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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(Mark One)



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2006



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from
 to



333-126751

(Commission File Number)



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LAZARD GROUP LLC

(Exact name of
registrant as specified in its charter)



|                                              |  |                                     
|--------------------------------------------- |  | ------------------------------------
|Delaware                                      |  | 51-0278097                          
|(State or Other Jurisdiction of Incorporation |  | (I.R.S. Employer Identification No.)
|or Organization)                              |  |                                     



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30 Rockefeller Plaza

New York, NY 10020

(Address of principal executive offices)



Registrants telephone number: (212) 632-6000



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|                                                                 |  | 
|---------------------------------------------------------------- |  | 
|Securities Registered Pursuant to Section 12(b) of the Act: None
|                                                                
|Securities Registered Pursuant to Section 12(g) of the Act: None



Indicate by check
mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No ̈



Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes ̈No  x



Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x



Indicate by check mark whether
the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer  x                Accelerated filer ̈Non-accelerated filer ̈



Indicate by check mark
whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



As of June 30, 2006, none of the Registrants membership interests was held by non-affiliates.



As of January 31, 2007, in addition to profit participation interests, there were 107,652,516 common membership interests and two managing member
interests outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



None.



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##### Table of Contents

LAZARD GROUP LLC



ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED

DECEMBER 31, 2006



INDEX



|                       |  |                                                                                                              |  |    
|---------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ---
|Form 10-K Item Number: |  | PageNo.                                                                                                     
|                       |  |                                                                                                             
|PART I                 |  |                                                                                                              |  |    
|                       |  |                                                                                                             
|Item 1.                |  | Business                                                                                                     |  | 1  
|                       |  |                                                                                                             
|                       |  | Executive Officers of the Registrant                                                                         |  | 14 
|                       |  |                                                                                                             
|Item 1A.               |  | Risk Factors                                                                                                 |  | 15 
|                       |  |                                                                                                             
|Item 1B.               |  | Unresolved Staff Comments                                                                                    |  | 33 
|                       |  |                                                                                                             
|Item 2.                |  | Properties                                                                                                   |  | 33 
|                       |  |                                                                                                             
|Item 3.                |  | Legal Proceedings                                                                                            |  | 33 
|                       |  |                                                                                                             
|Item 4.                |  | Submission of Matters to a Vote of Security Holders                                                          |  | 34 
|                       |  |                                                                                                             
|PART II                |  |                                                                                                              |  |    
|                       |  |                                                                                                             
|Item 5.                |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 35 
|                       |  |                                                                                                             
|Item 6.                |  | Selected Financial Data                                                                                      |  | 35 
|                       |  |                                                                                                             
|Item 7.                |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 38 
|                       |  |                                                                                                             
|Item 7A.               |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 66 
|                       |  |                                                                                                             
|Item 8.                |  | Financial Statements and Supplementary Data                                                                  |  | 67 
|                       |  |                                                                                                             
|Item 9.                |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         |  | 116
|                       |  |                                                                                                             
|Item 9A.               |  | Controls and Procedures                                                                                      |  | 117
|                       |  |                                                                                                             
|Item 9B.               |  | Other Information                                                                                            |  | 117
|                       |  |                                                                                                             
|PART III               |  |                                                                                                              |  |    
|                       |  |                                                                                                             
|Item 10.               |  | Directors, Executive Officers and Corporate Governance                                                       |  | 118
|                       |  |                                                                                                             
|Item 11.               |  | Executive Compensation                                                                                       |  | 120
|                       |  |                                                                                                             
|Item 12.               |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 140
|                       |  |                                                                                                             
|Item 13.               |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 140
|                       |  |                                                                                                             
|Item 14.               |  | Principal Accountant Fees and Services                                                                       |  | 149
|                       |  |                                                                                                             
|PART IV                |  |                                                                                                              |  |    
|                       |  |                                                                                                             
|Item 15.               |  | Exhibits and Financial Statement Schedules                                                                   |  | 150
|                       |  |                                                                                                             
|                       |  | Index to Financial Statements and Financial Statement Schedule Items 15(a)(1) and 15(a)(2)                   |  | F-1
|                       | 
|SIGNATURES             |  | II-1                                                                                                        



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Part I



When we use the terms Lazard
Group, Lazard, we, our, us and the Company, we mean Lazard Group LLC (formerly named Lazard LLC), a Delaware limited liability company that is the current holding company for the
subsidiaries that conduct our businesses. Lazard Ltd is a Bermuda exempt company whose shares of Class A common stock are publicly traded on the New York Stock Exchange under the Symbol LAZ. Lazard Ltds subsidiaries include Lazard
Group and its respective subsidiaries. Lazard Ltd has no material assets other than indirect ownership as of December 31, 2006 of approximately 47.9% of the common membership interests in Lazard Group. Lazard Ltd controls Lazard Group through two of
its indirect wholly-owned subsidiaries who are co-managing members of Lazard Group.



Lazard Group has two primary holders of its common membership interests: Lazard Ltd and LAZ-MD Holdings LLC (LAZ-MD Holdings), a holding company that is owned by current and former managing directors of Lazard Group. The
Lazard Group common membership interests held by LAZ-MD Holdings are effectively exchangeable over time on a one-for-one basis with Lazard Ltd for shares of Lazard Ltds Class A common stock. In addition, Lazard Group has granted profit
participation interests in Lazard Group to certain of its managing directors in connection with the recapitalization of Lazard Group at the time of Lazard Ltds equity public offering. The profit participation interests are discretionary
profits interests that are intended to enable Lazard Group to compensate its managing directors in a manner consistent with historical practices.



|Item 1. | Business
|------- | --------



We are a preeminent international financial advisory and asset management firm that has long specialized in crafting solutions to the complex financial
and strategic challenges of our clients. We focus primarily on two businesses, Financial Advisory and Asset Management and we serve a diverse set of clients around the world, including corporations, partnerships, institutions, governments and
high-net worth individuals. The first Lazard partnership was established in 1848. Over time we have extended our activities beyond our roots in New York, Paris and London. We currently operate from 29 cities in key business and financial centers
across 16 countries throughout Europe, North America, Asia, Australia and South America.



We believe that the mix of our activities across business segments, geographic regions, industries and investment strategies helps to diversify and stabilize our revenue stream.



The Separation and Recapitalization



On May 10, 2005, Lazard Ltd completed the initial public offering of
Class A common stock of Lazard Ltd, the public offering of equity security units (ESUs) of Lazard Ltd, the private placements under an investment agreement with IXIS Corporate & Investment Bank (IXIS) and the
private offering of the 7.125% senior notes due 2015 of Lazard Group, primarily to recapitalize Lazard Group. We refer to these financing transactions and the recapitalization, collectively, as the recapitalization. As part of the
recapitalization, Lazard Group used the net proceeds from the financing transactions primarily to redeem the outstanding Lazard Group membership interests of certain of its historical partners.



On May 10, 2005, Lazard Group also transferred its capital markets
business, which consisted of equity, fixed income and convertibles sales and trading, broking, research and underwriting services, its merchant banking fund management activities other than its existing merchant banking business in France and
specified non-operating assets and liabilities, to LFCM Holdings LLC, a Delaware limited liability company (LFCM Holdings). We refer to these businesses, assets and liabilities as the separated businesses and these transfers
collectively as the separation. Except as otherwise expressly noted, this annual report on Form 10-K describes Lazards business as if the separation was completed for all purposes and for all applicable periods presented.



Prior to the separation and recapitalization, Lazard Group had
operated as a limited liability company that was treated as a partnership for U.S. federal income tax purposes, with its managing directors also being



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members of Lazard Group. As a result, payments for services rendered by Lazard Groups managing directors were accounted for as distributions from
members capital, or in some cases as minority interest in net income. As a result, Lazard Groups operating income prior to the separation and recapitalization did not reflect most payments for services rendered by its managing directors.
Accordingly, results of operations for periods prior to May 10, 2005 are not comparable to results of operations for subsequent periods.



Principal Business Lines



Our business is organized around two segments: Financial Advisory and Asset Management.



Financial Advisory



We offer corporate, partnership, institutional, government and individual clients across the globe a wide array of financial advisory services
regarding mergers and acquisitions, restructurings and various other corporate finance matters. We focus on solving our clients most complex problems, providing advice to senior management, boards of directors and business owners of prominent
companies and institutions in transactions that typically are of significant strategic and financial importance to them.



Our goal is to continue to grow our Financial Advisory business by fostering long-term, senior level relationships with existing and new clients as their
independent advisor on strategic transactions. We seek to build and sustain long-term relationships with our clients rather than focusing on individual transactions, a practice that we believe enhances our access to senior management of major
corporations and institutions around the world. We emphasize providing clients with senior level attention during all phases of transaction execution.



While we strive to earn repeat business from our clients, we operate in a highly competitive environment in which there are no long-term contracted
sources of revenue. Each revenue-generating engagement is separately negotiated and awarded. To develop new client relationships, and to develop new engagements from historical client relationships, we maintain an active dialogue with a large number
of clients and potential clients, as well as with their financial and legal advisors, on an ongoing basis. We have gained a significant number of new clients each year through our business development initiatives, through recruiting additional
senior investment banking professionals who bring with them client relationships and through referrals from directors, attorneys and other third parties with whom we have relationships. At the same time, we lose clients each year as a result of the
sale or merger of a client, a change in a clients senior management, competition from other investment banks and other causes.



For the years ended December 31, 2006, 2005 and 2004, Financial Advisory net revenue totaled $973 million, $865 million and $655 million, respectively,
accounting for approximately 65%, 66% and 60%, respectively, of our net revenue from continuing operations for the periods. We earned advisory revenue from 510 clients, 484 clients and 435 clients for the years ended December 31, 2006, 2005 and
2004, respectively. We earned $1 million or more from 202 clients, 184 clients and 136 clients for the years ended December 31, 2006, 2005 and 2004, respectively. For the years ended December 31, 2006, 2005 and 2004, the ten largest fee paying
clients constituted approximately 21%, 20% and 25% of our segment net revenue, respectively, with no client individually having constituted more than 10% of segment net revenue during any of these years. For the years ended December 31, 2006, 2005
and 2004, Financial Advisory reported operating income of $251 million, $276 million and $212 million, respectively, although as noted previously results of operations for periods prior to May 10, 2005 are not comparable to results of operations for
subsequent periods. At December 31, 2006, 2005 and 2004, Financial Advisory had total assets of $453 million, $337 million, and $380 million, respectively.



We believe that we have been pioneers in offering financial advisory services on an international basis, with the establishment of our New York, Paris and
London offices dating back to the nineteenth century. We maintain major local presences in the U.S., the U.K., France and Italy, including a network of regional branch offices in the U.S. and France, as well as presences in Australia, Canada,
Germany, Hong Kong, India, Japan, the Netherlands, Sweden, Singapore, South Korea, Spain and mainland China. During 2004, we also entered into a



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joint venture with Signatura Advisory called Signatura Lazard, which provides local and cross-border financial services in Brazil, and into a strategic
alliance with MBA Banco de Inversiones regarding the provision of cross-border advisory services to institutions investing in companies in Argentina and to Argentine companies investing abroad.



In addition to seeking business centered in these locations, we historically
have focused in particular on advising clients with respect to cross-border transactions. We believe that we are particularly well known for our legacy of offering broad teams of professionals who are indigenous to their respective regions and who
have long-term client relationships, capabilities and know-how in their respective regions. We also believe that this positioning affords us insight around the globe into key industry, economic, government and regulatory issues and developments,
which we can bring to bear on behalf of our clients.



Services Offered



We advise clients on a wide
range of strategic and financial issues. When we advise companies in the potential acquisition of another company or certain assets, our services include evaluating potential acquisition targets, providing valuation analyses, evaluating and
proposing financial and strategic alternatives and rendering, if appropriate, fairness opinions. We also may advise as to the timing, structure, financing and pricing of a proposed acquisition and assist in negotiating and closing the acquisition.
In addition, we may assist in implementing an acquisition by acting as a dealer-manager if the acquisition is structured as a tender or exchange offer.



When we advise clients that are contemplating the sale of certain businesses, assets or their entire company, our services include advising on the
appropriate sales process for the situation, valuation issues, assisting in preparing an offering memorandum or other appropriate sales materials and rendering, if appropriate, fairness opinions. We also identify and contact selected qualified
acquirors and assist in negotiating and closing the proposed sale. As appropriate, we also advise our clients regarding financial and strategic alternatives to a sale including recapitalizations, spin-offs, carve-outs, split-offs and tracking
stocks. Our advice includes recommendations with respect to the structure, timing and pricing of these alternatives.



For companies in financial distress, our services may include reviewing and analyzing the business, operations, properties, financial condition and
prospects of the company, evaluating debt capacity, assisting in the determination of an appropriate capital structure and evaluating and recommending financial and strategic alternatives. If appropriate, we may provide financial advice and
assistance in developing and seeking approval of a restructuring or reorganization plan, which may include a plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code or other similar court administered process in non-U.S. jurisdictions.
In such cases, we may assist in all aspects of the implementation of such a plan, including advising and assisting in structuring and effecting the financial aspects of a sale or recapitalization, structuring any new securities, exchange offers,
other considerations or other inducements to be offered or issued and assisting and participating in negotiations with affected entities or groups.



When we assist clients in raising private or public market financing, our services include originating and executing private placements of equity, debt
and related securities, assisting clients in connection with securing, refinancing or restructuring bank loans, originating public underwritings of equity, debt and convertible securities and originating and executing private placements of
partnership and similar interests in alternative investment funds such as leveraged buyout, mezzanine or real estate focused funds. In addition, we may advise on capital structure and assist in long-range capital planning and rating agency
relationships.



Pursuant to the business alliance agreement we
entered into with LFCM Holdings in connection with the separation, LFCM Holdings generally underwrites and distributes U.S. securities offerings originated by our Financial Advisory business in a manner intended to be similar to our practice prior
to the separation, with revenue from such offerings generally continuing to be divided evenly between Lazard Group and LFCM Holdings.



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Staffing



We staff our assignments with a team of quality professionals with appropriate product and industry expertise. We pride ourselves on, and we believe we
differentiate ourselves from our competitors by, being able to offer a relatively high level of attention from senior personnel to our clients and organizing ourselves in such a way that managing directors who are responsible for securing and
maintaining client relationships also actively participate in providing related transaction execution services. Our managing directors have significant experience, and many of them are able to use this experience to advise on both mergers and
acquisitions and restructuring transactions, depending on our clients needs. Many of our managing directors and senior advisors come from diverse backgrounds, such as senior executive positions at corporations, government, law and strategic
consulting, which we believe enhances our ability to offer sophisticated advice and custom solutions to our clients.



Industries Served



We seek to offer our services across most major industry groups, including, in many cases, sub-industry specialties. Our Mergers and Acquisitions managing
directors and professionals are organized to provide advice in the following major industry practice areas:



| |  |  | consumer,
| | - |  | ---------



| |  |  | financial institutions,
| | - |  | -----------------------



| |  |  | financial sponsors,
| | - |  | -------------------



| |  |  | healthcare and life sciences,
| | - |  | -----------------------------



| |  |  | industrial,
| | - |  | -----------



| |  |  | power and energy,
| | - |  | -----------------



| |  |  | real estate, and
| | - |  | ----------------



| |  |  | technology, media and telecommunications.
| | - |  | -----------------------------------------



These groups are managed locally in each relevant geographic region and are coordinated on a global basis, which allows us to bring local
industry-specific knowledge to bear on behalf of our clients on a global basis. We believe that this enhances the quality of advice that we can offer, which improves our ability to market our capabilities to clients.



In addition to our Mergers and Acquisitions and Financial Restructuring
practices, we also maintain specialties in the following distinct practice areas:



| |  |  | government advisory,
| | - |  | --------------------



| |  |  | fund raising for alternative investment funds,
| | - |  | ----------------------------------------------



| |  |  | private investment in public equity (PIPE), and
| | - |  | -------------------------------------------------



| |  |  | corporate finance.
| | - |  | ------------------



We endeavor to coordinate the activities of the professionals in these areas with our mergers and acquisitions industry specialists in order to offer
clients customized teams of cross-functional expertise spanning both industry and practice area know-how.



Strategy



Our focus in our Financial Advisory business has been on:



| |  |  | making a significant investment in our intellectual capital with the addition of many senior professionals who we believe have strong client relationships and
industry expertise. We have recruited or promoted 80 of our current Financial Advisory managing directors from January 2002 through December 31, 2006, contributing to a 45% increase, net of departures, over that period,
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | increasing our contacts with existing clients to further enhance our long-term relationships and our efforts in developing new client relationships,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | expanding the breadth and depth of our industry expertise in areas such as media and general industrials and adding new practice areas such as power and energy and
fund-raising for alternative investment funds,
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | coordinating our industry specialty activities on a global basis and increasing the integration of our industry experts with our Financial Restructuring
professionals, and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | broadening our geographic presence by adding new offices in the Netherlands (Amsterdam), Canada (Toronto), Australia (Sydney) and mainland China (Beijing), as well
as three new regional offices in the U.S. (Atlanta, Houston and Los Angeles) and entering into new strategic alliances in two new geographies (Argentina and Brazil).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We made many of these investments during a period of financial market weakness, when many of our competitors were reducing
senior staffing, which positioned us to capitalize more fully during the recovery of the financial services industry.



In addition to the expansion of our Financial Advisory team, we believe that the following external market factors may enable our Financial Advisory
practice to benefit from continued growth in the global mergers and acquisitions advisory business:



| |  |  | increasing demand for independent, unbiased financial advice, and
| | - |  | -----------------------------------------------------------------



| |  |  | a potential increase in cross-border mergers and acquisitions and large capitalization mergers and acquisitions, two of our areas of historical specialization.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



Going forward, our strategic emphasis in our
Financial Advisory business is to leverage the investments we have made in recent years to grow our business and drive our productivity. We continue to seek to opportunistically attract outstanding individuals to this practice.



We routinely reassess our strategic position and may in the future seek
acquisitions or other transactions, including the opportunistic hiring of new employees, to further enhance our competitive position.



Relationship with IXIS



In April 2004, Lazard Group and IXIS entered into a cooperation arrangement to place and underwrite securities on the French equity primary capital
markets under a common brand, Lazard-Ixis, and cooperate in their respective origination, syndication and placement activities. This cooperation covers French listed companies exceeding a market capitalization of 500 million. On
March 15, 2005, Lazard Group and IXIS expanded this arrangement into an exclusive arrangement within France. The cooperation arrangement also provides for an alliance in real estate advisory work with the objective of establishing a common
brand for advisory and financing operations within France. It also adds an exclusive mutual referral cooperation arrangement, subject to the fiduciary duties of each firm, with the goal of referring clients from Lazard Group to IXIS for services
relating to corporate banking, lending, securitizations and derivatives within France and from IXIS to Lazard Group for mergers and acquisitions advisory services within France. This expanded cooperation arrangement has an initial term of three
years through May 10, 2008.



In connection with the cooperation
arrangement, Lazard Group and IXIS have developed a business plan to promote mutual revenue production and sharing relating to the cooperation activities. As part of that plan, revenue from the various activities subject to the cooperation
arrangement is credited towards a target weighted revenue number (the Notional Reserve) of 20 million (which the parties may agree to reduce if aspects of the cooperation do not take place), calculated by applying varying
percentages depending on the source of the revenue plus the underwriting commissions received by IXIS for the ESUs. If at the end of the initial term of the cooperation arrangement (a) the sum of that calculation is less than the Notional
Reserve, (b) the cooperation arrangement is not



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renewed and (c) Lazard Ltds common stock price fails to exceed $25 per share for a specified period, Lazard Group or its affiliate will pay IXIS
or one of its affiliates the difference between the Notional Reserve and the sum of (1) the weighted revenue credits and (2) any gain IXIS has realized on a sale of its investment in our securities prior to the end of the initial term of
the arrangement. The level of this potential payment would depend, among other things, on the level of revenue generated by the cooperation activities. The potential payment is limited, as of December 31, 2006, to a maximum of approximately 8
million (subject to further reduction in certain circumstances) which would only occur if the cooperation activities generate no revenue over the course of the remaining initial period of such activities and the other conditions noted above have not
been met.



Asset Management



Our Asset Management business provides investment management and advisory
services to institutional clients, financial intermediaries, private clients and investment vehicles around the world. Our goal in our Asset Management business is to produce superior risk-adjusted investment returns and provide investment solutions
customized for our clients. Many of our equity investment strategies share an investment philosophy that centers on fundamental security selection with a focus on the trade-off between a companys valuation and its financial productivity.



As of December 31, 2006, total assets under management
(AUM) were $110.4 billion, approximately 83% of which was invested in equities, 11% in fixed income, 3% in alternative investments, 2% in cash and 1% in merchant banking funds. As of the same date, approximately 56% of our AUM was
invested in international (i.e., non-U.S. and regional non-U.S.) investment strategies, 27% was invested in global investment strategies and 17% was invested in U.S. investment strategies, and our top ten clients accounted for 25% of total
AUM. Approximately 83% of our AUM as of that date was managed on behalf of institutional clients, including corporations, labor unions, public pension funds, insurance companies and banks, and through sub-advisory relationships, mutual fund
sponsors, broker-dealers and registered advisors. Approximately 17% of AUM as of December 31, 2006 was managed on behalf of individual client relationships, which are principally with family offices and high-net worth individuals.



