FINLAND........................... 2,993,804
-------------
FRANCE--3.9%
Club Mediterranee....................... 4,622 369,043
Imetal.................................. 17,600 2,102,512
Unibail SA.............................. 19,400 2,004,574
-------------
TOTAL FRANCE............................ 4,476,129
-------------
GERMANY--9.0%
Cewe Color Holding AG................... 6,100 2,019,868
Doerries Scharmann AG................... 76,994 279,100
Hornbach Holding AG..................... 30,300 2,640,293
Moebel Walther AG....................... 101,770 3,369,867
WMF Wuerttembergische Metallwarenfabrik
AG.................................... 9,600 2,074,590
-------------
TOTAL GERMANY........................... 10,383,718
-------------
HONG KONG--3.5%
Manhattan Card Co. ..................... 4,026,000 1,718,177
Peregrine Investment.................... 1,800,000 2,327,837
-------------
TOTAL HONG KONG......................... 4,046,014
-------------
IRELAND--3.4%
Fitzwilton PLC.......................... 2,861,700 2,199,193
Unidare PLC............................. 378,200 1,695,421
-------------
TOTAL IRELAND........................... 3,894,614
-------------
ISRAEL--2.1%
ECI Telecom Ltd. ....................... 105,400 2,404,437
-------------
ITALY--2.7%
Arnoldo Mondadori Editore............... 350,800 3,039,438
Unipol.................................. 21,000 134,546
-------------
TOTAL ITALY............................. 3,173,984
-------------
JAPAN--7.2%
Cowboy Company Ltd. .................... 149,000 2,525,424
FCC Company Ltd. ....................... 80,000 2,820,339
Towa Pharmaceutical Company Ltd. ....... 80,000 2,944,310
-------------
TOTAL JAPAN............................. 8,290,073
-------------
<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-48
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO (CONTINUED)
UNITED KINGDOM--1.7%
Signet Group PLC (a),(b)................ 38 $ 1,900,000
-------------
TOTAL PREFERRED STOCKS
(Identified cost $5,664,250).............. 5,376,730
-------------
<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-49
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
DESCRIPTION SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
<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-50
<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-51
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- -------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO (CONTINUED)
<S> <C> <C>
CONVERTIBLE BONDS--3.7%
PHILIPPINES--1.3%
Bacnotan Consolidated Industries, 5.50%,
6/21/04................................. $ 550,000 $ 467,500
-----------
TAIWAN--1.0%
United Micro Electronics, 1.25%, 6/8/04... 285,000 357,675
-----------
UNITED STATES--1.4%
International Financial Holdings, Inc.
144A, 6.50%, 8/1/99..................... 370,000 492,100
-----------
TOTAL CONVERTIBLE BONDS
(Identified cost $1,527,925)................ 1,317,275
-----------
SHORT TERM INVESTMENT--13.8%
REPURCHASE AGREEMENT--13.8%
(Identified cost $4,852,000)
State Street Bank and Trust Co., 5.70%,
1/2/96 (collateralized by U.S. Treasury
Bills, due 12/12/96; total par value
$5,200,000; valued at $4,953,489)....... 4,852,000 4,852,000
-----------
TOTAL INVESTMENTS
(Identified cost $37,576,068) (d)........... 104.0% 36,637,026
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS...................................... (4.0) (1,420,768)
----- -----------
NET ASSETS................................... 100.0% $35,216,258
===== ===========
</TABLE>
(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-52
<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-53
<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-54
<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-55
<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>
$ 2,255,143 $ 6,380,257 $ 2,657,903 $ 543,364 $ 314,283 $ 218,910
-- -- 6,738,744 2,093,899 1,318,974 376,771
----------- ----------- ------------ ------------- ------------- -------------
2,255,143 6,380,257 9,396,647 2,637,263 1,633,257 595,681
----------- ----------- ------------ ------------- ------------- -------------
164,220 525,597 4,066,987 736,353 888,834 236,306
26,180 30,732 91,734 34,635 28,661 25,173
45,246 104,008 117,360 214,946 32,541 110,068
24,226 34,117 86,437 35,325 29,918 26,210
14,302 14,219 49,700 20,181 27,815 26,945
15,550 13,523 41,852 29,968 23,332 23,460
11,316 12,978 11,266 11,590 11,314 12,131
2,943 7,108 12,377 7,681 2,983 5,627
13,505 13,505 13,505 3,530 -- 4,136
2,664 8,664 56,085 14,044 29,194 2,781
----------- ----------- ------------ ------------- ------------- -------------
320,152 764,451 4,547,303 1,108,253 1,074,592 472,837
(34,072) -- -- -- (132,906) (142,805)
(21,875) -- -- -- -- (21,875)
(1,235) (5,026) (9,569) (614) (55) (959)
----------- ----------- ------------ ------------- ------------- -------------
262,970 759,425 4,537,734 1,107,639 941,631 307,198
----------- ----------- ------------ ------------- ------------- -------------
1,992,173 5,620,832 4,858,913 1,529,624 691,626 288,483
----------- ----------- ------------ ------------- ------------- -------------
1,538,947 613,040 48,772,968 2,832,676 5,875,256 (1,723,841)
-- (829,920) -- (3,047,215) -- (79,972)
1,262,427 3,392,780 45,544,351 215,054 2,433,242 594,358
-- 105,454 -- 287,871 -- (2,651)
----------- ----------- ------------ ------------- ------------- -------------
2,801,374 3,281,354 94,317,319 288,386 8,308,498 (1,212,106)
----------- ----------- ------------ ------------- ------------- -------------
$ 4,793,547 $ 8,902,186 $ 99,176,232 $ 1,818,010 $ 9,000,124 $ (923,623)
========== ========== ============ ========== ========== ============
$ -- $ 12,123 $ -- $ 270,513 $ 11,220 $ 36,665
========== ========== ============ ========== ========== ============
</TABLE>
F-56
<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
=============== ============= ================= ================ ===============
<CAPTION>
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-57
<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-58
<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
- ----------------------------------------------------------------------------------------------------------------------------------
<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 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-59
<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-60
<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.
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.
(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-61
<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-62
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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-63
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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-64
<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-65