The charts below illustrate the mix of our AUM as of December 31,
2006, measured by broad product strategy and by office location.



|                     |  |                             
|-------------------- |  | ----------------------------
|AUM BY PRODUCT  LOGO |  | AUM BY OFFICE LOCATION  LOGO



For the years ended
December 31, 2006, 2005 and 2004, Asset Management net revenue totaled $553 million, $466 million and $417 million, respectively, accounting for approximately 37%, 36% and 38%, respectively, of our net revenue from continuing operations for the
periods. During the same periods, Asset Management reported operating income of $135 million, $116 million and $135 million, respectively, although as noted previously results of operations for periods prior to May 10, 2005 are not comparable to
results of operations for subsequent periods. At December 31, 2006, 2005 and 2004, Asset Management had $419 million, $308 million, and $245 million in total assets, respectively.



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LAM and LFG



Our largest Asset Management subsidiaries are Lazard Asset Management LLC (LAM) with offices in New York, San
Francisco, Minneapolis, London, Milan, Frankfurt, Hamburg, Tokyo, Sydney and Seoul (aggregating approximately $97.7 billion in total AUM as of December 31, 2006), and Lazard Frères Gestion (LFG) headquartered in Paris
(aggregating approximately $11.9 billion in total AUM as of December 31, 2006). These operations, with 676 employees as of December 31, 2006, provide our business with a global presence and local identity.



Primary distinguishing features of these operations include:



| |  |  | a global footprint with global research, global mandates and global clients,
| | - |  | ----------------------------------------------------------------------------



| |  |  | a broad-based team of approximately 200 investment professionals at December 31, 2006: LAM has approximately 175 investment professionals, which includes
approximately 70 focused, in-house, investment analysts across all products and platforms, approximately 28 of whom are on our global research platform, many of whom have substantial industry or sector specific expertise, and LFG has approximately
30 investment professionals, including seven investment analysts,
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a security selection-based investment philosophy applied across products analysis,
| | - |  | ----------------------------------------------------------------------------------



| |  |  | worldwide brand recognition and multi-channel distribution capabilities, and
| | - |  | ----------------------------------------------------------------------------



| |  |  | a substantial equity participation in LAM held by a broad group of key employees.
| | - |  | ---------------------------------------------------------------------------------



Our Investment Philosophy, Process and Research.    Our investment philosophy is generally based
upon a fundamental security selection approach to investing. Across many of our products, we apply three key principles to investment portfolios:



| |  |  | select securities, not markets,
| | - |  | -------------------------------



| |  |  | find relative value, and
| | - |  | ------------------------



| |  |  | manage risk.
| | - |  | ------------



In searching for equity investment opportunities, our investment professionals generally follow an investment process that incorporates several
interconnected components that may include:



| |  |  | analytical framework analysis and screening,
| | - |  | --------------------------------------------



| |  |  | accounting validation,
| | - |  | ----------------------



| |  |  | fundamental analysis,
| | - |  | ---------------------



| |  |  | security selection and portfolio construction, and
| | - |  | --------------------------------------------------



| |  |  | risk management.
| | - |  | ----------------



At LAM, we conduct investment research on a global basis, to develop market, industry and company specific insight. Approximately 70 investment analysts,
located in our worldwide offices, conduct research and evaluate investment opportunities around the world across all products and platforms. The LAM global research platform is organized around six global industry sectors:



| |  |  | consumer goods,
| | - |  | ---------------



| |  |  | financial services,
| | - |  | -------------------



| |  |  | health care,
| | - |  | ------------



| |  |  | industrials,
| | - |  | ------------



| |  |  | power, and
| | - |  | ----------



| |  |  | technology, media and telecommunications.
| | - |  | -----------------------------------------



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Our analysts recommend companies to portfolio managers and work with them on an ongoing basis to make buy
and sell decisions.



At LFG, seven investment analysts conduct
research and evaluate investment opportunities, primarily focused on large capitalization European companies.



Investment Strategies.    Our Asset Management business provides equity, fixed income and cash management and alternative
investment strategies to clients, paying close attention to clients varying and expanding investment needs. We offer the following product platform of investment strategies:



|                                 |  |                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                           |  |                                                                                                                                                                                                                                              
|-------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                 |  | Global                                                                                                                                                                                                                                                |  | Regional                                                                                                                                                                                                  |  | Domestic                                                                                                                                                                                                                                     
|Equities                         |  | Global Large Capitalization Small Capitalization Emerging Markets Thematic Convertibles* Infrastructure  EAFE (Non-U.S.) Large Capitalization Small Capitalization Multi-Capitalization  Global Ex Global
Ex-U.K. Global Ex-Japan Global Ex-Australia |  | Pan-European Large Capitalization Small Capitalization  Eurozone Large Capitalization** Small Capitalization**  Continental European Small Cap Multi Cap Eurozone (i.e., Euro Bloc) Euro-Trend (Thematic) |  | U.S. Large Capitalization** Mid Capitalization Small Capitalization Multi-Capitalization  Other U.K. (Large Capitalization) U.K. (Small Capitalization) Australia France (Large Capitalization)* France (Small Capitalization)* Japan** Korea
|                                 |  |                                                                                                                                                                                                                                                       | 
|Fixed Income and Cash Management |  | Global Core Fixed Income High Yield Short Duration                                                                                                                                                                                                    |  | Pan-European Core Fixed
Income High Yield Cash Management*  Eurozone Fixed Income** Cash Management* Corporate Bonds**                                                                                    |  | U.S. Core Fixed Income High Yield Short Duration Municipals Cash Management*  Non-U.S. U.K. Fixed Income                                                                                                                                     
|                                 |  |                                                                                                                                                                                                                                                       | 
|Alternative                      |  | Global Global Opportunities (Long/Short) Fund of Hedge Funds Fund of Closed-End Funds (Long and     Long/Short)                                                                                                                                       |  | Regional European Explorer(Long/Short) Emerging Income Japan (Long/Short)                                                                                                                                 |  |                                                                                                                                                                                                                                              



All of the above strategies are
offered by LAM, except for those denoted by *, which are offered exclusively by LFG. Investment strategies offered by both LAM and LFG are denoted by **.



In addition to the primary investment strategies listed above, we also provide locally customized investment solutions to our clients. In many cases, we
also offer both diversified and more concentrated versions of our products. These products are generally offered on a separate account basis, as well as through pooled vehicles.



Distribution.    We distribute our products through a broad array of marketing channels on a
global basis. LAMs marketing, sales and client service efforts are organized through a global market delivery and service



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network, with distribution professionals located in New York, San Francisco, London, Milan, Frankfurt, Hamburg, Tokyo, Sydney and Seoul. We have developed a
well-established presence in the institutional asset management arena, managing money for corporations, labor unions and public pension funds around the world. In addition, we manage assets for insurance companies, savings and trust banks,
endowments, foundations and charities.



We also have become a
leading firm in third-party distribution, managing mutual funds and separately managed accounts for many of the worlds largest broker-dealers, insurance companies, registered advisors and other financial intermediaries. In the area of wealth
management, we cater to family offices and private clients.



LFG markets and distributes its products through 15 sales professionals based in France who target directly both individual and institutional investors.



Most of the managing directors of LAM and other key LAM employees hold LAM equity units, which entitle their holders to
payments in connection with selected fundamental transactions affecting Lazard Group or LAM. For more information regarding these rights see Managements Discussion and Analysis of Financial Condition and Results of Operations.



Merchant Banking



Lazard Group has a long history of making merchant banking investments with
its own capital, usually alongside capital of qualified institutional and individual investors. These activities typically are organized in funds that make substantial or controlling investments in private or public companies, generally through
privately negotiated transactions and with a view to divestment within two to seven years. While potentially risky and frequently illiquid, such investments, when successful, can yield investors substantial returns on capital and generate attractive
management and performance fees for the sponsor of such funds.



As a part of the separation, we transferred to LFCM Holdings all of our merchant banking fund management activities, except for Fonds Partenaires Gestion (FPG), our merchant banking business in France, which is regulated as part
of our Paris-based banking affiliate, Lazard Frères Banque SA (LFB). We also transferred to LFCM Holdings principal investments by Lazard Group in the funds managed as part of the separated businesses, while we retained our
investment in our French merchant banking funds.



LFCM Holdings
operates the merchant banking business transferred to it in the separation. Consistent with Lazard Groups intent to support the development of the merchant banking business, including investing capital in funds managed or formed by the
merchant banking subsidiary of LFCM Holdings, and in order to benefit from what we believe to be the potential of this business, Lazard Group will be entitled to receive from LFCM Holdings all or a portion of the payments from the incentive fees
attributable to these funds (net of compensation payable to investment professionals who manage these funds) pursuant to the business alliance agreement between us and LFCM Holdings. In addition, pursuant to the business alliance agreement, we have
an option to acquire the merchant banking business owned by LFCM Holdings and have the right to participate in the oversight of LFCM Holdings funds and consent to certain actions. We will continue to abide by our obligations with respect to
transferred funds and agreed not to compete with LFCM Holdings merchant banking business during the duration of our option to acquire this business. From time to time we have considered exercising the option to acquire the merchant banking
business and have had preliminary conversations with LFCM Holdings in that regard.



As of December 31, 2006, FPG, Lazard Groups merchant banking business in France, with 10 employees, consisted of a group of private equity funds and an affiliated management company with approximately $882
million of AUM. Lazard Groups investments in these funds totaled approximately $3 million as of December 31, 2006.



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In February 2005, Lazard Group formed Corporate Partners II, Limited, a private equity fund with
$1 billion of institutional capital commitments and a $100 million capital commitment from Lazard Group, the principal portion of which may require funding, at any time through 2010. As of December 31, 2006, Lazard Group has contributed
approximately $14.1 million of its capital commitment. Pursuant to the master separation and business alliance agreements entered into between Lazard Group and LFCM Holdings, this fund is managed by a subsidiary of LFCM Holdings, and Lazard Group
retained a capital commitment to the fund and is entitled to receive the carried interest distributions made by the fund (other than the carried interest distributions made to investment professionals who manage the fund).



In July 2005, LFCM Holdings formed a private equity fund,
Lazard Senior Housing Partners LP, which closed during 2006 with capital commitments of $201 million from institutional investors, including $10 million from Lazard Group, the principal portion of which will require funding at any time through 2008.
In connection with such capital commitment, Lazard Group funded $2.2 million as of December 31, 2006.



Pursuant to the business alliance agreement, we have a limited partner capital commitment to Lazard Technology Partners III, a planned investment fund to
be managed and controlled by LFCM Holdings, which commitment is contingent upon the formation of such investment fund. As of December 31, 2006 the capital commitment was 10% of the total fund capital commitments, with a minimum and maximum
commitment from Lazard Group of $15 million and $20 million, respectively. As of December 31, 2006, this investment fund has not been formed and Lazard Group has not made any payment toward such contingent capital commitment.



Strategy



Our strategic plan in our Asset Management business is to focus on
delivering superior investment performance and client service and broadening our product offerings and distribution in selected areas in order to continue to drive improved business results. In March 2004, we undertook a senior management transition
at LAM to put in place the next generation of leadership and to better position the business to execute our strategic plan. Over the past several years, in an effort to improve LAMs operations and expand our business, we have:



| |  |  | focused on enhancing our investment performance,
| | - |  | ------------------------------------------------



| |  |  | improved our investment management platform by adding a number of senior investment professionals (including portfolio managers and analysts),
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | strengthened our marketing capabilities by establishing a global consultant relations effort aimed at improving our relations with the independent consultants who
advise many of our clients on the selection of investment managers,
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | expanded our product platform by lifting-out experienced portfolio managers to establish new products, and
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | launched new products such as several Japan long/short strategies, a Korean equities strategy and a global listed infrastructure strategy.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



We believe that our Asset Management
business has long maintained an outstanding team of portfolio managers and global research analysts. We intend to maintain and supplement our intellectual capital to achieve our goals. We routinely reassess our strategic position and may in the
future seek acquisitions or other transactions, including the opportunistic hiring of new employees, in order to further enhance our competitive position. We also believe that our specific investment strategies, global reach, unique brand identity
and access to multiple distribution channels will allow us to leverage into new investment products, strategies and geographic locations. In addition, we plan to expand our participation in merchant banking activities through investments in new and
successor funds.



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Employees



We believe that our people are our most important asset, and it is their reputation, talent, integrity and dedication that underpin our success. As of
December 31, 2006, we employed 2,200 people, which included 128 managing directors and 512 other professionals in our Financial Advisory segment and 43 managing directors and 295 other professionals in our Asset Management segment. We strive to
maintain a work environment that fosters professionalism, excellence, diversity and cooperation among our employees worldwide. We utilize an evaluation process at the end of each year to measure performance, determine compensation and provide
guidance on opportunities for improved performance. Generally, our employees are not subject to any collective bargaining agreements, except that our employees in certain of our European offices, including France and Italy, are covered by national,
industry-wide collective bargaining agreements. We believe that we have good relations with our employees.



Competition



The
financial services industry, and all of the businesses in which we compete, are intensely competitive, and we expect them to remain so. Our competitors are other investment banking and financial advisory firms, broker-dealers, commercial and
universal banks, insurance companies, investment management firms, hedge fund management firms, merchant banking firms and other financial institutions. We compete with some of our competitors globally and with others on a regional,
product or niche basis. We compete on the basis of a number of factors, including quality of people, transaction execution skills, investment track record, quality of client service, individual and institutional client relationships, absence of
conflicts, range of products and services, innovation, brand recognition and business reputation.



While our competitors vary by country in our Mergers and Acquisitions practice, we believe our primary competitors in securing mergers and acquisitions
advisory engagements are Bear Stearns, Citigroup, Credit Suisse, Deutsche Bank AG, Goldman, Sachs & Co., JPMorgan Chase, Lehman Brothers, Mediobanca, Merrill Lynch, Morgan Stanley, Rothschild and UBS. In our Financial Restructuring
practice our primary competitors are The Blackstone Group, Greenhill & Co. and Rothschild.



We believe that our primary competitors in our Asset Management business include, in the case of LAM, Alliance Bernstein, AMVESCAP, Brandes Investment
Partners, Capital Management & Research, Fidelity, Lord Abbett and Schroders and, in the case of LFG, Swiss private banks with offices in France as well as large institutional banks and fund managers. We face competition in merchant banking
both in the pursuit of outside investors for our merchant banking funds and to acquire investments in attractive portfolio companies. We compete with hundreds of other funds, many of which are subsidiaries of or otherwise affiliated with large
financial service providers.



Competition is also intense in
each of our businesses for the attraction and retention of qualified employees, and we compete on the level and nature of compensation and equity-based incentives for key employees. Our ability to continue to compete effectively in our businesses
will depend upon our ability to attract new employees and retain and motivate our existing employees.



In recent years there has been substantial consolidation and convergence among companies in the financial services industry. In particular, a number of
large commercial banks, insurance companies and other broad-based financial services firms have established or acquired broker-dealers or have merged with other financial institutions. Many of these firms have the ability to offer a wider range of
products than we offer, including loans, deposit taking, insurance and brokerage services. Many of these firms also offer more extensive asset management and investment banking services, which may enhance their competitive position. They also have
the ability to support investment banking and securities products with commercial banking, insurance and other financial services revenue in an effort to gain market share, which could result in pricing pressure in our businesses. This trend toward
consolidation and convergence has significantly increased the capital base and geographic reach of our competitors.



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Regulation



Our businesses, as well as the financial services industry generally, are subject to extensive regulation throughout the world. As a matter of public
policy, regulatory bodies are charged with safeguarding the integrity of the securities and other financial markets and with protecting the interests of customers participating in those markets, not with protecting the interests of our stockholders
or creditors. Many of our affiliates that participate in securities markets are subject to comprehensive regulations that include some form of capital structure regulations and other customer protection rules. In the U.S., certain of our
subsidiaries are subject to such regulations promulgated by the SEC and/or the NASD. Standards, requirements and rules implemented throughout the European Union are broadly comparable in scope and purpose to the regulatory capital and customer
protection requirements imposed under the SEC and NASD rules. European Union directives also permit local regulation in each jurisdiction, including those in which we operate, to be more restrictive than the requirements of such directives, and
these sometimes burdensome local requirements can result in certain competitive disadvantages to us.



In the U.S., the SEC is the federal agency responsible for the administration of the federal securities laws. The NASD is a voluntary, self-regulatory
body composed of members, such as our broker-dealer subsidiaries, that have agreed to abide by the NASDs rules and regulations. This, and non-U.S. regulatory organizations, may examine the activities of, and may expel, fine and otherwise
discipline, member firms and their employees. The laws, rules and regulations comprising this framework of regulation and the interpretation and enforcement of existing laws, rules and regulations are constantly changing. The effect of any such
changes cannot be predicted and may impact the manner of operation and profitability of our company.



Our U.S. broker-dealer subsidiary, Lazard Frères & Co. LLC, through which we conduct our U.S. Financial Advisory business, is currently
registered as a broker-dealer with the SEC and the NASD, and as a broker-dealer in all 50 states, the District of Columbia and Puerto Rico. As such, Lazard Frères & Co. LLC is subject to regulations governing effectively every aspect
of the securities business, including the effecting of securities transactions, minimum capital requirements, record-keeping and reporting procedures, relationships with customers, experience and training requirements for certain employees and
business procedures with firms that are not members of certain regulatory bodies. Lazard Asset Management Securities LLC, a subsidiary of LAM, also is registered as a broker-dealer with the SEC and the NASD and in all 50 states, the District of
Columbia and Puerto Rico. Certain U.K. subsidiaries of Lazard Group, including Lazard & Co., Limited, Lazard Fund Managers Limited and Lazard Asset Management Limited, which we refer to in this annual report as, the U.K.
subsidiaries, are regulated by the Financial Services Authority or FSA.



Lazard Frères SAS, our French subsidiary, is subject to regulation by the Commission Bancaire and the Comité des Etablissements de Crédit et des Entreprises dInvestissement for its banking
activities, conducted through its affiliate LFB. In addition, the investment services activities of the Paris group, exercised through LFB and other subsidiaries of Lazard Frères SAS, primarily LFG (asset management) and FPG (merchant
banking), are subject to regulation and supervision by the Autorité des Marchés Financiers (AMF). Our business is also subject to regulation by non-U.S. governmental and regulatory bodies and self-regulatory authorities in
other countries where we operate.



Our U.S. broker-dealer
subsidiaries, including Lazard Frères & Co. LLC, are subject to the SECs uniform net capital rule, Rule 15c3-1, and the net capital rules of the NASD, which may limit our ability to make withdrawals of capital from our broker-dealer
subsidiaries. The uniform net capital rule sets the minimum level of net capital a broker-dealer must maintain and also requires that a portion of its assets be relatively liquid. The NASD may prohibit a member firm from expanding its business or
paying cash dividends if resulting net capital falls below its requirements. In addition, our broker-dealer subsidiaries are subject to certain notification requirements related to withdrawals of excess net capital. Our broker-dealer subsidiaries
are also subject to regulations including the USA PATRIOT Act of 2001, which impose obligations regarding the prevention and detection of money-laundering activities, including the establishment of customer due diligence and other compliance
policies and procedures. Failure to comply with these requirements may result in monetary, regulatory and, in certain cases, criminal penalties.



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Certain of our Asset Management subsidiaries are registered as investment advisors with the SEC. As
registered investment advisors, each is subject to the requirements of the Investment Advisers Act and the SECs regulations thereunder. Such requirements relate to, among other things, the relationship between an advisor and its advisory
clients, as well as general anti-fraud prohibitions. LAM serves as an advisor to several mutual funds which are registered under the Investment Company Act. The Investment Company Act regulates, among other things, the relationship between a mutual
fund and its investment advisor (and other service providers) and prohibits or severely restricts principal transactions between an advisor and its advisory clients, imposes record- keeping and reporting requirements, disclosure requirements,
limitations on trades where a single broker acts as the agent for both the buyer and seller (known as agency cross), and limitations on affiliated transactions and joint transactions. Lazard Asset Management Securities LLC, a subsidiary
of LAM, serves as the underwriter or distributor for mutual funds and hedge funds managed by LAM, and as an introducing broker to Lazard Capital Markets LLC for unmanaged accounts of LAMs private clients.



In addition, the Japanese Ministry of Finance and the Financial Supervisory
Agency in Japan, the Korean Financial Supervisory Commission in Korea, as well as Australian and German banking authorities, among others, regulate various of our operating entities and also have capital standards and other requirements comparable
to the rules of the SEC.



Regulators are empowered to conduct
administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion or other disciplining of a broker-dealer or its directors, officers or employees.



Over the past several years, European Union financial services regulators
have taken steps to institute consolidated supervision over a wide range of financial services companies that conduct business in the European Union, even if their head offices are located outside of the European Union. Under the Financial
Conglomerates Directive (2002/87/EC), we, along with a number of our competitors, were required to submit to consolidated supervision by a European Union financial services regulator commencing on January 1, 2005, unless we were already subject
to equivalent supervision by another regulator. During 2004, the SEC issued final regulations establishing a consolidated supervision framework for investment banks. Under these regulations, we can voluntarily submit to a stringent
framework of rules relating to group-wide capital levels, internal risk management control systems and regulatory reporting requirements. We have elected to become subject to consolidated supervision by the SEC and formally notified the SEC of our
intention in December 2004.



Although we have had discussions
with the staff of the SEC, we are unable at this time to accurately predict the impact that these regulations will have on our businesses and financial results. It is possible that these regulations may ultimately require that we increase our
regulatory capital, which may adversely affect our profitability and result in other increased costs.



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Executive Officers of the Registrant



Set forth below are the name, age, present title, principal occupation and certain biographical information for our executive officers as of February 22, 2007, all of whom have been appointed by, and serve at the pleasure of, our board of
directors.



Bruce Wasserstein, 59

Mr. Wasserstein has served as Chairman and Chief Executive Officer of Lazard Group and Lazard Ltd since May 2005. Mr. Wasserstein has served as
a director of Lazard Group since January 2002 and as a director of Lazard Ltd since April 2005. Mr. Wasserstein served as the Head of Lazard and Chairman of the Executive Committee of Lazard Group from January 2002 until May 2005. Prior to
joining Lazard, Mr. Wasserstein was Executive Chairman at Dresdner Kleinwort Wasserstein from January 2001 to November 2001. Prior to joining Dresdner Kleinwort Wasserstein, he served as CEO of Wasserstein Perella Group (an investment banking
firm he co-founded) from February 1988 to January 2001, when Wasserstein Perella Group was sold to Dresdner Bank. Prior to founding Wasserstein Perella Group, Mr. Wasserstein was the Co-Head of Investment Banking at The First Boston
Corporation. Prior to joining First Boston, Mr. Wasserstein was an attorney at Cravath, Swaine & Moore. Mr. Wasserstein also currently serves as Chairman of Wasserstein & Co., LP, a private merchant bank and is a
member of the board of directors of Harry & David Holdings, Inc.



Michael J. Castellano, 60

Mr. Castellano has served as Chief Financial Officer of Lazard Ltd since May 2005.
Mr. Castellano has served as a Managing Director and Chief Financial Officer of Lazard Group since August 2001. Prior to joining Lazard, Mr. Castellano held various senior management positions at Merrill Lynch & Co. from August
1991 to August 2001, including Senior Vice PresidentChief Control Officer for Merrill Lynchs capital markets businesses, Chairman of Merrill Lynch International Bank and Senior Vice President Corporate Controller. Prior to joining
Merrill Lynch & Co., Mr. Castellano was a partner with Deloitte & Touche where he served a number of investment banking clients over the course of his 24 years with the firm.



Steven J. Golub, 61

Mr. Golub has served as Vice Chairman and Chairman of the Financial Advisory Group of Lazard Ltd since May 2005. Mr. Golub has served as Vice
Chairman of Lazard Group since October 2004 and as a Managing Director of Lazard Group since January 1986. Mr. Golub previously served as Chief Financial Officer from July 1997 to August 2001. Mr. Golub also served as a Senior Vice
President of Lazard from May 1984 to January 1986. Prior to joining Lazard, Mr. Golub was a Partner at Deloitte Haskins & Sells from July 1980 to May 1984. Prior to joining Deloitte Haskins & Sells, he served as the Deputy
Chief Accountant in the Chief Accountants Office of the Securities and Exchange Commission from January 1979 to June 1980. Mr. Golub currently serves on the board of directors of Minerals Technologies Inc.



Scott D. Hoffman, 44

Mr. Hoffman has served as General Counsel of Lazard Ltd since May 2005. Mr. Hoffman has served as a Managing Director of Lazard Group since
January 1999 and General Counsel of Lazard Group since January 2001. Mr. Hoffman previously served as Vice President and Assistant General Counsel from February 1994 to December 1997 and as a Director from January 1998 to December 1998. Prior
to joining Lazard, Mr. Hoffman was an attorney at Cravath, Swaine & Moore.



Charles G. Ward, III, 54

Mr. Ward has served as President and Chairman of the Asset Management
Group of Lazard Ltd since May 2005. Mr. Ward has served as President and a Managing Director of Lazard Group since February 2002. Prior to joining Lazard, he was variously the Head or Co-Head of Global Investment Banking and Private Equity of
Credit Suisse First Boston, or CSFB, from February 1994 to February 2002. Mr. Ward also served as a member of the Executive Board of CSFB from February 1994 to February 2002 and as President of CSFB from April 2000 to November 2000.
Prior to joining CSFB, Mr. Ward co-founded Wasserstein Perella Group in February 1988 and served as President of Wasserstein Perella & Co. from January 1990 to February 1994. Prior to serving at Wasserstein Perella & Co.,
Mr. Ward was Co-Head of Mergers and Acquisitions and the Media Group at The First Boston Corporation where he worked from July 1979 to February 1988.



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Where You Can Find Additional Information



Lazard Group files current, annual and quarterly reports and other
information required by the Securities Exchange Act of 1934, as amended (the Exchange Act), with the SEC. You may read and copy any document the company files at the SECs public reference room located at 100 F Street, N.E.,
Washington, D.C. 20549, U.S.A. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The Companys SEC filings are also available to the public from the SECs internet site at http://www.sec.gov.
Copies of these reports and other information can also be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, U.S.A.



Our public internet site is http://www.lazard.com. and the investor relations section of our public internet site is
located at http://www.lazard.com/investorrelations/SEC-filings.html.We will make available free of charge, on or through the investor relations section of our internet site, our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Also posted on our website,
and available in print upon request of any shareholder to the Investor Relations Department, are charters for the Companys Audit Committee, Compensation Committee and Nominating & Governance Committee. Copies of these charters and our
Corporate Governance Guidelines and Code of Business Conduct and Ethics governing our directors, officers and employees are also posted on our website in the Corporate Governance section.



|Item 1A. | Risk Factors
|-------- | ------------



You should carefully consider the following risks and all of the other information set forth in this annual report, including our consolidated financial
statements and related notes. The risk factors set forth below primarily relate to the business of Lazard Group. The following risks comprise material risks of which we are aware. If any of the events or developments described below actually
occurred, our business, financial condition or results of operations would likely suffer.



Risks Related to Our Business



Our ability to retain our managing directors and other key professional employees is critical to the success of our business, including maintaining compensation levels at an appropriate level of costs, and failure to do so may materially
adversely affect our results of operations and financial position.



Our people are our most important resource. We must retain the services of our managing directors and other key professional employees, and strategically recruit and hire new talented employees, to obtain and successfully execute the
advisory and asset management engagements that generate substantially all our revenue.



Lazard Group has experienced several significant events in recent years, including our unification under one global firm, the transition to new senior management and our transformation from a private to a public
company, and our industry in general continues to experience change and exert competitive pressures for retaining top talent, each of which makes it more difficult for us to retain professionals. If any of our managing directors and other key
professional employees were to join an existing competitor or form a competing company or otherwise leave us, some of our clients could choose to use the services of that competitor or some other competitor instead of our services. The employment
arrangements, non-competition agreements and retention agreements we have entered into with our managing directors and other key professional employees may not prevent our managing directors and other key professional employees from resigning from
practice or competing against us. In addition, these arrangements and agreements have a limited duration and will expire after a certain period of time. Since our transformation to a public company, we continue to be subject to the intense
competition in the financial services industry regarding the recruitment and retention of key professionals, and have experienced a few departures from and added to our professional ranks as a result. In connection with our transformation to a



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public company we adopted a compensation policy that provides that our employee compensation and benefits expense, including amounts payable to our managing
directors, will not exceed 57.5% of operating revenue (although we retain the ability to change this policy in the future). For the year ended December 31, 2006, such employee compensation and benefits expenses were 56.7% of operating revenue,
including amortization of restricted stock unit grants under our 2005 Equity Incentive Plan which starts at the date of grant.



During periods of favorable market conditions we would expect to be able to achieve this target without negatively impacting the financial packages for
our managing directors and other key employees. However during periods of adverse market conditions we may face additional retention pressures as a result of potential reductions in payments for services rendered by our managing directors and other
key employees. As a result of the intense competition for financial services professionals, we, like our competitors, may not be able to retain each of the key employees and managing directors that we desire to keep and, even if we can, we may not
be able to retain them at compensation levels that will allow us to achieve our target ratio of compensation expense-to-operating revenue.



Difficult market conditions can adversely affect our business in many ways, including by reducing the volume of the transactions involving our
Financial Advisory business and reducing the value or performance of the assets we manage in our Asset Management business, which, in each case, could materially reduce our revenue or income and adversely affect our financial position.



As a financial services firm, our businesses are
materially affected by conditions in the global financial markets and economic conditions throughout the world. For example, revenue generated by our Financial Advisory business is directly related to the volume and value of the transactions in
which we are involved. During periods of unfavorable market or economic conditions, the volume and value of mergers and acquisitions transactions may decrease, thereby reducing the demand for our Financial Advisory services and increasing price
competition among financial services companies seeking such engagements. Our results of operations would be adversely affected by any such reduction in the volume or value of mergers and acquisitions transactions. In addition, our profitability
would be adversely affected by our fixed costs and the possibility that we would be unable to scale back other costs within a time frame sufficient to match any decreases in revenue relating to changes in market and economic conditions. The future
market and economic climate may deteriorate because of many factors, including rising interest rates or inflation, terrorism or political uncertainty.



Within our Financial Advisory business, we have typically seen that, during periods of economic strength and growth, our Mergers and Acquisitions practice
historically has been more active and our Financial Restructuring practice has been less active. Conversely, during periods of economic weakness and slowdown, we typically have seen that our Financial Restructuring practice has been more active and
our Mergers and Acquisitions practice has been less active. As a result, our revenue from our Financial Restructuring practice has tended to correlate negatively to our revenue from our Mergers and Acquisitions practice over the course of business
cycles. These trends are cyclical in nature and subject to periodic reversal. However, these trends do not cancel out the impact of economic conditions in our Financial Advisory business, which may be adversely affected by a downturn in economic
conditions leading to decreased Mergers and Acquisitions practice activity, notwithstanding improvements in our Financial Restructuring practice. Moreover, revenue improvements in our Mergers and Acquisitions practice in strong economic conditions
could be offset in whole or in part by any related revenue declines in our Financial Restructuring practice. While we generally have experienced a counter-cyclical relationship between our Mergers and Acquisitions practice and our Financial
Restructuring practice, this relationship may not continue in the future.



Our Asset Management business also would be expected to generate lower revenue in a market or general economic downturn. Under our Asset Management business arrangements, investment advisory fees we receive
typically are based on the market value of AUM. Accordingly, a decline in the prices of securities would be expected to cause our revenue and income to decline by:



| |  |  | causing the value of our AUM to decrease, which would result in lower investment advisory fees,
| | - |  | -----------------------------------------------------------------------------------------------



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| |  |  | causing negative absolute performance returns for some accounts which have performance-based incentive fees, resulting in a reduction of revenue from such fees,
and/or
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | causing some of our clients to withdraw funds from our Asset Management business in favor of investments they perceive as offering greater opportunity or lower
risk, which also would result in lower investment advisory fees
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If our Asset Management revenue declines without a commensurate reduction in our expenses, our net income will be reduced. In addition, in the event of a market downturn, our merchant banking practice also may be
impacted by reduced exit opportunities in which to realize the value of its investments.



A majority of our revenue is derived from Financial Advisory fees, which are not long-term contracted sources of revenue and are subject to intense competition, and declines in our Financial Advisory engagements
could have a material adverse effect on our financial condition and results of operations.



We historically have earned a substantial portion of our revenue from advisory fees paid to us by our Financial Advisory clients, which fees usually are payable upon the successful completion of a particular
transaction or restructuring. For example, for the year ended December 31, 2006, Financial Advisory services accounted for approximately 65% of our net revenue. We expect that we will continue to rely on Financial Advisory fees for a
substantial portion of our revenue for the foreseeable future, and a decline in our advisory engagements or the market for advisory services would adversely affect our business, financial condition and results of operations.



In addition, we operate in a highly competitive environment where typically
there are no long-term contracted sources of revenue. Each revenue-generating engagement typically is separately awarded and negotiated. Furthermore, many businesses do not routinely engage in transactions requiring our services, and, as a
consequence, our fee paying engagements with many clients are not likely to be predictable. We also lose clients each year as a result of the sale or merger of a client, a change in a clients senior management, competition from other financial
advisors and financial institutions and other causes. As a result, our engagements with clients are constantly changing, and our Financial Advisory fees could decline quickly due to the factors discussed above.



There will not be a consistent pattern in our financial results from
period to period, which may make it difficult for us to achieve steady earnings growth on a quarterly basis.



We experience significant fluctuations in revenue and profits. These fluctuations generally can be attributed to the fact that we earn a significant
portion of our Financial Advisory revenue upon the successful completion of a merger or acquisition transaction or a restructuring, the timing of which is uncertain and is not subject to our control. In addition, our Asset Management revenue is
particularly sensitive to fluctuations in our AUM. Asset Management fees are often based on AUM as of the end of a quarter or month. As a result, a reduction in assets at the end of a quarter or month (as a result of market depreciation, withdrawals
or otherwise) will result in a decrease in management fees. Similarly, timing of flows, contributions and withdrawals are often out of our control and may be inconsistent from quarter to quarter. As a result of quarterly fluctuations, it may be
difficult for us to achieve steady earnings growth on a quarterly basis.



In many cases, we are paid for advisory engagements only upon the successful consummation of the underlying merger or acquisition transaction or restructuring. As a result, our Financial Advisory business is highly
dependent on market conditions and the decisions and actions of our clients, interested third parties and governmental authorities. For example, a client could delay or terminate an acquisition transaction because of a failure to agree upon final
terms with the counterparty, failure to obtain necessary regulatory consents or board of directors or stockholder approvals, failure to secure necessary financing, adverse market conditions or because the targets business is experiencing
unexpected operating or financial problems. Anticipated bidders for assets of a client during a restructuring transaction may not materialize or our client may not be able to restructure its



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operations or indebtedness due to a failure to reach agreement with its principal creditors. In these circumstances, we often do not receive any advisory
fees other than the reimbursement of certain expenses despite the fact that we devote resources to these transactions. Accordingly, the failure of one or more transactions to close either as anticipated or at all could materially adversely affect
our business, financial condition or results of operations. For more information, see Managements Discussion and Analysis of Financial Condition and Results of Operations.



If the number of debt defaults, bankruptcies or other factors affecting
demand for our Financial Restructuring services declines, or we lose business to certain new entrants to the financial restructuring advisory practice who are no longer precluded from offering such services due to changes to the U.S. Bankruptcy
Code, our Financial Restructuring practices revenue could suffer.



We provide various financial restructuring and restructuring-related advice to companies in financial distress or to their creditors or other stakeholders. The fees from financial restructuring related services have
been a significant part of our Financial Advisory revenue. A number of factors affect demand for these advisory services, including general economic conditions, the availability and cost of debt and equity financing and changes to laws, rules and
regulations, including deregulation or privatization of particular industries and those that protect creditors.



Section 327 of the U.S. Bankruptcy Code requires that disinterested persons be employed in a restructuring. The definition of
disinterested person has been modified. As previously in effect, certain of our competitors were disqualified from being employed in restructurings as a result of their status as an underwriter of securities. This basis for
disqualification, however, no longer applies. Historically, we were not often disqualified from obtaining a role in a restructuring because we have not been a significant underwriter of securities. The change of the disinterested person
definition could allow for more financial services firms to compete for restructuring engagements and make recruiting and retaining of professionals more difficult. If our competitors succeed in being retained in new restructuring engagements, our
Financial Restructuring practice, and thereby our results of operations, could be materially adversely affected.



We could lose clients and suffer a decline in our Asset Management revenue and earnings if the investments we choose in our Asset Management business
perform poorly or if we lose key employees, regardless of overall trends in the prices of securities.



Investment performance affects our AUM relating to existing clients and is one of the most important factors in retaining clients and competing for new
Asset Management business. Poor investment performance could impair our revenue and growth because:



| |  |  | existing clients might withdraw funds from our Asset Management business in favor of better performing products, which would result in lower investment advisory
fees,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our incentive fees, which provide us with a set percentage of returns on some alternative investment and merchant banking funds and other accounts, would decline,
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | third-party financial intermediaries, advisors or consultants may rate our products poorly, which may result in client withdrawals and reduced asset flows from
these third parties or their clients, or
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | firms with which we have strategic alliances may terminate such relationships with us, and future strategic alliances may be unavailable.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



If key employees were to leave our Asset
Management business, whether to join a competitor or otherwise, we may suffer a decline in revenue or earnings and suffer an adverse effect on our financial position. Loss of key employees may occur due to perceived opportunity for promotion,
increased compensation, work environment or other individual reasons, some of which may be beyond our control.



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Our investment style in our Asset Management business may underperform other investment approaches,
which may result in significant client or asset departures or a reduction in AUM.



Even when securities prices are rising generally, performance can be affected by investment style. Many of the equity investment strategies in our Asset Management business share a common investment orientation
towards fundamental security selection. We believe this style tends to outperform the market in some market environments and underperform it in others. In particular, a prolonged growth environment may cause this investment strategy to go out of
favor with some clients, consultants or third-party intermediaries. In combination with poor performance relative to peers, changes in personnel, extensive periods in particular market environments or other difficulties, this may result in
significant client or asset departures or a reduction in AUM.



Because our clients can remove the assets we manage on short notice, we may experience unexpected declines in revenue and profitability.



Our investment advisory contracts are generally terminable upon very short notice. Institutional and individual clients, and firms with which we have
strategic alliances, can terminate their relationship with us, reduce the aggregate amount of AUM or shift their funds to other types of accounts with different rate structures for a number of reasons, including investment performance, changes in
prevailing interest rates and financial market performance. Poor performance relative to other investment management firms tends to result in decreased investments in our investment products, increased redemptions of our investment products, and the
loss of institutional or individual accounts or strategic alliances. In addition, the ability to terminate relationships may allow clients to renegotiate for lower fees paid for asset management services.



In addition, in the U.S., as required by the Investment Company Act, each of
our investment advisory contracts with the mutual funds we advise or subadvise automatically terminates upon its assignment. Each of our other investment advisory contracts subject to the provisions of the Investment Advisers Act of
1940, as amended, as required by this act, provides that the contract may not be assigned without the consent of the customer. A sale of a sufficiently large block of shares of our voting securities or other transactions could be deemed
an assignment in certain circumstances. An assignment, actual or constructive, would trigger these termination provisions and could adversely affect our ability to continue managing client accounts.



Access to clients through intermediaries is important to our Asset
Management business, and reductions in referrals from such intermediaries or poor reviews of our products or our organization by such intermediaries could materially reduce our revenue and impair our ability to attract new clients.



Our ability to market our Asset Management services relies in part on
receiving mandates from the client base of national and regional securities firms, banks, insurance companies, defined contribution plan administrators, investment consultants and other intermediaries. To an increasing extent, our Asset Management
business uses referrals from accountants, lawyers, financial planners and other professional advisors. The inability to have this access could materially adversely affect our Asset Management business. In addition, many of these intermediaries
review and evaluate our products and our organization. Poor reviews or evaluations of either the particular product or of us may result in client withdrawals or an inability to attract new assets through such intermediaries.



Our historical merchant banking activities involve increased levels of
investments in relatively high-risk, illiquid assets, and we may lose some or all of the principal amount that we invest in these activities or fail to realize any profits from these activities for a considerable period of time.



We intend to expand our participation in merchant banking activities through
investments in new and successor funds, and we may exercise our option under the business alliance agreement between Lazard Group and LFCM Holdings to acquire the merchant banking business and related principal investments from LFCM Holdings.



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The revenue from this business is derived primarily from management fees calculated as a percentage of
AUM and incentive fees, which are earned if investments are profitable over a specified threshold. Our ability to form new merchant banking funds is subject to a number of uncertainties, including past performance of our funds, market or economic
conditions, competition from other fund managers and the ability to negotiate terms with major investors. In addition, the payments we are entitled to receive from LFCM Holdings under the terms of the business alliance agreement in respect of our
continued involvement with LFCM Holdings are based on the carried interests received in connection with LFCM Holdings-managed funds.



In addition, we expect to make principal investments in new merchant banking funds that may be established by us or by LFCM Holdings, and to continue to
hold principal investments in several merchant banking funds managed by LFCM Holdings. The kinds of investments made by these funds are generally in relatively high-risk, illiquid assets. Contributing capital to these funds is risky, and we may lose
some or all of the principal amount of our investments. Because it may take several years before attractive investment opportunities are identified, some or all of the capital committed by us to these funds is likely to be invested in government
securities, other short-term, highly rated debt securities and money market funds that traditionally have offered investors relatively lower returns. In addition, the investments in these funds are adjusted for accounting purposes to fair market
value at the end of each quarter, and our allocable share of these gains or losses will affect our revenue, even though such market fluctuations may have no cash impact, which could increase the volatility of our earnings. It takes a substantial
period of time to identify attractive merchant banking opportunities, to raise all the funds needed to make an investment and then to realize the cash value of an investment through resale. Even if a merchant banking investment proves to be
profitable, it may be several years or longer before any profits can be realized in cash or other proceeds.



We face strong competition from financial services firms, many of whom have the ability to offer clients a wider range of products and services than we
can offer, which could lead to pricing pressures that could materially adversely affect our revenue and profitability.



The financial services industry is intensely competitive, and we expect it to remain so. We compete on the basis of a number of factors, including the
quality of our employees, transaction execution, our products and services, innovation, reputation and price. We have experienced intense fee competition in some of our businesses in recent years, and we believe that we will experience pricing
pressures in these and other areas in the future as some of our competitors seek to obtain increased market share by reducing fees.



We face increased competition due to a trend toward consolidation. In recent years, there has been substantial consolidation and convergence among
companies in the financial services industry. In particular, a number of large commercial banks, insurance companies and other broad-based financial services firms have established or acquired broker-dealers or have merged with other financial
institutions. Many of these firms have the ability to offer a wide range of products, from loans, deposit-taking and insurance to brokerage, asset management and investment banking services, which may enhance their competitive position. They also
have the ability to support investment banking, including financial advisory services, with commercial banking, insurance and other financial services in an effort to gain market share, which could result in pricing pressure in our businesses.



An inability to access the debt and equity capital markets
as a result of our debt and equity security obligations, credit ratings or other factors could impair our liquidity, increase our borrowing costs or otherwise adversely affect our competitive position or results of operations.



As of December 31, 2006, Lazard Group and its subsidiaries had
approximately $1.3 billion in debt outstanding. This debt has certain mandated payment obligations, which may constrain our ability to operate our business. In addition, in the future we may need to incur debt or issue equity in order to fund our
working capital requirements or refinance existing indebtedness, as well as to make acquisitions and other investments. The amount of our debt obligations may impair our ability to raise debt or issue equity for financing purposes. Our access to
funds also may be impaired if regulatory authorities take significant action against us, or if we discover



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that any of our employees had engaged in serious unauthorized or illegal activity. In addition, our borrowing costs and our access to the debt capital
markets depend significantly on our credit ratings. These ratings are assigned by rating agencies, which may reduce or withdraw their ratings or place us on credit watch with negative implications at any time. See Managements
Discussion and Analysis of Financial Condition and Results of Operations.



We may pursue acquisitions or joint ventures that could present unforeseen integration obstacles or costs.



We routinely assess our strategic position and may in the future seek acquisitions or other transactions to further enhance our competitive position. We
have in the past pursued joint ventures and other transactions aimed at expanding the geography and scope of our operations. In 2002 we entered into a business alliance in Italy with Banca Intesa S.p.A., or Intesa, which ended on
May 15, 2006 and in 2004 we established a joint venture in Brazil with Signatura Advisors Ltda. We also have entered into a cooperation arrangement with IXIS to promote mutually beneficial revenue production and sharing relating to cooperation
activities. See Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources and BusinessPrincipal Business LinesFinancial AdvisoryRelationship
with IXIS. We expect to continue to explore partnership opportunities that we believe to be attractive. In addition, with publicly traded securities that we could potentially use to finance acquisitions, we believe that we will have
opportunities and flexibility to pursue acquisitions and other similar transactions.



Acquisitions and joint ventures involve a number of risks and present financial, managerial and operational challenges, including potential disruption of our ongoing business and distraction of management, difficulty
with integrating personnel and financial and other systems, hiring additional management and other critical personnel and increasing the scope, geographic diversity and complexity of our operations. Our clients may react unfavorably to our
acquisition and joint venture strategy, we may not realize any anticipated benefits from acquisitions, and we may be exposed to additional liabilities of any acquired business or joint venture, any of which could materially adversely affect our
revenue and results of operations.



Employee misconduct
could harm us by impairing our ability to attract and retain clients and subjecting us to significant legal liability and reputational harm, and this type of misconduct is difficult to detect and deter.



There have been a number of highly publicized cases involving fraud or other
misconduct by employees in the financial services industry generally, and we run the risk that employee misconduct could occur in our business as well. For example, misconduct by employees could involve the improper use or disclosure of confidential
information, which could result in regulatory sanctions and serious reputational or financial harm. Our Financial Advisory business often requires that we deal with client confidences of great significance to our clients, improper use of which may
harm our clients or our relationships with our clients. Any breach of our clients confidences as a result of employee misconduct may impair our ability to attract and retain Financial Advisory clients and may subject us to liability.
Similarly, in our Asset Management business, we have authority over client assets, and we may, from time to time, have custody of such assets. In addition, we often have discretion to trade client assets on the clients behalf and must do so
acting in the best interests of the client. As a result, we are subject to a number of obligations and standards, and the violation of those obligations or standards may adversely affect our clients and us. It is not always possible to deter
employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in all cases.



The financial services industry faces substantial litigation and regulatory risks, and we may face damage to our professional reputation and legal
liability if our services are not regarded as satisfactory or for other reasons.



As a financial services firm, we depend to a large extent on our relationships with our clients and our reputation for integrity and high-caliber professional services to attract and retain clients. As a result, if a
client is



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not satisfied with our services, such dissatisfaction may be more damaging to our business than to other types of businesses. Moreover, our role as advisor
to our clients on important mergers and acquisitions or restructuring transactions involves complex analysis and the exercise of professional judgment, including, if appropriate, rendering fairness opinions in connection with mergers and
other transactions.



In recent years, the volume of claims and
amount of damages claimed in litigation and regulatory proceedings against financial advisors has been increasing. Our Financial Advisory activities may subject us to the risk of significant legal liabilities to our clients and third parties,
including our clients stockholders, under securities or other laws for materially false or misleading statements made in connection with securities and other transactions and potential liability for the fairness opinions and other advice
provided to participants in corporate transactions. In our Asset Management business, we make investment decisions on behalf of our clients which could result in substantial losses. This also may subject us to the risk of legal liabilities or
actions alleging negligence, misconduct, breach of fiduciary duty or breach of contract. These risks often may be difficult to assess or quantify and their existence and magnitude often remain unknown for substantial periods of time. Our engagements
typically include broad indemnities from our clients and provisions designed to limit our exposure to legal claims relating to our services, but these provisions may not protect us or may not be adhered to in all cases. We also are subject to claims
arising from disputes with employees for alleged discrimination or harassment, among other things. These risks often may be difficult to assess or quantify, and their existence and magnitude often remain unknown for substantial periods of time. As a
result, we may incur significant legal expenses in defending against litigation. Substantial legal liability or significant regulatory action against us could materially adversely affect our business, financial condition or results of operations or
cause significant reputational harm to us, which could seriously harm our business.



Other operational risks may disrupt our businesses, result in regulatory action against us or limit our growth.



Our business is dependent on communications and information systems, including those of our vendors. Any failure or interruption of these systems, whether
caused by fire, other natural disaster, power or telecommunications failure, act of terrorism or war or otherwise, could materially adversely affect our operating results. Although we have back-up systems in place, our back-up procedures and
capabilities in the event of a failure or interruption may not be adequate.



Particularly in our Asset Management business, we rely heavily on our financial, accounting, trading, compliance and other data processing systems. We expect that we will need to review whether to continue to upgrade
and expand the capabilities of these systems in the future to avoid disruption of, or constraints on, our operations. However, if any of these systems do not operate properly or are disabled, we could suffer financial loss, a disruption of our
businesses, liability to clients, regulatory intervention or reputational damage. The inability of our systems to accommodate an increasing volume of transactions also could constrain our ability to expand our businesses.



Extensive regulation of our businesses limits our activities and results
in ongoing exposure to the potential for significant penalties, including fines or limitations on our ability to conduct our businesses.



The financial services industry is subject to extensive regulation. We are subject to regulation by governmental and self-regulatory organizations in the
jurisdictions in which we operate around the world. Many of these regulators, including U.S. and non-U.S. government agencies and self-regulatory organizations, as well as state securities commissions in the U.S., are empowered to conduct
administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer from registration or memberships. The requirements imposed by our regulators are designed to
ensure the integrity of the financial markets and to protect customers and other third parties who deal with us and are not designed to protect our stockholders. Consequently, these regulations often serve to limit our activities, including through
net capital, customer protection and market conduct requirements.



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We face the risk of significant intervention by regulatory authorities, including extended investigation
and surveillance activity, adoption of costly or restrictive new regulations and judicial or administrative proceedings that may result in substantial penalties. Among other things, we could be fined or be prohibited from engaging in some of our
business activities. In addition, the regulatory environment in which we operate is subject to modifications and further regulation. New laws or regulations or changes in the enforcement of existing laws or regulations applicable to us and our
clients also may adversely affect our business, and our ability to function in this environment will depend on our ability to constantly monitor and react to these changes. For example, the European Union Financial Conglomerates Directive requires
that we, along with a number of our competitors, be subject to consolidated supervision by a primary regulatory authority. As a result, we have elected to become subject to consolidated supervision by the SEC and formally notified the SEC of our
intention in December 2004, and we may be required to increase our regulatory capital. This requirement may adversely affect our profitability and result in other increased costs. See BusinessRegulation.



In addition, the regulatory environment in which our clients operate may
impact our business. For example, changes in antitrust laws or the enforcement of antitrust laws could affect the level of mergers and acquisitions activity and changes in state laws may limit investment activities of state pension plans. See
BusinessRegulation for a further discussion of the regulatory environment in which we conduct our businesses.



In particular, for asset management businesses in general, there have been a number of highly publicized industry-wide regulatory inquiries. These
inquiries have resulted in increased scrutiny in the industry and new rules and regulations for mutual funds, hedge funds and their investment managers. This regulatory scrutiny and rulemaking initiatives may result in an increase in operational and
compliance costs or the assessment of significant fines or penalties against our Asset Management business, and may otherwise limit our ability to engage in certain activities.



In addition, financial services firms are subject to numerous conflicts of interests or perceived conflicts. We have adopted
various policies, controls and procedures to address or limit actual or perceived conflicts and regularly seek to review and update our policies, controls and procedures. However, these policies and procedures may result in increased costs,
additional operational personnel and increased regulatory risk. Failure to adhere to these policies and procedures may result in regulatory sanctions or client litigation.



Specific regulatory changes also may have a direct impact on the revenue of our Asset Management business. In addition to
regulatory scrutiny and potential fines and sanctions, regulators continue to examine different aspects of the asset management industry. For example, the use of soft dollars, where a portion of commissions paid to broker-dealers in
connection with the execution of trades also pays for research and other services provided to advisors, may in the future be limited or prohibited. Although a substantial portion of the research relied on by our Asset Management business in the
investment decision-making process is generated internally by our investment analysts, external research, including external research paid for with soft dollars, is important to the process. This external research generally is used for information
gathering or verification purposes, and includes broker-provided research, as well as third-party provided databases and research services. For the year ended December 31, 2006, our Asset Management business obtained research and other services
through soft dollar arrangements, the total cost of which we estimate to be approximately $11.8 million. If the use of soft dollars is limited or prohibited, we may have to bear these costs. In addition, new regulations regarding the management of
hedge funds may impact our Asset Management business and result in increased costs. These regulatory changes and other proposed or potential changes, may result in a reduction of revenue associated with our Asset Management business.



Fluctuations in foreign currency exchange rates could lower our net income
or negatively impact the portfolios of our Asset Management clients and may affect the levels of our AUM.



Because our financial statements are denominated in U.S. dollars and, for the year ended December 31, 2006, we received approximately 48% of our net
revenue from continuing operations in other currencies, predominantly in euros and British pounds, we are exposed to fluctuations in foreign currencies. In addition, we



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pay a significant amount of our expenses in such currencies. The exchange rates of these currencies versus the U.S. dollar may affect our net income. We do
not generally hedge such non-dollar foreign exchange rate exposure arising in our subsidiaries outside of the U.S. Fluctuations in foreign currencies may also make period to period comparisons of our results of operations difficult.



Foreign currency fluctuations also can impact the portfolios of our Asset
Management clients. Client portfolios are invested in securities across the globe, although most portfolios are in a single base currency. Foreign currency fluctuations can adversely impact investment performance for a clients portfolio. In
addition, foreign currency fluctuations may affect the levels of our AUM. As our AUM include significant assets that are denominated in currencies other than U.S. dollars, an increase in the value of the U.S. dollar relative to non-U.S. currencies
may result in a decrease in the dollar value of our AUM, which, in turn, would result in lower U.S. dollar denominated revenue in our Asset Management business. While this risk may be limited by foreign currency hedging, some risks cannot be hedged
and there is no guarantee that our hedging activity will be successful. Poor performance may result in decreased AUM, including as a result of withdrawal of client assets or a decrease in new assets being raised in the relevant product.



Lazard Group is a holding company and therefore depends on its
subsidiaries to make distributions to Lazard Group to enable it to service its obligations under its indebtedness.



Lazard Group depends on its subsidiaries, which conduct the operations of the businesses, for dividends and other payments to generate the funds necessary
to meet its financial obligations, including payments of principal and interest on its indebtedness. However, none of Lazard Groups subsidiaries is obligated to make funds available to it for servicing such financial obligations. In addition,
legal and contractual restrictions in agreements governing current and future indebtedness, as well as financial conditions, minimum regulatory net capital and similar requirements and operating requirements of Lazard Groups subsidiaries,
currently limit and may, in the future, limit Lazard Groups ability to obtain cash from its subsidiaries. The earnings from, or other available assets of Lazard Groups subsidiaries may not be sufficient to pay dividends or make
distributions or loans to enable Lazard Group to make payments in respect of its financial obligations when such payments are due. In addition, even if such earnings were sufficient, the agreements governing the current and future indebtedness of
Lazard Groups subsidiaries and regulatory requirements with respect to our broker-dealer and other regulated subsidiaries may not permit such subsidiaries to provide Lazard Group with sufficient dividends, distributions or loans to fund its
financial obligations, when due.



Earnings of Lazard Group
allocable to LAZ-MD Holdings may be taxed at higher tax rates than earnings allocable to Lazard Ltd, which may result in less cash being available to Lazard Group than would otherwise be available to it.



We estimate that the managing directors of Lazard Group and other owners of
LAZ-MD Holdings are likely to pay tax at a higher rate on their allocable share of Lazard Groups earnings than will Lazard Ltd. Lazard Group will make tax-related distributions based on the higher of the effective income and franchise tax
rate applicable to Lazard Ltds subsidiaries that hold the Lazard Group common membership interests and the weighted average income tax rate (based on income allocated) applicable to LAZ-MD Holdings members, determined in accordance with
Lazard Groups operating agreement. Therefore, because distributions by Lazard Group to its members will be made on a pro rata basis, tax-related distributions to Lazard Ltds subsidiaries are expected to exceed the taxes Lazard
Ltds subsidiaries actually pay or expect to pay. This may result in less cash being available to Lazard Group than would otherwise be available to it, and in cash being held by Lazard Ltds subsidiaries in excess of what they actually pay
for taxes or hold for expected future payments. In the event that tax rates applicable to members of LAZ-MD Holdings increase, the pro rata distributions from Lazard Group to its members, including Lazard Ltds subsidiaries, may increase
correspondingly.



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Tax authorities may
challenge our tax computations, including our transfer pricing methods, and their application.



In the ordinary course of our business, we are subject to tax audits in various jurisdictions. Tax authorities may challenge our tax computations,
including our transfer pricing methods, and their application. While Lazard believes that its tax computations, including transfer pricing results, are correct and properly reflected on its financial statements, there can be no assurance that the
tax authorities will agree.



A number of our managing
directors and other professional employees own rights to participate in the equity value, but not the earnings, in one of the principal operating subsidiaries of our Asset Management business, which could result in those persons receiving additional
payments due to future actions with respect to that business.



Most of the managing directors of LAM and other LAM employees hold LAM equity units. These LAM equity units entitle their holders to payments in connection with selected fundamental transactions affecting Lazard Group or LAM, including a
dissolution or a sale of all or substantially all of the assets of Lazard Group or LAM, a merger of, or sale of all of the interests in, LAM whereby Lazard Group ceases to own a majority of or have the right to appoint a majority of the board of
directors of LAM, or a non-ordinary course sale of assets by LAM that exceeds $50 million in value.



As a general matter, in connection with a fundamental transaction that triggers the LAM equity units, the holders of the LAM equity units would be
entitled in the aggregate, as of December 31, 2006, to approximately 23% of the net proceeds or imputed valuation of LAM in such transaction after deductions for payment to creditors of LAM and the return of capital in LAM. As of December 31,
2006, LAMs capital for these purposes totaled approximately $60 million, of which approximately $7 million was owned by the managing directors and employee members of LAM, with the remainder owned by Lazard Group. Holders of LAM equity
units may not necessarily be employed by us at the time of such event, and, to the extent that their units were vested, they would remain entitled to any such payment. We have no current intention to cause or otherwise trigger a fundamental
transaction that would give rise to payment obligations to holders of interests of LAM. On and after January 1, 2006, the board of directors of LAM, a majority of which is appointed by us, may, in its discretion, grant, subject to specified
vesting conditions, LAM equity interests that include profit rights to managing directors of, and other persons providing services to, LAM, as a portion of their ongoing compensation. No such LAM equity interests have been granted as of
December 31, 2006, nor is there any present intention to do so. However the provisions of the LAM limited liability company agreement that govern the LAM equity units may impair our ability to sell assets or securities of LAM in the future or
otherwise limit our operational flexibility and could result in a substantial amount of consideration being payable to key employees of our Asset Management business, impairing our ability to retain these persons and adversely affecting our
business, results of operations or financial condition.



The
reorganization of our business from a privately held firm to a publicly traded company may adversely affect our ability to recruit, retain and motivate key employees.



In connection with the separation and recapitalization, most of the then working members received LAZ-MD Holdings
exchangeable interests that will in the future be effectively exchangeable for shares of Lazard Ltds common stock. The ownership of, and the ability to realize equity value from, these LAZ-MD Holdings exchangeable interests and underlying
shares of Lazard Ltds common stock is not dependent upon a managing directors continued employment with our company, and our managing directors are not restricted from leaving Lazard by the potential loss of the value of these membership
interests. These shares of common stock, upon full exchange, will ultimately be a more liquid security than their former membership interests in Lazard Group.



The LAZ-MD Holdings exchangeable interests are subject to restrictions on transfer and the timing of exchange. Most of these restrictions on the timing
of exchange will survive for only a limited period and will permit our managing directors to leave Lazard without losing any of their LAZ-MD Holdings exchangeable



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interests or underlying shares of Lazard Ltds common stock. In addition, those managing directors who had capital interests and rights at Lazard Group
that were exchanged in the separation for capital interests and rights in LAZ-MD Holdings, had 50% of those LAZ-MD Holdings capital interests and rights redeemed in May, 2006 and will have the remainder redeemed or otherwise paid out in two equal
installments in May, 2007 and May 2008. At December 31, 2006, our managing directors held approximately $51 million of the LAZ-MD Holdings redeemable capital interests. The steps we have taken to encourage the continued service of these individuals
may not be effective.



While we believe that Lazard Ltds
status as a publicly traded company should promote retention and recruitment, some managing directors and other employees may be more attracted to the benefits of working at a private, controlled partnership and the prospects of becoming a partner.
The impact of the separation on our managing directors and other employee retention and recruitment is uncertain.



Our financial performance depends on our ability to achieve our target compensation expense level, and the failure to achieve this target level may
materially adversely affect our results of operations and financial position.



A key driver of our profitability is our ability to generate revenue while achieving our compensation expense levels. We intend to operate at or below our target level of compensation and benefits expense. Our
policy is that our compensation and benefits expense will not exceed 57.5% of operating revenue each year. Compensation and benefits expense was 56.7% and 57.0% of operating revenue for the years ended December 31, 2006 and 2005, respectively
(with the 2005 percentage being pro forma to exclude amounts relating to the separated businesses, but including payments for minority interest for services rendered by LAM managing directors and employee members of LAM and services rendered by
other managing directors). Increased competition for senior professionals, changes in the financial markets generally or other factors could prevent us from continuing to maintain this objective. Failure to achieve this target ratio may materially
adversely affect our results of operations and financial position.



The financial information of Lazard Group contained in this annual report for periods prior to May 10, 2005 may not be representative of our results as a separate, independent public company.



Because Lazard Group had, prior to the separation and recapitalization,
operated as a limited liability company that was treated as a partnership for U.S. federal income tax purposes with its managing directors also being members of Lazard Group, payments for services rendered by Lazard Groups managing
directors were accounted for as distributions from members capital, or in some cases as minority interest in net income. As a result, Lazard Groups operating income prior to the separation and recapitalization did not reflect most
payments for services rendered by its managing directors. Accordingly, results of operations for periods prior to May 10, 2005 are not comparable to results of operations for subsequent periods.



Reorganizing our business from a privately held firm to a publicly traded
company has resulted in ongoing increased administrative and regulatory costs and burdens that are not reflected in the consolidated financial statements of Lazard Group prior to May 10, 2005, the date of the equity public offering, which could
adversely affect our results of operations. Before 2000, our business was operated under separate and independent firms or private limited companies organized on a country-by-country basis. Starting with the unification of our various Houses under
Lazard Group in 2000, and continuing with our transition to a public company through Lazard Ltd, we have sought and are continuing to implement improvements to our administrative functions, including our compliance and control systems. In addition,
as Lazard Ltd is a publicly traded company, we have implemented and are implementing additional regulatory and administrative procedures and processes for the purpose of addressing the standards and requirements applicable to public companies,
including under the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and related regulatory initiatives. The cost of implementing these steps has been substantial.



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Prior to the separation, Lazard Groups businesses, which then included the separated businesses,
also were able to rely, to some degree, on the earnings, assets and cash flow of each other for capital and cash flow requirements. Accordingly, Lazard Groups historical consolidated results of operations and financial position are not
necessarily indicative of the consolidated results of operations and financial position of Lazard Group after completion of the separation.



Lazard Group and its predecessors have undergone significant transformations in recent years, and we will continue our efforts to transform our
business and operations going forward, which may disrupt the regular operations of our business.



Since the unification of the Houses of Lazard in 2000, Lazard Group has experienced a succession of transformative events, including the hiring of
Mr. Bruce Wasserstein, our Chairman and Chief Executive Officer, the retention of new senior management and the hiring or promotion of a large number of new managing directors, as well as the separation and recapitalization transactions. Lazard
Groups efforts to transform our businesses are expected to continue. The continued evolution of Lazard Group may have resulted, and in the future may result, in disruption to the regular operations of our business, including our ability to
attract and complete current and future engagement opportunities with clients, and increased difficulty in retaining senior professionals and managing and growing our businesses, the occurrence of any of which could materially adversely affect our
business, financial condition and results of operations.



Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business.



We have documented our internal control procedures in order to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent auditors addressing these assessments. We are in compliance with Section 404 of
the Sarbanes-Oxley Act as of December 31, 2006. However, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude
on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to maintain an effective internal control environment could have a material adverse effect
on our business.



LAZ-MD Holdings, Lazard Group, LFCM
Holdings and Lazard Ltd entered into various arrangements, including the master separation agreement, which contain cross-indemnification obligations of LAZ-MD Holdings, Lazard Group, LFCM Holdings and Lazard Ltd, that any party may be unable to
satisfy.



The master separation agreement that Lazard Ltd
entered into with Lazard Group, LAZ-MD Holdings and LFCM Holdings provides, among other things, that LFCM Holdings generally will indemnify Lazard Ltd, Lazard Group and LAZ-MD Holdings for losses that we incur arising out of, or relating to, the
separated businesses and the businesses conducted by LFCM Holdings and losses that Lazard Ltd, Lazard Group or LAZ-MD Holdings incur arising out of, or relating to, LFCM Holdings breach of the master separation agreement. In addition, LAZ-MD
Holdings generally will indemnify Lazard Ltd, Lazard Group and LFCM Holdings for losses that they incur arising out of, or relating to, LAZ-MD Holdings breach of the master separation agreement. Our ability to collect under the indemnities
from LAZ-MD Holdings or LFCM Holdings depends on their financial position. For example, persons may seek to hold us responsible for liabilities assumed by LAZ-MD Holdings or LFCM Holdings. If these liabilities are significant and we are held liable
for them, we may not be able to recover any or all of the amount of those losses from LAZ-MD Holdings or LFCM Holdings should either be financially unable to perform under their indemnification obligations.



We currently have a number of ongoing obligations in respect of which,
pursuant to the master separation agreement and other ancillary agreements, LFCM Holdings is providing certain indemnities. For example, we



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entered into an arrangement with LFCM Holdings relating to the costs of excess space in the U.K. LFCM Holdings will pay to Lazard Group $25 million in the
aggregate, of which $7.8 million and $6.2 million was due and paid in 2006 and 2005, respectively.



In addition, Lazard Group generally will indemnify LFCM Holdings and LAZ-MD Holdings for liabilities related to Lazard Groups businesses and Lazard
Group will indemnify LFCM Holdings and LAZ-MD Holdings for losses that they incur to the extent arising out of, or relating to, Lazard Groups or Lazard Ltds breach of the master separation agreement. Several of the ancillary agreements
that Lazard Group entered into together with the master separation agreement also provide for separate indemnification arrangements. For example, under the administrative services agreement, Lazard Group provides a range of services to LFCM
Holdings, including information technology, general office and building services and financing and accounting services, and LFCM Holdings will generally indemnify Lazard Group for liabilities that Lazard Group incurs arising from the provision of
these services absent Lazard Groups intentional misconduct. Lazard Group may face claims for indemnification from LFCM Holdings and LAZ-MD Holdings under these provisions regarding matters for which Lazard Group has agreed to indemnify them.
If these liabilities are significant, Lazard Group may be required to make substantial payments, which could materially adversely affect our results of operations.



We have potential conflicts of interest with LAZ-MD Holdings and LFCM Holdings, and LAZ-MD Holdings and LFCM Holdings
could each act in a way that favors its interests to our detriment.



As of December 31, 2006, LAZ-MD Holdings holds approximately 52.1% of Lazard Ltds voting power through Lazard Ltds single share of Class B common stock and 52.1% of the outstanding Lazard Group common membership interests.
In addition, LAZ-MD Holdings board of directors is composed of five individuals, all of whom are managing directors or officers of Lazard Ltd or its affiliates, including its Vice Chairman and its President. Lazard Groups board of
directors and executive officers are the same as those of Lazard Ltd. The voting and equity ownership of LAZ-MD Holdings and its members, and the service of officers and managing directors of our company as directors of LAZ-MD Holdings, could create
conflicts of interest when LAZ-MD Holdings and those directors and officers are faced with decisions that could have different implications for LAZ-MD Holdings and us, including potential acquisitions of businesses, the issuance or disposition of
securities by us, the election of new or additional directors of Lazard Ltd, the payment of dividends by Lazard Ltd and Lazard Group, our relationship with LFCM Holdings and other matters. We also expect that LAZ-MD Holdings will manage its
ownership of us so that it will not be deemed to be an investment company under the Investment Company Act, including by maintaining its voting power in Lazard Ltd above a majority absent an applicable exemption from the Act. This may result in
conflicts with us, including those relating to acquisitions or offerings by us involving issuances of Lazard Ltds common stock or securities convertible or exchangeable into shares of Lazard Ltds common stock that would dilute LAZ-MD
Holdings voting power in Lazard Ltd.



Since the
members of LAZ-MD Holdings who are parties to the LAZ-MD Holdings stockholders agreement are entitled to individually direct their proportionate share of the vote of Lazard Ltds Class B common stock on an as-if-exchanged basis and also
own and control LFCM Holdings, their control of LAZ-MD Holdings and the vote of the share of Lazard Ltds Class B common stock gives rise to potential conflicts between LFCM Holdings and LAZ-MD Holdings, on the one hand, and our company, on the
other hand, as discussed below.



In addition,
Mr. Wasserstein, our Chairman and Chief Executive Officer, serves as the Chairman and is the majority owner of Wasserstein Holdings, LLC, the ultimate general partner of Wasserstein & Co., LP, a separate merchant banking firm that may
compete with LFCM Holdings or our merchant banking fund management activities.



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We may have potential business conflicts of interest with LAZ-MD Holdings and LFCM Holdings with
respect to our past and ongoing relationships that could harm our business operations.



Pursuant to the LAZ-MD Holdings amended and restated stockholders agreement, LAZ-MD Holdings will vote the single share of Lazard Ltd Class B common stock, which, as of December 31, 2006, represented
approximately 52.1% of Lazard Ltds voting power, as directed by its individual members who are party to that agreement, all of whom are working members, including managing directors of our business. These same persons own and control LFCM
Holdings, which holds the separated businesses. In addition, several employees of Lazard provide services to LFCM Holdings. Conflicts of interest may arise between LFCM Holdings and us in a number of areas relating to our past and ongoing
relationships, including:



| |  |  | labor, tax, employee benefits, indemnification and other matters arising from the separation,
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | intellectual property matters,
| | - |  | ------------------------------



| |  |  | business combinations involving us,
| | - |  | -----------------------------------



| |  |  | business operations or business opportunities of LFCM Holdings or us that would compete with the other partys business opportunities, including investment
banking by us and the management of merchant banking funds by LFCM Holdings, particularly as some of the managing directors provide services to LFCM Holdings,
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the terms of the master separation agreement and related ancillary agreements, including the operation of the merchant banking fund management business and Lazard
Groups option to purchase the business,
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the nature, quality and pricing of administrative services to be provided by us, and
| | - |  | ------------------------------------------------------------------------------------



| |  |  | the provision of services by certain of our managing directors to LFCM Holdings.
| | - |  | --------------------------------------------------------------------------------



In addition, the administrative services agreement commits us to provide a
range of services to LFCM Holdings and LAZ-MD Holdings, which could require the expenditure of significant amounts of time by our management. Our agreements with LAZ-MD Holdings and LFCM Holdings may be amended upon agreement of the parties to those
agreements. During the time that we are controlled by LAZ-MD Holdings, LAZ-MD Holdings may be able to require us to agree to amendments to these agreements. We may not be able to resolve any potential conflicts and, even if we do, the resolution may
be less favorable to us than if we were dealing with an unaffiliated party.



The use of the Lazard brand name by subsidiaries of LFCM Holdings may expose us to reputational harm that could affect our operations and adversely affect our financial position should these
subsidiaries take actions that damage the brand name.



The
Lazard brand name has over 150 years of heritage, connoting, we believe, world-class professional advice, independence and global capabilities with deeply rooted, local know-how. LFCM Holdings operates as a separate legal entity, and
Lazard Group licensed to subsidiaries of LFCM Holdings that operate the separated businesses the use of the Lazard brand name for certain specified purposes, including in connection with merchant banking fund management and capital
markets activities. As these subsidiaries of LFCM Holdings historically have and will continue to use the Lazard brand name, and because we no longer control these entities, there is a risk of reputational harm to us if these
subsidiaries have, or in the future were to, among other things, engage in poor business practices, experience adverse results or otherwise damage the reputational value of the Lazard brand name. These risks could expose us to liability
and also may adversely affect our revenue and our business prospects.



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The separation and recapitalization transactions may be challenged by creditors as a fraudulent
transfer or conveyance, and, should a court agree with such a challenge, equityholders and creditors of the entity held liable could be adversely affected.



While we do not believe that any of the separation and recapitalization transactions resulted in a fraudulent conveyance or transfer, if a court in a
suit by an unpaid creditor or representative of creditors of Lazard Group, Lazard Ltd, LAZ-MD Holdings or LFCM Holdings, such as a trustee in bankruptcy, or Lazard Group, Lazard Ltd, LAZ-MD Holdings or LFCM Holdings itself, as debtor-in-possession
in a reorganization case under Title 11 of the U.S. Bankruptcy Code, were to find that:



| |  |  | any of the separation and recapitalization transactions (or any related transactions) were undertaken for the purpose of hindering, delaying or defrauding creditors
of Lazard Group, Lazard Ltd, LAZ-MD Holdings or LFCM Holdings (as applicable), or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lazard Group, Lazard Ltd, LAZ-MD Holdings or LFCM Holdings (as applicable) received less than reasonably equivalent value or fair consideration in connection with
any of the separation and recapitalization transactions and (i) Lazard Group, Lazard Ltd, LAZ-MD Holdings or LFCM Holdings (as applicable) was insolvent immediately prior to, or was rendered insolvent by, the separation or recapitalization
transactions, (ii) Lazard Group, Lazard Ltd, LAZ-MD Holdings or LFCM Holdings (as applicable) immediately prior to, or as of the effective time of, the completion of any of the separation and recapitalization transactions, and after giving
effect thereto, intended or believed that it would be unable to pay its debts as they became due, or (iii) the capital of Lazard Group, Lazard Ltd, LAZ-MD Holdings or LFCM Holdings (as applicable) immediately prior to or, at the effective time
of, the completion of any of the separation and recapitalization transactions, and after giving effect thereto, was inadequate to conduct its business,
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



then that court could determine that any of the separation and recapitalization transactions violated applicable provisions of the U.S.
Bankruptcy Code or applicable state fraudulent transfer or conveyance laws. This determination would permit the bankruptcy trustee, debtor-in-possession or unpaid creditors to rescind the separation or recapitalization transactions, to subordinate
or render unenforceable the debt incurred in furtherance thereof, or to require Lazard Group, Lazard Ltd, LAZ-MD Holdings or LFCM Holdings or the historical partners, as the case may be, to fund liabilities for the benefit of creditors.
Equityholders and creditors of the entity held liable as a result of such determination would be adversely affected to the extent such entity is required to surrender value to satisfy its liability.



The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied. Generally, however, an entity would be considered insolvent if:



| |  |  | the sum of its liabilities, including contingent liabilities, is greater than its assets, at a fair valuation,
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | the present fair saleable value of its assets is less than the amount required to pay the probable liability on its total existing debts and liabilities, including
contingent liabilities, as they become absolute and matured, or
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | it is generally not paying its debts as they become due.
| | - |  | --------------------------------------------------------



Similar provisions would also apply in any other jurisdiction in which the separation and recapitalization transactions take effect.



If Lazard Ltd were deemed an investment company under the
Investment Company Act as a result of its ownership of Lazard Group, applicable restrictions could make it impractical for us to continue our business as contemplated and could materially adversely affect our business, financial condition and
results of operation.



We do not believe that Lazard Ltd is
an investment company under the Investment Company Act, because Lazard Ltd has the power to appoint and remove the Lazard Group managing members. If Lazard Ltd were to



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cease participation in the management of Lazard Group or not be deemed to have a majority of the voting power of Lazard Group, its interest in Lazard Group
could be deemed an investment security for purposes of the Investment Company Act. Similarly, we do not believe that LAZ-MD Holdings is an investment company under the Investment Company Act, because LAZ-MD Holdings currently
holds a majority of Lazard Ltds voting power through Lazard Ltds Class B common stock, and Lazard Ltd owns a majority of the voting power of Lazard Group. If LAZ-MD Holdings ceases to hold a majority of the voting power of Lazard Ltd, or
Lazard Ltd ceases to hold a majority of the voting power of Lazard Group, LAZ-MD Holdings interests in Lazard Group could be deemed an investment security for purposes of the Investment Company Act. Generally, a person is an
investment company if it owns investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items), absent an applicable exemption. Lazard Ltd has no material assets
other than direct and indirect ownership of Lazard Group common membership interests and its controlling interest in Lazard Group. A determination that this investment was an investment security could result in Lazard Ltd being an investment company
under the Investment Company Act and becoming subject to the registration and other requirements of the Investment Company Act. Similarly, LAZ-MD Holdings has no material assets other than its ownership of Lazard Group common membership interests,
Lazard Ltds Class B common stock and cash. A reduction of LAZ-MD Holdings voting power in Lazard Ltd to less than a majority or a determination that the Lazard Group common membership interests is an investment security could result in
LAZ-MD Holdings being an investment company under the Investment Company Act, unless an exemption is available, and becoming subject to the registration and other requirements of the Investment Company Act.



The Investment Company Act and the rules thereunder contain detailed
prescriptions for the organization and operations of investment companies. Among other things, the Investment Company Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity
securities, prohibit the issuance of stock options, and impose certain governance requirements. Lazard Ltd intends to conduct its operations, and expects that LAZ-MD Holdings will conduct its operations, so that neither Lazard Ltd nor LAZ-MD
Holdings, respectively, will be deemed to be an investment company under the Investment Company Act. However, if anything were to happen which would cause Lazard Ltd or LAZ-MD Holdings to be deemed to be an investment company under the Investment
Company Act, requirements imposed by the Investment Company Act, including limitations on its or our capital structure, ability to transact business with affiliates (including LAZ-MD Holdings or us, as the case may be) and ability to compensate key
employees, could make it impractical for us to continue our business as currently conducted, impair the agreements and arrangements, including the master separation agreement and related agreements and the transactions contemplated by those
agreements, between and among Lazard Ltd, LAZ-MD Holdings, Lazard Group and LFCM Holdings or any combination thereof and materially adversely affect our business, financial condition and results of operations.



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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS



We have made statements under the captions Business, Risk
Factors, and Managements Discussion and Analysis of Financial Condition and Results of Operations and in other sections of this annual report on Form 10-K that are forward-looking statements. In some cases, you can identify
these statements by forward-looking words such as may, might, will, should, expect, plan, anticipate, believe, estimate, predict,
potential or continue, and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include
projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important
factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. In particular,
you should consider the numerous risks and uncertainties outlined in Risk Factors.



These risks and uncertainties are not exhaustive. Other sections of this annual report may include additional factors, which could adversely impact our business and financial performance. Moreover, we operate in a
very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or
the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.



Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity,
performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future
events. We are under no duty to update any of these forward-looking statements after the date of this annual report to conform our prior statements to actual results or revised expectations and we do not intend to do so.



Forward-looking statements include, but are not limited to, statements about
the:



| |  |  | business possible or assumed future results of operations and operating cash flows,
| | - |  | ------------------------------------------------------------------------------------



| |  |  | business strategies and investment policies,
| | - |  | ---------------------------------------------



| |  |  | business financing plans and the availability of short-term borrowing,
| | - |  | -----------------------------------------------------------------------



| |  |  | business competitive position,
| | - |  | -------------------------------



| |  |  | potential growth opportunities available to our businesses,
| | - |  | -----------------------------------------------------------



| |  |  | recruitment and retention of our managing directors and employees,
| | - |  | ------------------------------------------------------------------



| |  |  | target levels of compensation expense,
| | - |  | --------------------------------------



| |  |  | business potential operating performance, achievements, productivity improvements, efficiency and cost reduction efforts,
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | likelihood of success and impact of litigation,
| | - |  | -----------------------------------------------



| |  |  | expected tax rate,
| | - |  | ------------------



| |  |  | changes in interest and tax rates,
| | - |  | ----------------------------------



| |  |  | expectation with respect to the economy, securities markets, the market for mergers and acquisitions activity, the market for asset management activity and other
industry trends,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | effects of competition on our business, and
| | - |  | -------------------------------------------



| |  |  | impact of future legislation and regulation on our business.
| | - |  | ------------------------------------------------------------



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The Company is committed to providing timely and accurate information to the investing public, consistent
with our legal and regulatory obligations. To that end, the Company uses its websites to convey information about our businesses, including the anticipated release of quarterly financial results, quarterly financial, statistical and business-related
information, and the posting of updates of AUM in various mutual funds, hedge funds and other investment products managed by LAM and its subsidiaries. Monthly updates of these funds are posted to the LAM website (www.lazardnet.com) on the 3rd
business day following the end of each month. Investors can link to us and our operating company websites through http://www.lazard.com. Our websites and the information contained therein or connected thereto shall not be deemed to be
incorporated into this annual report.



|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------



None.



|Item 2. | Properties
|------- | ----------



The following table lists the properties used for the entire Lazard organization, including properties used by the separated businesses. As a general
matter, one or both of our Financial Advisory and Asset Management segments uses the following properties. We license and sublease to LFCM Holdings certain office space, including office space that is used by the separated businesses. This
includes subleasing or licensing approximately 37,836 square feet in New York, New York located at 30 Rockefeller Plaza to LFCM Holdings. Additionally, our New York and London offices sublease 31,910 and 55,676 square feet, respectively, to third
parties. We remain fully liable for the subleased space to the extent LFCM Holdings, or the third parties, fail to perform their obligations under the subleases for any reason. In addition, LFCM Holdings entered into indemnity arrangements in
relation to excess space and abandoned former premises in London.



|                    |  |                                               |  |                                                                                                                     
|------------------- |  | --------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------
|Location            |  | Square feet                                   |  | Comments                                                                                                            
|New York            |  | 364,473 square feet of leased space           |  | Key office located at 30 Rockefeller Plaza, New York, New York 10020. (Includes 67,959 square feet
subleased by us.)
|Other North America |  | 67,710 square feet of leased space            |  | Includes offices in Atlanta, Chicago, Houston, Los Angeles, Montreal, San Francisco and Toronto.                    
|Paris               |  | 170,749 square feet of owned and leased space |  | Key office located at 121 Boulevard Haussmann, 75008 Paris.                                                         
|London              |  | 86,695 square feet of leased space            |  | Key office located at 50 Stratton Street, London W1J 8LL.                                                           
|Milan               |  | 17,708 square feet of leased space            |  | Key office located at via DellOrso 2, 20121 Milan.                                                                 
|Other Europe        |  | 80,866 square feet of leased space            |  | Includes offices in Amsterdam, Berlin, Bordeaux, Frankfurt, Hamburg, Lyon, Madrid, Rome and Stockholm.              
|Asia and Australia  |  | 53,417 square feet of leased space            |  | Includes offices in Mumbai, Hong Kong, Seoul, Singapore, Sydney, Tokyo and Beijing.                                 



We believe that we
currently maintain sufficient space to meet our anticipated needs.



|Item 3. | Legal Proceedings
|------- | -----------------



Our businesses, as well as the financial services industry generally, are subject to extensive regulation throughout the world. We are involved in a
number of judicial, regulatory and arbitration proceedings and inquiries concerning matters arising in connection with the conduct of our businesses. We believe, based on currently available information, that the results of such proceedings, in the
aggregate, will not have a material adverse effect on our financial condition but might be material to our operating results or cash flows for any particular period, depending upon the operating results for such period.



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In 2004, we received a request for information from the NASD as part of an industry investigation
relating to gifts and gratuities, which was focused primarily on Lazards former Capital Markets business, which business was transferred to LFCM Holdings as a part of the separation. In addition, we have received requests for information from
the NASD, SEC and the U.S. Attorneys Office for the District of Massachusetts seeking information concerning gifts and entertainment involving an unaffiliated mutual fund company, which are also focused on that same business. In the course of
an internal review of these matters, there have been resignations or discipline of certain individuals associated with Lazards former Capital Markets business. These investigations are continuing and we cannot predict their potential outcomes,
which outcomes, if any, could include the consequences discussed above under Regulation.



Lazard Ltd and Goldman Sachs & Co., the lead underwriter of Lazard Ltds equity public offering of its common stock, as well as several
members of Lazard Ltds management and board of directors, have been named as defendants in several putative class action lawsuits and putative stockholder derivative lawsuits filed in the U.S. District Court for the Southern District of New
York and the Supreme Court of the State of New York. The putative class action lawsuits and putative derivative lawsuits allege, respectively, various violations of the federal securities laws and breaches by Lazard Ltd directors of their fiduciary
duties, all in connection with matters related to the equity public offering, and seek, among other things, compensatory, rescissory and punitive damages. On February 7, 2007, the U.S. District Court for the Southern District of New York issued
a Decision and Order dismissing plaintiffs claims and allowing plaintiffs twenty days to file an amended complaint repleading any of the dismissed claims. Plaintiffs allowed the twenty-day period to pass without filing an amended complaint.
Accordingly, the defendants have prevailed in the putative class action in the U.S. District Court. In the putative class action lawsuit brought in the Supreme Court of the State of New York, the defendants have filed a motion to dismiss the
complaint or, in the alternative, to stay the action pending final resolution of the putative class action lawsuit filed in the U.S. District Court. We believe that all of these suits are meritless and intend to continue defending them vigorously.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------



None.



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Part II



|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ------------------------------------------------------------------------------------------------------------



As of December 31, 2006, approximately 47.9% and 52.1% of our common
membership interests are held by wholly-owned subsidiaries of Lazard Ltd and by LAZ-MD Holdings, respectively. Our co-managing member interests are held by two indirect wholly-owned subsidiaries of Lazard Ltd and our profit participation interests
are held by various managing directors. There are no public trading markets for any of these interests.



Prior to May 10, 2005, the date of Lazard Ltds equity public offering, payment for services rendered by Lazard Groups managing directors,
which, as a result of Lazard Group operating as a limited liability company, historically had been accounted for as distributions from members capital (or in some cases as minority interest with respect to LAM membership interests held by LAM
managing directors) rather than as compensation and benefits expense. Such distributions from members capital have been included within the accompanying consolidated statements of changes in members equity (deficiency).



Subsequent to the equity public offering, pursuant to provisions of its
amended and restated Operating Agreement, Lazard Group distributions in respect of common membership interests are allocated to the holders of such interests on a pro rata basis. Such distributions represent amounts necessary to fund (i) dividends
Lazard Ltd declares on its Class A common stock and (ii) tax distributions in respect of income taxes that Lazard Ltds subsidiaries and members of LAZ-MD Holdings incur as a result of holding Lazard Group common membership interests. During
the years ended December 31, 2006 and 2005, Lazard Group distributed $22,357,000 and $8,821,000, respectively, to LAZ-MD Holdings and $13,480,000 and $5,325,000, respectively, to the subsidiaries of Lazard Ltd, which latter amounts were used by
Lazard Ltd to pay dividends to third party stockholders of its Class A common stock. In addition, during the years ended December 31, 2006 and 2005, Lazard Group made tax distributions of $43,253,000 and $18,164,000, respectively, including
$26,968,000 and $11,327,000, respectively, paid to LAZ-MD Holdings and $16,285,000 and $6,837,000, respectively, paid to subsidiaries of Lazard, Ltd.



|Item 6. | Selected Financial Data
|------- | -----------------------



The following table sets forth the selected consolidated financial data for the Company for all periods presented. The results of operations for certain
businesses that the Company no longer owns are reported as discontinued operations.



The consolidated financial statements prior to May 10, 2005, the date of the equity public offering, do not reflect what our results of operations and financial position would have been had we been a stand-alone,
public company for the periods presented. In addition, the results of operations for periods prior to May 10, 2005 are not comparable to results of operations for subsequent periods. Specifically, for periods prior to May 10, 2005, the results of
operations do not give effect to the following matters:



| |  |  | Payment for services rendered by Lazard Groups managing directors, which, as a result of Lazard Group operating as a limited liability company, historically
had been accounted for as distributions from members capital, or in some cases as minority interest, rather than as compensation and benefits expense. As a result, prior to May 10, 2005, Lazard Groups operating income included within the
accompanying consolidated financial statements did not reflect payments for services rendered by its managing directors. For periods subsequent to the consummation of the equity public offering as described in Note 1 of the accompanying Notes
to Consolidated Financial Statements, all payments for services rendered by our managing directors and distributions to holders of profit participation interests (profit participation members) in Lazard Group are included within the
accompanying consolidated financial statements in compensation and benefits expense.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The use of proceeds from the financing transactions.
| | - |  | ----------------------------------------------------



| |  |  | The net incremental interest expense related to the financing transactions.
| | - |  | ---------------------------------------------------------------------------



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In addition, the accompanying consolidated financial statements of Lazard Group do not include a
provision for U.S. corporate federal income taxes, because Lazard Group operates in the U.S. as a limited liability company that is treated as a partnership for U.S. federal income tax purposes. As a result, Lazard Groups income has not been
subject to U.S. federal income taxes. Taxes related to income earned by partnerships represent obligations of the individual partners. Outside the U.S., Lazard Group historically has operated principally through subsidiary corporations and has been
subject to local income taxes. Accordingly, income taxes reflected within Lazard Groups results of operations included within the accompanying consolidated financial statements are attributable to taxes incurred in non-U.S. entities and to New
York City Unincorporated Business Tax (UBT) attributable to Lazard Groups operations apportioned to New York City.



The consolidated statements of financial position and income data as of and for the years ended December 31, 2006, 2005, 2004, 2003 and 2002 have been
derived, as applicable, from Lazard Groups consolidated financial statements. The audited consolidated statements of financial condition as of December 31, 2006 and 2005 and consolidated statements of income for the years ended December 31,
2006, 2005 and 2004 are included elsewhere in this Form 10-K. The audited consolidated statements of financial condition as of December 31, 2004, 2003 and 2002 and consolidated statements of income for the years ended December 31, 2003 and 2002 are
not included in this Form 10-K. Historical results are not necessarily indicative of results for any future period.



The selected consolidated financial data should be read in conjunction with Managements Discussion and Analysis of Financial Condition and
Results of Operations, and the Companys consolidated financial statements and related notes included elsewhere in this Form 10-K.



36



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##### Table of Contents

Selected Consolidated Financial Data



|                                                                                                  |  |                                          |           |   |      |   |           |      |  |   |           |     |      |   |           |  |   |          
|------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | --- | ---- | - | --------- |  | - | ---------
|                                                                                                  |  | As Of Or For The Year Ended December 31,
|                                                                                                  |  | 2006                                     |           |   | 2005 |   |           | 2004 |  |   | 2003      |     | 2002
|                                                                                                  |  | (in thousands of dollars)               
|Consolidated Statements of Income Data                                                            |  |                                          |           |   |      |   |           |      |  |   |           |     |      |   |           |  |   |          
|Net Revenue:                                                                                      |  |                                          |           |   |      |   |           |      |  |   |           |     |      |   |           |  |   |          
|Financial Advisory (a)                                                                            |  | $                                        | 973,337   |   |      | $ | 864,812   |      |  | $ | 655,200   |     |      | $ | 690,967   |  | $ | 532,896  
|Asset Management (b)                                                                              |  |                                          | 553,212   |   |      |   | 466,188   |      |  |   | 417,166   |     |      |   | 350,348   |  |   | 454,683  
|Corporate (c)                                                                                     |  |                                          | (33,380   | ) |      |   | (29,589   | )    |  |   | 22,464    |     |      |   | 11,627    |  |   | 4,515    
|                                                                                                  |  |                                          |           |   |      |   |           |      |  |   |           |     |      |   |           |  |   |          
|Net Revenue (d)                                                                                   |  |                                          | 1,493,169 |   |      |   | 1,301,411 |      |  |   | 1,094,830 |     |      |   | 1,052,942 |  |   | 992,094  
|Compensation and Benefits (e)                                                                     |  |                                          | 891,411   |   |      |   | 698,683   |      |  |   | 466,064   |     |      |   | 388,266   |  |   | 391,010  
|Other Operating Expenses                                                                          |  |                                          | 268,082   |   |      |   | 257,052   |      |  |   | 260,942   |     |      |   | 225,940   |  |   | 243,223  
|                                                                                                  |  |                                          |           |   |      |   |           |      |  |   |           |     |      |   |           |  |   |          
|Total Operating Expenses                                                                          |  |                                          | 1,159,493 |   |      |   | 955,735   |      |  |   | 727,006   |     |      |   | 614,206   |  |   | 634,233  
|                                                                                                  |  |                                          |           |   |      |   |           |      |  |   |           |     |      |   |           |  |   |          
|Operating Income from Continuing Operations                                                       |  | $                                        | 333,676   |   |      | $ | 345,676   |      |  | $ | 367,824   |     |      | $ | 438,736   |  | $ | 357,861  
|                                                                                                  |  |                                          |           |   |      |   |           |      |  |   |           |     |      |   |           |  |   |          
|Income from Continuing Operations                                                                 |  | $                                        | 263,993   |   |      | $ | 272,800   |      |  | $ | 251,999   |     |      | $ | 307,218   |  | $ | 277,151  
|                                                                                                  |  |                                          |           |   |      |   |           |      |  |   |           |     |      |   |           |  |   |          
|Net Income Allocable to Members (e)                                                               |  | $                                        | 263,993   |   |      | $ | 255,224   |      |  | $ | 246,974   | (f) |      | $ | 250,383   |  | $ | 297,447  
|                                                                                                  |  |                                          |           |   |      |   |           |      |  |   |           |     |      |   |           |  |   |          
|                                                                                                  |  |                                          |           |   |     
|Consolidated Statements of Financial Condition Data                                               |  |                                          |           |   |      |   |           |      |  |   |           |     |      |   |           |  |   |          
|Total Assets                                                                                      |  | $                                        | 3,187,207 |   |      | $ | 1,907,133 |      |  | $ | 3,499,224 |     |      | $ | 3,257,229 |  | $ | 2,460,725
|Total Debt (g)                                                                                    |  | $                                        | 1,312,502 |   |      | $ | 1,245,926 |      |  | $ | 319,043   |     |      | $ | 316,185   |  | $ | 117,239  
|Mandatorily Redeemable Preferred Stock                                                            |  | $                                        |          |   |      | $ |          |      |  | $ | 100,000   |     |      | $ | 100,000   |  | $ | 100,000  
|Members Equity (Deficiency)                                                                      |  | $                                        | (244,488  | ) |      | $ | (870,339  | )    |  | $ | 384,798   |     |      | $ | 535,725   |  | $ | 648,911  
|Notes (in thousands of dollars): (a)    Financial Advisory net revenue consists of the following: |  |                                          |           |   |      |   |           |      |  |   |           |     |      |   |           |  |   |          
|                                                                                                  | 
|                                                                                                  |  | For The Year Ended December 31,         
|                                                                                                  |  | 2006                                     |           |   | 2005 |   |           | 2004 |  |   | 2003      |     | 2002
|M&A                                                                                               |  |                                          | $792,537  |   |      |   | $674,543  |      |  |   | $481,726  |     |      |   | $419,967  |  |   | $393,082 
|Financial Restructuring                                                                           |  |                                          | 70,625    |   |      |   | 103,404   |      |  |   | 96,100    |     |      |   | 244,600   |  |   | 124,800  
|Other Financial Advisory                                                                          |  |                                          | 110,175   |   |      |   | 86,865    |      |  |   | 77,374    |     |      |   | 26,400    |  |   | 15,014   
|                                                                                                  |  |                                          |           |   |      |   |           |      |  |   |           |     |      |   |           |  |   |          
|Financial Advisory Net Revenue                                                                    |  |                                          | $973,337  |   |      |   | $864,812  |      |  |   | $655,200  |     |      |   | $690,967  |  |   | $532,896 
|                                                                                                  |  |                                          |           |   |      |   |           |      |  |   |           |     |      |   |           |  |   |          
|(b)    Asset Management net revenue consists of the following:                                    |  |                                          |           |   |      |   |           |      |  |   |           |     |      |   |           |  |   |          
|                                                                                                  | 
|                                                                                                  |  | For The Year Ended December 31,         
|                                                                                                  |  | 2006                                     |           |   | 2005 |   |           | 2004 |  |   | 2003      |     | 2002
|Management and Other Fees                                                                         |  |                                          | $450,323  |   |      |   | $389,414  |      |  |   | $357,229  |     |      |   | $284,565  |  |   | $344,044 
|Incentive Fees                                                                                    |  |                                          | 59,371    |   |      |   | 44,627    |      |  |   | 27,354    |     |      |   | 38,225    |  |   | 73,427   
|Other Income                                                                                      |  |                                          | 43,518    |   |      |   | 32,147    |      |  |   | 32,583    |     |      |   | 27,558    |  |   | 37,212   
|                                                                                                  |  |                                          |           |   |      |   |           |      |  |   |           |     |      |   |           |  |   |          
|Asset Management Net Revenue                                                                      |  |                                          | $553,212  |   |      |   | $466,188  |      |  |   | $417,166  |     |      |   | $350,348  |  |   | $454,683 
|                                                                                                  |  |                                          |           |   |      |   |           |      |  |   |           |     |      |   |           |  |   |          



|(c) | Corporate includes interest income (net of interest expense), including, for periods subsequent to May 10, 2005, the net incremental interest expense related to the
financing transactions, investment income from certain long-term investments and net money market revenue earned by LFB.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Net revenue is presented after reductions for dividends relating to the Companys mandatory redeemable preferred stock issued in March 2001. Preferred dividends are reflected
in corporate net revenue and amounted to $8,000 for each of the years ended December 31, 2004, 2003 and 2002, respectively. The year ended December 31, 2005 includes a credit of $8,000, which represents accrued dividends on the Companys
mandatory redeemable preferred stock which was redeemed and cancelled pursuant to the redemption of membership interests of historical partners.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | Excludes, as applicable, with respect to periods ended prior to May 10, 2005, payments for services rendered by Lazard Groups managing directors, which, as a result of Lazard
Group operating as a limited liability company, historically had been accounted for as distributions from members capital, or in some cases as minority interest, rather than as compensation and benefits expense.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | Net income allocable to members for the year ended December 31, 2004 is shown after an extraordinary gain of $5,507 related to the January 2004 acquisition of the assets of Panmure
Gordon.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(g) | Total debt amounts relate to the Companys continuing operations and represents the aggregate amount reflected in the Companys consolidated statements of financial
condition relating to senior borrowings, capital lease obligations and subordinated borrowings.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



The following discussion should be read in conjunction with Lazard Groups consolidated financial statements and the
related notes included elsewhere in this Form 10-K. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those
expressed or implied in such forward-looking statements due to a number of factors, including those set forth in the section entitled Risk Factors and elsewhere in this Form 10-K.



The separation and recapitalization transactions were completed as of May
10, 2005, at which time the separated businesses became part of LFCM Holdings. Except as otherwise expressly noted, this annual report on Form 10-K, including this Managements Discussion and Analysis of Financial Condition and Results of
Operations (the MD&A) and the consolidated financial data of Lazard Group, reflect the results of operations and financial position of Lazard Group and includes the separated businesses in discontinued operations.



Results of operations are reported as a historical
partnership until the equity public offering on May 10, 2005 and do not include, among other things, payments for services rendered by managing directors as compensation expense. Such payments are included in subsequent periods. Therefore, results
for periods prior to the equity public offering on May 10, 2005 and subsequent thereto are not comparable.



Business Summary



The
Companys principal sources of revenue are derived from activities in the following business segments:



| |  |  | Financial Advisory, which includes providing advice on mergers and acquisitions (M&A), restructurings, capital raising and other transactions, and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Asset Management which includes the management of equity and fixed income securities and merchant banking funds.
| | - |  | ----------------------------------------------------------------------------------------------------------------



In addition, the Company records selected other activities in Corporate,
including cash management, certain long-term investments and the commercial banking activities of Lazard Groups Paris-based Lazard Frères Banque SA (LFB). LFB is a registered bank regulated by the Banque de France.
LFBs primary commercial banking operations include the management of the treasury positions of the Companys Paris House through its money market desk and, to a lesser extent, credit activities relating to securing loans granted to
clients of Lazard Frères Gestion SAS (LFG) and custodial oversight over assets of various clients. In addition, LFB also operates many support functions of the Paris House. The Company also allocates outstanding indebtedness to
Corporate. Accordingly, following the equity public offering, the indebtedness and interest expense related to the financing transactions is accounted for as part of Corporate.



Prior to May 10, 2005, the Company also had a business segment called Capital Markets and Other, which consisted of equity,
fixed income and convertibles sales and trading, broking, research and underwriting services and merchant banking fund management activities outside of France as well as other specified non-operating assets and liabilities. The Company transferred
its Capital Markets and Other segment to LFCM Holdings on May 10, 2005 and it is no longer a segment of the Company. The operating results of the former segment are reflected as discontinued operations in the years ended December 31, 2005 and 2004.



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For the years ended December 31, 2006, 2005, and 2004 the Companys consolidated net revenue was
derived from the following business segments:



|                   |  |                        |   |  |      |   |  |      |  
|------------------ |  | ---------------------- | - |  | ---- | - |  | ---- | -
|                   |  | Year Ended December 31 |  
|                   |  | 2006                   |   |  | 2005 |   |  | 2004 |  
|Financial Advisory |  | 65                     | % |  | 66   | % |  | 60   | %
|Asset Management   |  | 37                     |   |  | 36   |   |  | 38   |  
|Corporate          |  | (2                     | ) |  | (2   | ) |  | 2    |  
|                   |  |                        |   |  |      |   |  |      |  
|Total              |  | 100                    | % |  | 100  | % |  | 100  | %
|                   |  |                        |   |  |      |   |  |      |  



Business Environment



Economic and market conditions, particularly global
M&A activity, can significantly affect our financial performance. Lazard operates in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for Lazards management
to predict all risks and uncertainties, nor can Lazard assess the impact of all factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any
forward-looking statements. See the section entitled Risk Factors in this Form 10-K. Net income and revenue in any period may not be indicative of full-year results or the results of any other period and may vary significantly from year
to year and quarter to quarter.



Financial
Advisory



Activity in the global M&A industry for
the year ended December 31, 2006 increased significantly for global completed and announced M&A transactions, as evidenced by the following industry statistics regarding the volume of transactions:



|                            |  |                         |       |      |        |                |    |  
|--------------------------- |  | ----------------------- | ----- | ---- | ------ | -------------- | -- | -
|                            |  | Year Ended December 31, |      
|                            |  | 2006                    |       | 2005 |        | % Incr /(Decr) |   
|                            |  | ($ in billions)         |      
|Completed M&A Transactions: |  |                         |       |      |        |                |    |  
|Global                      |  | $                       | 2,897 |      | $2,274 |                | 27 | %
|Trans-Atlantic              |  |                         | 233   |      | 146    |                | 60 | %
|                            |  |                         |      
|Announced M&A Transactions: |  |                         |       |      |        |                |    |  
|Global                      |  |                         | 3,575 |      | 2,749  |                | 30 | %
|Trans-Atlantic              |  |                         | 260   |      | 181    |                | 44 | %

---

|Source: | Thomson Financial as of January 29, 2007
|------- | ----------------------------------------



Lazard believes that its Financial Advisory business should continue to benefit from any sustained increase in M&A volume.



Activity in financial restructing declined significantly in 2006, with the
amount of corporate debt defaults, according to Moodys Investors Service, Inc, at $8 billion in 2006 versus $29 billion in 2005, with the default rate in 2006 being at the lowest level in ten years.



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Asset Management



As shown in the table below, global market indices at December 31, 2006 increased as compared to such indices at December
31, 2005, largely as a result of strong performance in the fourth quarter of 2006.



|                             |  |                                            |  
|---------------------------- |  | ------------------------------------------ | -
|                             |  | Percentage ChangeDecember 31,2006 vs. 2005 |  
|MSCI World Index             |  | 18                                         | %
|CAC 40                       |  | 18                                         | %
|DAX                          |  | 22                                         | %
|FTSE 100                     |  | 11                                         | %
|Dow Jones Industrial Average |  | 16                                         | %
|NASDAQ                       |  | 10                                         | %
|S&P 500                      |  | 14                                         | %



Lazards
market-related changes in its assets under management (AUM) during 2006 generally correspond to the changes in global market indices.



Key Financial Measures and Indicators



Net Revenue



The majority of Lazards Financial Advisory net revenue is earned from the successful completion of mergers, acquisitions, restructurings, capital
raising and similar transactions. The main driver of Financial Advisory net revenue is overall M&A, the level of corporate debt defaults and the environment for capital raising activities, particularly in the industries and geographic markets in
which Lazard focuses. In some client engagements, often those involving financially distressed companies, revenue is earned in the form of retainers and similar fees that are contractually agreed upon with each client for each assignment and are not
necessarily linked to the completion of a transaction. In addition, Lazard also earns fees from providing strategic advice to clients, with such fees not being dependent on a specific transaction. Lazards Financial Advisory segment also earns
revenue from public and private securities offerings in conjunction with activities of its former Capital Markets and Other segment. In general, such fees are shared equally with its former Capital Markets and Other segments. As a result of the
consummation of the equity public offering, Lazard now has an arrangement with LFCM Holdings under which the separated Capital Markets business will continue to distribute securities in public offerings originated by Lazards Financial Advisory
business in a manner similar to its practice prior to the equity public offering.



Lazards Asset Management segment includes Lazard Asset Management LLC and its subsidiaries (collectively referred to as LAM), LFG and merchant banking operations. Asset Management net revenue is
derived from fees for investment management and advisory services provided to institutional and private clients. The main driver of Asset Management net revenue is the level of AUM, which is influenced in large part by Lazards investment
performance and by Lazards ability to successfully attract and retain assets, as well as the broader performance of the global equity markets and, to a lesser extent, fixed income markets. As a result, fluctuations in financial markets and
client asset inflows and outflows have a direct effect on Asset Management net revenue and operating income. In addition, as Lazards AUM include significant assets that are denominated in currencies other than U.S. dollars, changes in the
value of the U.S. dollar relative to non-U.S. currencies will impact the value of Lazards AUM. Fees vary with the type of assets managed, with higher fees earned on equity assets, alternative investments (such as hedge funds) and merchant
banking products, and lower fees earned on fixed income and cash management products. Lazard also earns performance-based incentive fees on some investment products, such as hedge funds, merchant banking funds and other investment products.
Incentive fees on hedge funds are typically calculated based on a specified percentage of a funds net appreciation during a fiscal period and can be subject to loss carry-forward provisions in which losses incurred in the current period are
applied against future period net appreciation. Incentive fees on merchant banking funds also may be earned in



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the form of a carried interest if profits from merchant banking investments exceed a specified threshold. Incentive fees earned for the years ended December
31, 2006, 2005 and 2004 of $59 million, $45 million and $27 million, respectively, demonstrate the volatility that incentive fees may have on total net revenue.



Corporate net revenue consists primarily of investment income generated from long-term investments, including principal investments that Lazard has
made in merchant banking and alternative investment funds managed by the Asset Management segment, net interest income generated by LFB, interest income related to cash and interest expense related to outstanding borrowings. As a result of the
consummation of the equity public offering, interest expense related to the financing transactions is included in Corporate net revenue. Corporate net revenue can fluctuate due to fair value adjustments relating to long-term investments, changes in
interest rates and in interest rate spreads earned by LFB and changes in the levels of Lazards cash, long-term investments and indebtedness. In addition, for the year ended December 31, 2006, Corporate net revenue includes a gain of
approximately $14 million, excluding transaction and other costs, relating to the termination of its strategic alliance (the Strategic Alliance) with Intesa (with such gain, after transaction and other costs, increasing operating income
by approximately $5 million). Although Corporate net revenue during the year ended December 31, 2006 represented (2)% of Lazards net revenue, total assets in this segment represented 73% of Lazards consolidated total assets as of
December 31, 2006, principally attributable to the relatively significant amounts of assets associated with LFB, and, to a lesser extent, cash and long-term investment balances.



Lazard expects to experience significant fluctuations in net revenue and operating income during the course of any given
year. These fluctuations arise because a significant portion of Financial Advisory net revenue is earned upon the successful completion of a transaction, financial restructuring or capital raising activity, the timing of which is uncertain and is
not subject to Lazards control. Asset Management net revenue is also subject to periodic fluctuations. Asset Management fees are generally based on AUM measured as of the end of a quarter or month, and an increase or reduction in AUM at such
dates, due to market price fluctuations, currency fluctuations, net client asset flows or otherwise, will result in a corresponding increase or decrease in management fees. In addition, incentive fees earned on AUM are generally not recorded until
potential uncertainties regarding the ultimate realizable amounts have been determined. For most of our funds that determination is made at year-end, and therefore such incentive fees are recorded in the fourth quarter of Lazards fiscal year.



Operating Expenses



The majority of Lazards operating expenses relate to compensation and
benefits. As a limited liability company, prior to the consummation of the equity public offering on May 10, 2005 payments for services rendered by the majority of Lazards managing directors were accounted for as distributions of
members capital. In addition, subsequent to January 1, 2003, payments for services rendered by managing directors of LAM (and employee members of LAM) were accounted for as minority interest in net income. See Minority
Interest. For periods subsequent to the consummation of the equity public offering, the accompanying consolidated financial statements include all payments for services rendered by our managing directors, including the managing directors of
LAM and distributions to profit participation members, in compensation and benefits expense. As a result, Lazards compensation and benefits expense and operating income for the year ended December 31, 2006 includes all such payments, while
compensation and benefits expense and operating income for the years ended December 31, 2005 and 2004 did not include those payments for services rendered by Lazards managing directors prior to May 10, 2005.



The balance of Lazards operating expenses is referred to below as
non-compensation expense, which includes costs for premises and occupancy, professional fees, travel and entertainment, communications and information services, equipment, depreciation and amortization and other expenses.



The operating expenses set forth in Consolidated Results of
Operations includes the costs Lazard incurred as a result of the equity public offering after May 10, 2005. Lazard has incurred additional expenses for, among other things, directors fees, SEC reporting and compliance, insurance,
investor relations, legal, accounting and other costs associated with being a public company.



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Provision for Income Taxes



Lazard has historically operated in the U.S. as a limited liability company that was treated as a partnership for U.S.
federal income tax purposes. As a result, Lazard has not been subject to U.S. federal income taxes. Taxes related to income earned by partnerships represent obligations of the individual partners. Outside the U.S., Lazard historically has operated
principally through corporations and has been subject to local income taxes. Income taxes shown on Lazards consolidated statements of income are attributable to taxes incurred in non-U.S. entities and to New York City Unincorporated Business
Tax (UBT) attributable to Lazards operations apportioned to New York City.



Following the equity public offering, Lazard Group is continuing to operate in the U.S. as a limited liability company treated as a partnership for U.S. federal income tax purposes and remains subject to local income
taxes outside the U.S. and to UBT.



Minority Interest



Minority interest consists of a number of components.
As described below, amounts recorded as minority interest for periods prior to May 10, 2005 are not comparable to amounts recorded as minority interest for periods commencing May 10, 2005.



On January 1, 2003, Lazard Group contributed net assets relating to the
majority of its asset management business to form LAM, an indirect subsidiary of Lazard Group. Upon formation of LAM, certain members of Lazard Group (including all the managing directors of LAM at that time) who provide services to LAM contributed
capital to LAM and ceased being members of Lazard Group. Following the formation of LAM, these capital interests have been included in minority interest on Lazard Groups consolidated statements of financial condition. In connection with this
contribution, LAM managing directors and other key LAM employees were granted equity units in LAM. Commencing in 2003, payments for services rendered by these individuals were accounted for as minority interest in net income in Lazard Groups
consolidated statements of income. The substantial majority of such payments related to services rendered by LAM managing directors, which, in prior years, had been accounted for as distributions to members, and therefore, was not reported in prior
years consolidated statements of income. The remainder of such payments, which related to compensation of employee members of LAM, was recorded as compensation and benefits expense in prior years consolidated statements of income. As a
result of the consummation of the equity public offering, and as described in Note 1 of Notes to Consolidated Financial Statements, commencing May 10, 2005 the Company no longer recognizes payments for services rendered by the managing directors of
LAM (and employee members of LAM) as charges to minority interest. Effective May 10, 2005, those charges are now included in compensation and benefits expense.



The LAM equity units entitle holders to payments in connection with selected fundamental transactions affecting Lazard Group or LAM, including a
dissolution or sale of all, or substantially all, of the assets of Lazard Group or LAM, a merger of, or sale of, all of the interests in LAM whereby Lazard Group ceases to own a majority of LAM or have the right to appoint a majority of the board of
directors of LAM, or a non-ordinary course sale of assets by LAM that exceeds $50 million in value. As a general matter, in connection with a fundamental transaction that triggers the LAM equity units, following the completion of such transactions
the holders of the LAM equity units would be entitled in the aggregate, as of both December 31, 2006 and 2005, to approximately 23% of the net proceeds or imputed valuation of LAM in such transaction after deductions for payment of creditors of LAM
and the return of LAM capital. As of December 31, 2006 and 2005, LAMs capital for these purposes totaled approximately $60 million and $68 million, respectively, of which approximately $7 million and $15 million was owned by LAM managing
directors and employee members, with the remainder owned by Lazard Group. These LAM equity units are not entitled to share in the operating results of LAM. A separate class of interests in LAM, which we refer to as LAM profit units, is
entitled to the ordinary profit and losses of LAM, all of which are owned by Lazard Group. Accordingly, in the absence of a fundamental transaction that triggers the LAM equity units, all of LAMs net income is allocable to Lazard Group. We
have no current intention to cause or otherwise trigger a fundamental transaction that would give rise to payment obligations to the holders of interests in LAM.



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The board of directors of LAM, a majority of which is appointed by Lazard Group, may, in its discretion,
grant LAM equity interests that include profit rights to managing directors of, and other persons providing services to, LAM, as a portion of their ongoing compensation. If granted, these equity interests would be subject to specified vesting
conditions. No such LAM equity interests have been granted as of December 31, 2006 nor is there any present intention to do so.



Also included in minority interest in our consolidated financial statements are minority interests in various LAM-related general partnerships held
directly by certain of our LAM managing directors.



In
September 2002, Lazard Group and Banca Intesa S.p.A (Intesa) announced their agreement to form the Strategic Alliance. Under the terms of the Strategic Alliance, Intesa became a 40% partner in Lazard Groups business interests in
Italy in January, 2003. As a result, commencing in 2003, Lazard Group recorded minority interest to reflect Intesas economic interest in the Strategic Alliance. As described in Note 6of Notes to Consolidated Financial Statements, on
May 15, 2006 Lazard Group, Lazard & Co. S.r.l. (Lazard Italy), an indirect subsidiary of Lazard Group, and Intesa completed the termination of the Strategic Alliance. Accordingly, as a result of the termination, Lazard Group now owns
100% of Lazard Italy, and therefore no longer records minority interest relating to Intesas formerly owned interest in Lazard Italy.



As of December 31, 2004, in accordance with the adoption of Financial Interpretation No. 46R for Consolidation of Certain Variable Interest Entities
(FIN 46R), referred to as VIEs, Lazard Group consolidated certain VIEs in which it held a variable interest and where Lazard Group was the primary beneficiary. Those VIEs include Lazard Group sponsored venture capital
investment vehicles established in connection with our compensation plans. Accordingly, Lazard Groups consolidated financial statements at December 31, 2004 and for the year then ended reflect minority interests associated with these VIEs.
These VIEs were included with the separated businesses and, as such, are not reflected in our consolidated financial statements following May 2005. To the extent that we expand our merchant banking activities in the future, we expect that we may be
required to consolidate additional VIEs related to such activities.



See Note 5 of Notes to Consolidated Financial Statements for information regarding the components of the Companys minority interest.



Discontinued Operations



As described above, in connection with the separation Lazard Group transferred the Capital Markets and Other segment to LFCM Holdings as of May 10, 2005.
Capital Markets and Other net revenue largely consisted of primary revenue earned from underwriting fees from securities offerings and secondary revenue earned in the form of commissions and trading profits from principal transactions in Lazard
Groups equity, fixed income and convertibles businesses and underwriting and other fee revenue from corporate broking in the U.K. Lazard Group also earned fund management fees and, if applicable, carried interest incentive fees related to
merchant banking funds managed as part of this former segment. Such carried interest incentive fees were earned if profits from merchant banking investments exceeded a specified threshold. In addition, this former segment generated investment income
and net interest income principally from long-term investments, cash balances and securities financing transactions.



Net Income Allocable to Members



Prior to the equity public offering, payments for services rendered by Lazard Groups managing directors were accounted for as distributions from
members capital, or as minority interest in net income in the case of payments to LAM managing directors and certain key LAM employee members, rather than as compensation and benefits expense. As a result, prior to May 10, 2005 Lazard
Groups compensation and benefits expense and net income allocable to members, did not reflect most payments for services rendered by its managing directors. Following the consummation of the equity public offering and financing transactions,
the Company includes all payments for services rendered by its managing directors in compensation and benefits expense.



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##### Table of Contents

The table below illustrates what our compensation and benefits expense would have been on an adjusted
basis for the years ended December 31, 2005 and 2004 had the portion of distributions to members which represent payments for services rendered and our minority interest in net income related to LAM been accounted for as compensation and benefits
expense, as well as the actual amounts in the year ended December 31, 2006. The table further illustrates the relationship between our adjusted compensation and benefits expense and our operating revenue. We define operating revenue to equal
consolidated total gross revenue less (i) revenue related to the consolidation of LAM general partnerships and (ii) interest expense related to LFB, our Paris-based banking affiliate. We deduct general partnership revenue because we do not
deem such revenue to be operating in nature as it is directly offset by a charge to minority interest in net income for the same amount. The interest expense incurred by LFB is also excluded from our definition of operating revenue because LFB is a
commercial bank and we consider its interest expense to be a cost directly related to the conduct of its business. The remaining interest expense, however, relates to our decisions regarding the capital structure of Lazard as a whole.



|                                                                                                                                                         |  |                         |           |   |      |   |           |      |  |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                                                                                         |  | Year Ended December 31, |          
|                                                                                                                                                         |  | 2006                    |           |   | 2005 |   |           | 2004 | 
|                                                                                                                                                         |  | ($ in thousands)        |          
|Adjusted compensation and benefits                                                                                                                       |  |                         |           |   |      |   |           |      |  |   |           |  
|Historical                                                                                                                                               |  | $                       | 891,411   |   |      | $ | 698,683   |      |  | $ | 466,064   |  
|Add:                                                                                                                                                     |  |                         |           |   |      |   |           |      |  |   |           |  
|Portion of distributions representing payments for services rendered by managing directors (excluding LAM managing directors)                            |  |                         |           |   |      |   | 66,395    |      |  |   | 280,317   |  
|Portion of distributions representing payments included in minority interest for services rendered by LAM managing directors and employee
members of LAM |  |                         |           |   |      |   | 9,081     |      |  |   | 73,965    |  
|                                                                                                                                                         |  |                         |           |   |      |   |           |      |  |   |           |  
|Adjusted compensation and benefits                                                                                                                       |  | $                       | 891,411   |   |      | $ | 774,159   |      |  | $ | 820,346   |  
|                                                                                                                                                         |  |                         |           |   |      |   |           |      |  |   |           |  
|Operating revenue                                                                                                                                        |  |                         |           |   |      |   |           |      |  |   |           |  
|Historical total revenue                                                                                                                                 |  | $                       | 1,597,517 |   |      | $ | 1,379,786 |      |  | $ | 1,134,381 |  
|Deduct:                                                                                                                                                  |  |                         |           |   |      |   |           |      |  |   |           |  
|LFB Interest expense                                                                                                                                     |  |                         | (21,628   | ) |      |   | (19,388   | )    |  |   | (17,843   | )
|Revenue related to consolidation of LAM general partnerships                                                                                             |  |                         | (5,114    | ) |      |   | (2,784    | )    |  |   | (891      | )
|                                                                                                                                                         |  |                         |           |   |      |   |           |      |  |   |           |  
|Operating revenue                                                                                                                                        |  | $                       | 1,570,775 |   |      | $ | 1,357,614 |      |  | $ | 1,115,647 |  
|                                                                                                                                                         |  |                         |           |   |      |   |           |      |  |   |           |  
|Adjusted compensation expense-to-operating revenue ratio                                                                                                 |  |                         | 56.7      | % |      |   | 57.0      | %    |  |   | 73.5      | %
|                                                                                                                                                         |  |                         |           |   |      |   |           |      |  |   |           |  



Our policy is that our
compensation and benefits expense, will not exceed 57.5% of operating revenue each year, including that payable to our managing directors and amortization of restricted stock unit grants under our 2005 Equity Incentive Plan which starts at the date
of grant (see Note 13 of Notes to Consolidated Financial Statements). In 2006 and 2005, the new compensation arrangements were in effect, and our compensation expense-to-operating revenue ratio was 56.7% and 57.0%, respectively. We achieved this
target ratio in 2006 and 2005 while continuing to maintain financial packages for our managing directors that we believe are competitive in the market-place. While we have implemented such steps that we believe will maintain our ongoing compensation
expense-to-operating revenue ratio to the target level of 57.5%, there can be no guarantee that this will continue to be achieved or that our policy will not change in the future. Increased competition for senior professionals, changes in the
financial markets generally or other factors could prevent us from sustaining this objective.



Consolidated Results of Operations



Lazards consolidated financial statements are presented in U.S. dollars. Many of our non-U.S. subsidiaries have a functional currency (i.e., the currency in which operational activities are primarily
conducted) that is other than the



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##### Table of Contents

U.S. dollar, generally the currency of the country in which the subsidiaries are domiciled. Such subsidiaries assets and liabilities are translated
into U.S. dollars using exchange rates as of the respective balance sheet date while revenue and expenses are translated at average exchange rates during the respective periods based on the daily closing exchange rates. Adjustments that result from
translating amounts from a subsidiarys functional currency are reported as a component of members equity. Foreign currency remeasurement gains and losses on transactions in non-functional currencies are included in the
consolidated statements of income.



Results of operations are
reported as an historical partnership until the equity public offering on May 10, 2005 and do not include payments for services rendered by managing directors as compensation expense. Such payments are included in subsequent periods. Therefore,
results for periods prior to the equity public offering on May 10, 2005 and subsequent thereto are not comparable.



A discussion of the Companys consolidated results of operations for the years ended December 31, 2006, 2005 and 2004 is set forth below, followed by
a more detailed discussion of business segment results.



|                                                                                                                                                   |  |                         |           |      |   |           |      |  |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | --------- | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                                                                                   |  | Year Ended December 31, |          
|                                                                                                                                                   |  | 2006                    |           | 2005 |   |           | 2004 | 
|                                                                                                                                                   |  | ($ in thousands)        |          
|Revenue                                                                                                                                            |  |                         |           |      |   |           |      |  |   |           |  
|Investment banking and other advisory fees                                                                                                         |  | $                       | 946,107   |      | $ | 846,390   |      |  | $ | 632,214   |  
|Money management fees                                                                                                                              |  |                         | 510,558   |      |   | 435,015   |      |  |   | 385,776   |  
|Interest income                                                                                                                                    |  |                         | 44,783    |      |   | 34,597    |      |  |   | 27,668    |  
|Other                                                                                                                                              |  |                         | 96,069    |      |   | 63,784    |      |  |   | 88,723    |  
|                                                                                                                                                   |  |                         |           |      |   |           |      |  |   |           |  
|Total revenue                                                                                                                                      |  |                         | 1,597,517 |      |   | 1,379,786 |      |  |   | 1,134,381 |  
|Interest expense                                                                                                                                   |  |                         | 104,348   |      |   | 78,375    |      |  |   | 39,551    |  
|                                                                                                                                                   |  |                         |           |      |   |           |      |  |   |           |  
|Net revenue                                                                                                                                        |  |                         | 1,493,169 |      |   | 1,301,411 |      |  |   | 1,094,830 |  
|                                                                                                                                                   |  |                         |           |      |   |           |      |  |   |           |  
|Operating Expenses                                                                                                                                 |  |                         |           |      |   |           |      |  |   |           |  
|Compensation and benefits(*)                                                                                                                       |  |                         | 891,411   |      |   | 698,683   |      |  |   | 466,064   |  
|Non-compensation expense                                                                                                                           |  |                         | 268,082   |      |   | 257,052   |      |  |   | 260,942   |  
|                                                                                                                                                   |  |                         |           |      |   |           |      |  |   |           |  
|Total operating expenses                                                                                                                           |  |                         | 1,159,493 |      |   | 955,735   |      |  |   | 727,006   |  
|                                                                                                                                                   |  |                         |           |      |   |           |      |  |   |           |  
|Operating Income from Continuing Operations(*)                                                                                                     |  |                         | 333,676   |      |   | 345,676   |      |  |   | 367,824   |  
|Provision for income taxes                                                                                                                         |  |                         | 64,559    |      |   | 54,173    |      |  |   | 28,272    |  
|                                                                                                                                                   |  |                         |           |      |   |           |      |  |   |           |  
|Income from Continuing Operations Before Minority Interest inNet Income(*)                                                                         |  |                         | 269,117   |      |   | 291,503   |      |  |   | 339,552   |  
|Minority interest in net income                                                                                                                    |  |                         | 5,124     |      |   | 18,703    |      |  |   | 87,553    |  
|                                                                                                                                                   |  |                         |           |      |   |           |      |  |   |           |  
|Income from Continuing Operations(*)                                                                                                               |  |                         | 263,993   |      |   | 272,800   |      |  |   | 251,999   |  
|Loss from Discontinued Operations(*) (net of income tax provision of $3,330 and $103 for the years ended December 31, 2005 and 2004,
respectively) |  |                         |           |      |   | (17,576   | )    |  |   | (10,532   | )
|Extraordinary Gain                                                                                                                                 |  |                         |           |      |   |           |      |  |   | 5,507     |  
|                                                                                                                                                   |  |                         |           |      |   |           |      |  |   |           |  
|Net Income Allocable to Members(*)                                                                                                                 |  | $                       | 263,993   |      | $ | 255,224   |      |  | $ | 246,974   |  
|                                                                                                                                                   |  |                         |           |      |   |           |      |  |   |           |  

---

(*) Excludes, as applicable, with respect to periods
ended prior to May 10, 2005 payments for services rendered by Lazard Groups managing directors, which, as a result of Lazard Group operating as a limited liability company, historically had been accounted for as distributions from
members capital, or in some cases as minority interest, rather than as compensation and benefits expense.



45



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##### Table of Contents

Certain key ratios, statistics and headcount information for the years ended December 31, 2006, 2005 and
2004 are set forth below:



|                                            |  |                         |   |  |       |   |  |       |  
|------------------------------------------- |  | ----------------------- | - |  | ----- | - |  | ----- | -
|                                            |  | Year Ended December 31, |  
|                                            |  | 2006                    |   |  | 2005  |   |  | 2004  |  
|As a % of Net Revenue, By Revenue Category: |  |                         |   |  |       |   |  |       |  
|Investment banking and other advisory fees  |  | 63                      | % |  | 65    | % |  | 58    | %
|Money management fees                       |  | 34                      |   |  | 33    |   |  | 35    |  
|Interest income                             |  | 3                       |   |  | 3     |   |  | 3     |  
|Other                                       |  | 7                       |   |  | 5     |   |  | 8     |  
|Interest expense                            |  | (7                      | ) |  | (6    | ) |  | (4    | )
|                                            |  |                         |   |  |       |   |  |       |  
|Net Revenue                                 |  | 100                     | % |  | 100   | % |  | 100   | %
|                                            |  |                         |   |  |       |   |  |       |  
|As a % of Net Revenue:                      |  |                         |   |  |       |   |  |       |  
|Operating Income                            |  | 22                      | % |  | 27    | % |  | 34    | %
|                                            |  |                         |   |  |       |   |  |       |  
|                                            | 
|                                            |  | As of December 31,      |  
|                                            |  | 2006                    |   |  | 2005  |   |  | 2004* |  
|                                            |  |                         |  
|Headcount:                                  |  |                         |   |  |       |   |  |       |  
|Managing Directors:                         |  |                         |   |  |       |   |  |       |  
|Financial Advisory                          |  | 128                     |   |  | 123   |   |  | 127   |  
|Asset Management                            |  | 43                      |   |  | 38    |   |  | 33    |  
|Corporate                                   |  | 8                       |   |  | 8     |   |  | 6     |  
|Limited Managing Directors                  |  | 5                       |   |  | 5     |   |  | 19    |  
|Other Employees:                            |  |                         |   |  |       |   |  |       |  
|Business segment professionals              |  | 811                     |   |  | 777   |   |  | 786   |  
|All other professionals and support staff   |  | 1,205                   |   |  | 1,240 |   |  | 1,368 |  
|                                            |  |                         |   |  |       |   |  |       |  
|Total                                       |  | 2,200                   |   |  | 2,191 |   |  | 2,339 |  
|                                            |  |                         |   |  |       |   |  |       |  

---

|* | After giving effect to the separation
|- | -------------------------------------



Year Ended December 31, 2006 versus December 31, 2005



Revenue and Operating Expenses



Net revenue was $1,493 million for the year ended December 31, 2006, up approximately $192 million, or 15% versus net revenue of $1,301 million in 2005.
During 2006, fees from investment banking and other advisory activities were $946 million, an increase of $100 million, or 12%, versus fees of $846 million in 2005, principally a result of strong M&A performance during the year. Money management
fees were $511 million, an increase of $76 million, or 17% versus $435 million in 2005. The increase in money management fees was principally the result of an $11.3 billion, or 13%, increase in average AUM for the year ended December 31, 2006
as compared to the year ended December 31, 2005, as well as an increase in incentive fees earned in 2006. Interest income of $45 million increased $10 million, or 29%, principally due to higher average cash balances throughout the 2006 period. Other
revenue of $96 million increased by $32 million, or 51%, versus 2005 principally due to the impact of a gain of approximately $14 million (excluding transaction and other costs) recognized on the termination of the Intesa Strategic Alliance (see
Liquidity and Capital Resources below), increased dividends and underwriting fees. Other revenue also includes $5 million recorded from LAM general partnerships held directly by certain of our LAM managing directors versus
approximately $3 million in 2005, with these amounts also included as minority interest in net income. Interest expense of $104 million increased by $26 million primarily due to the incremental interest expense on financings principally
related to the issuance of debt and equity security units that occurred on May 10, 2005 in connection with the equity public offering and recapitalization, with such debt and equity security units outstanding for the full year in 2006 as compared to
only part of 2005.



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##### Table of Contents

Compensation and benefits expense was $891 million for the year ended December 31, 2006, an increase of
approximately $193 million, or 28%, versus expense of $699 million for the year ended December 31, 2005. The increase was primarily due to increased expense for incentive compensation consistent with the increase in operating revenues as well as the
Companys inclusion, for the period subsequent to the consummation of the equity public offering on May 10, 2005, of all payments for services rendered by our managing directors in compensation and benefits expense and payments for
services rendered by managing directors of LAM (and employee members of LAM), the latter of which previously had been accounted for as minority interest in net income.



Non-compensation expense was $268 million in the year ended December 31, 2006, or 17% of operating revenue of $1,571 million
compared with $257 million or 19% of operating revenue of $1,358 million for 2005, with the decrease in the ratio due to the operating leverage from higher operating revenues. The increase in non-compensation expense of $11 million, or 4%, versus
2005 was principally due to higher professional fees of $23 million, the result of consulting and audit fees related to the Companys activities to comply with the Sarbanes-Oxley Act of 2002, legal fees, and fees relating to outsourced
services, partially offset by a decrease in all other non-compensation expenses in the aggregate of $12 million, primarily reflecting the recovery of VAT costs expensed in prior years, and declines in unrecoverable deal-related expenses and
insurance expense.



Operating income, including the one-time
gain on termination of the Intesa Strategic Alliance as described above, which, after transaction and other costs, served to increase operating income by approximately $5 million, was $334 million for the year ended December 31, 2006, a decrease of
$12 million, or 3% lower than operating income of $346 million for 2005. Operating income as a percentage of net revenue was 22% for 2006 versus 27% for 2005, with the decrease primarily resulting from the increase in compensation and benefits
expense described above, partially offset by the increase in revenues. As stated above, historical results for periods prior to the equity public offering on May 10, 2005 and subsequent thereto are not comparable.



Income Taxes



For the year ended December 31, 2006, the provision for income taxes was $65 million, an increase of approximately $11
million versus $54 million for 2005. The increase in 2006 was principally due to increased tax provisions recorded for those locations that are subject to corporate income taxes. The Companys effective income tax rate was 19.3% of the year
ended December 31, 2006, or compared 15.7% of the year ended December 31, 2005.



Minority Interest In Net Income



For the year
ended December 31, 2006, minority interest was $5 million, a decrease of approximately $14 million versus $19 million in 2005. The decrease in the year ended December 31, 2006 was principally due to there being no expense relating to the
minority interest in net income associated with the Intesa Strategic Alliance in 2006, as well as compensation for LAM members being recorded in compensation and benefits expense commencing with the consummation of the equity public offering on May
10, 2005, while, prior thereto, such amounts were recorded in minority interest in net income. As described above, amounts recorded as minority interest in net income for periods prior to May 10, 2005 are not comparable to amounts recorded as
minority interest in net income for periods commencing May 10, 2005.



Year
Ended December 31, 2005 versus December 31, 2004



Revenue and Operating
Expenses



Net revenue was $1,301 million for the year
ended December 31, 2005, up $207 million, or 19%, versus net revenue of $1,095 million in 2004. During 2005, fees from investment banking and other advisory activities were $846 million, an increase of $214 million, or 34%, versus fees of $632
million in 2004, a result of a higher level of M&A performance during the year. Money management fees were $435 million, an increase of $49 million, or 13%, versus $386 million in 2004. The increase in money management fees was principally the
result of an $5.8 billion, or 7%, increase in average AUM for the year ended December 31, 2005 as compared to the year ended



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##### Table of Contents

December 31, 2004, as well as an increase in incentive fees earned in 2005. Interest income of $35 million increased $7 million, or 25%, principally due to
higher average cash balances during 2005. Other revenue of $64 million decreased by $25 million, or 28%, versus 2005 principally due to lower investment gains in 2005. In addition, during the year ended December 31, 2005, revenue of approximately $3
million was recorded from LAM general partnerships held directly by certain of our LAM managing directors, with these amounts also included as minority interest in net income, versus $1 million for the year ended December 31, 2004.
Interest expense of $78 million increased by $39 million primarily due to the incremental interest expense on financings primarily related to the issuance of debt and equity security units that occurred on May 10, 2005 in connection with the equity
public offering and recapitalization.



Compensation and
benefits expense was $699 million for the year ended December 31, 2005, an increase of $233 million, or 50%, versus expense of $466 million for 2004. The expense increase was primarily due to the Companys inclusion, for the period subsequent
to the consummation of the equity public offering, of all payments for services rendered by our managing directors in compensation and benefits expense and payments for services rendered by managing directors of LAM (and employee members of LAM),
the latter of which previously had been accounted for as minority interest in net income, partially offset by reductions in pension and post-retirement health benefit costs of approximately $35 million.



Non-compensation expense was $257 million in the year ended December 31, 2005
or 19% of operating revenue of $1,358 million, compared with $261 million or 23% of operating revenue of $1,116 million in 2004, with the decrease in the ratio due to the operating leverage from higher operating revenues. The decrease in
non-compensation expense of $4 million, or 1%, versus 2004 is primarily due to lower premises and occupancy expense as a result of less occupied space in London, partially offset by an increase in professional fees due to increased costs associated
with being a public company. All other non-compensation expenses in the aggregate were generally flat versus 2004.



Operating income was $346 million for 2005, a decrease of $22 million, or 6% lower than operating income of $368 million for 2004. Operating income as a
percentage of net revenue was 27% for 2005 versus 34% for 2004, with the decrease in operating income and the relative margin primarily resulting from the increase in compensation and benefits expense described above, partially offset by the
increase in revenues. As stated above, historical results for periods prior to the equity public offering on May 10, 2005 and subsequent thereto are not comparable.



Income Taxes



Provision for income taxes was $54 million for 2005, an increase of $26 million versus $28 million for 2004, due to increased profitability in locations
that are subject to corporate income taxes. The Companys effective income tax rate was 15.7% of the year ended December 31, 2005, or compared 7.7% of the year ended December 31, 2004.



Minority Interest In Net Income



Minority interest in net income was $19 million for 2005, a decrease of $69
million versus $88 million for 2004, principally due to the compensation for LAM members being recorded in compensation and benefits expense commencing May 10, 2005, while, prior thereto, such amounts were recorded in minority interest in net
income. See Minority Interest. As described above, amounts recorded as minority interest in net income for periods prior to May 10, 2005 are not comparable to amounts recorded as minority interest in net income for periods
commencing May 10, 2005.



Discontinued Operations



Net loss from discontinued operations was approximately $18 million for
2005, versus a net loss of $11 million for 2004.



48



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##### Table of Contents



Business Segments



The following data discusses net revenue and operating income for the
Companys continuing operations by business segment. The operating results exclude a discussion of Corporate, due to its relatively minor contribution to operating results. Each segments operating expenses include (i) compensation and
benefits expenses that are incurred directly in support of the businesses and (ii) other operating expenses, which include directly incurred expenses for premises and occupancy, professional fees, travel and entertainment, communications and
information services, equipment, and indirect support costs (including compensation and benefits expense and other operating expenses related thereto) for administrative services. Such administrative services include, but are not limited to,
accounting, tax, legal, facilities management and senior management activities. Such support costs are allocated to the relevant segments based on various statistical drivers such as, among other items, headcount, square footage and transactional
volume.



Financial Advisory



The following table summarizes the operating results of the Financial
Advisory segment.



|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                |  | Year Ended December 31, |        
|                                                |  | 2006                    |         |   | 2005 |   |         | 2004 | 
|                                                |  | ($ in thousands)        |        
|M&A                                             |  | $                       | 792,537 |   |      | $ | 674,543 |      |  | $ | 481,726 |  
|Financial Restructuring                         |  |                         | 70,625  |   |      |   | 103,404 |      |  |   | 96,100  |  
|Corporate Finance and Other                     |  |                         | 110,175 |   |      |   | 86,865  |      |  |   | 77,374  |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Revenue                                     |  |                         | 973,337 |   |      |   | 864,812 |      |  |   | 655,200 |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Direct Compensation and Benefits                |  |                         | 529,624 |   |      |   | 394,368 |      |  |   | 230,340 |  
|Other Operating Expenses(a)                     |  |                         | 192,527 |   |      |   | 194,656 |      |  |   | 213,342 |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Total Operating Expenses                        |  |                         | 722,151 |   |      |   | 589,024 |      |  |   | 443,682 |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Operating Income                                |  | $                       | 251,186 |   |      | $ | 275,788 |      |  | $ | 211,518 |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Operating Income as a Percentage of Net Revenue |  |                         | 26      | % |      |   | 32      | %    |  |   | 32      | %
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|                                                | 
|                                                |  | As of December 31,      |        
|                                                |  | 2006                    |         |   | 2005 |   |         | 2004 | 
|Headcount (b):                                  |  |                         |         |   |      |   |         |      |  |   |         |  
|Managing Directors                              |  |                         | 128     |   |      |   | 123     |      |  |   | 127     |  
|Limited Managing Directors                      |  |                         | 2       |   |      |   | 2       |      |  |   | 4       |  
|Other Employees:                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Business segment professionals                  |  |                         | 510     |   |      |   | 490     |      |  |   | 512     |  
|All other professionals and support staff       |  |                         | 243     |   |      |   | 261     |      |  |   | 283     |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Total                                           |  |                         | 883     |   |      |   | 876     |      |  |   | 926     |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  

---

|(a) | Includes indirect support costs (including compensation and benefits expense and other operating expenses related thereto).
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(b) | Excludes headcount related to indirect support functions. Such headcount is included in the Corporate headcount.
|--- | ----------------------------------------------------------------------------------------------------------------



Net revenue trends in Financial Advisory for M&A and Financial
Restructuring generally are correlated to the volume of completed industry-wide mergers and acquisitions activity and restructurings occurring subsequent to corporate debt defaults, respectively. However, deviations from this relationship can occur
in any given year for a number of reasons. For instance, material variances in the level of mergers and acquisitions activity in a particular geography where Lazard has significant market share or the number of its advisory engagements with



49



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##### Table of Contents

respect to larger-sized transactions can cause its results to diverge from industry-wide activity. Certain Lazard client statistics and global industry
statistics are set forth below:



|                                                                       |  |                         |   |  |      |   |  |      |  
|---------------------------------------------------------------------- |  | ----------------------- | - |  | ---- | - |  | ---- | -
|                                                                       |  | Year Ended December 31, |  
|                                                                       |  | 2006                    |   |  | 2005 |   |  | 2004 |  
|Lazard Statistics:                                                     |  |                         |   |  |      |   |  |      |  
|Number of Clients:                                                     |  |                         |   |  |      |   |  |      |  
|Total                                                                  |  | 510                     |   |  | 484  |   |  | 435  |  
|With Fees Greater than $1 million                                      |  | 202                     |   |  | 184  |   |  | 136  |  
|Percentage of Total Financial Advisory Revenue from Top 10 Clients (a) |  | 21                      | % |  | 20   | % |  | 25   | %
|Number of M&A Transactions Completed Greater than $1 billion (b)       |  | 51                      |   |  | 40   |   |  | 31   |  

---

|(a) | There were no individual clients that constituted more than 10% of our Financial Advisory segment net revenue in the years ended December 31, 2006, 2005 or 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Source: Thomson Financial as of January 29, 2007
|--- | ------------------------------------------------



The geographical distribution of Financial Advisory net revenue is set forth below in percentage terms. The offices that generate Financial Advisory net
revenue are located in North America, Europe (principally in the U.K., France, Italy, Spain and Germany) and the rest of the world (principally in Asia).



|              |  |                         |   |  |      |   |  |      |  
|------------- |  | ----------------------- | - |  | ---- | - |  | ---- | -
|              |  | Year Ended December 31, |  
|              |  | 2006                    |   |  | 2005 |   |  | 2004 |  
|North America |  | 54                      | % |  | 48   | % |  | 45   | %
|Europe        |  | 45                      |   |  | 50   |   |  | 54   |  
|Rest of World |  | 1                       |   |  | 2    |   |  | 1    |  
|              |  |                         |   |  |      |   |  |      |  
|Total         |  | 100                     | % |  | 100  | % |  | 100  | %
|              |  |                         |   |  |      |   |  |      |  



The Companys
managing directors and many of its professionals have significant experience, and many of them are able to use this experience to advise on both mergers and acquisitions and financial restructuring transactions, depending on clients needs.
This flexibility allows Lazard to better match its professional staff with the counter-cyclical business cycles of mergers and acquisitions and financial restructurings. While Lazard measures revenue by practice area, Lazard does not separately
measure the separate costs or profitability of mergers and acquisitions services as compared to financial restructuring services. Accordingly, Lazard measures performance in its Financial Advisory segment based on overall segment net revenue and
operating income margins.



Financial Advisory Results of
Operations



Year Ended December 31, 2006 versus
December 31, 2005



In 2006, Financial Advisory net revenue
was $973 million, an increase of $108 million, or 13%, versus net revenue of $865 million in 2005. M&A net revenue of $793 million increased $118 million, or 17%, versus 2005. In addition, Corporate Finance and Other net revenue of $110 million
increased by approximately $23 million, or 27%, versus net revenue of $87 million in 2005. Financial Restructuring net revenue declined by $33 million, or 32%, versus 2005.



The increase in M&A revenue in 2006 was primarily due to a stronger environment for M&A transactions, an increase in
the number of clients or special committee assignments for which we provided advice and improved productivity. Clients which, in the aggregate, represented 25% of our M&A revenue for the year ended December 31, 2006 included Caisse
DEpargne, Fisher Scientific, ITV, Jefferson Pilot, KeySpan, Maytag, Pfizer, SuperValu, Uniland and UCB.



50



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##### Table of Contents

Financial Restructuring revenue decreased as compared to 2005, principally due to the low level of debt
defaults experienced in 2006. Restructuring assignments completed in 2006 include Armstrong Holdings, Charter Communications, Nortel Networks, Owens-Corning on its emergence from Chapter 11 bankruptcy, and the UAW in connection with Delphis
bankruptcy and with regard to alternatives for restructuring DaimlerChryslers post-retirement healthcare obligations.



Corporate Finance and Other net revenue increased versus 2005 driven by our Private Fund Advisory Group, which advised on a number of large fund closings
in 2006, and increased revenue from our Private Investment in Public Equity (PIPE) and Registered Direct Offering business.



Operating expenses were $722 million in 2006, an increase of approximately $133 million, or 23%, versus operating expenses of $589 million in 2005.
Compensation and benefits expense increased by $135 million, or 34%, as compared to 2005. The increase was partially due to the inclusion, for the period subsequent to the consummation of the equity public offering, of all payments for services
rendered by our managing directors in compensation and benefits expense. In addition, incentive compensation awards increased in 2006, consistent with the increase in operating revenues. All other operating expenses decreased by a net amount of $2
million, or 1%.



Financial Advisory operating income was $251
million for 2006, a decrease of $25 million, or 9%, versus operating income of $276 million in 2005. Operating income as a percentage of segment net revenue was 26% for 2006 versus 32% in 2005, with the increase in recorded compensation expense in
2006 being partially offset by the leverage resulting from higher revenues. As stated above, historical results for periods prior to the equity public offering on May 10, 2005 and subsequent thereto are not comparable.



Year ended December 31, 2005 versus December 31, 2004



During 2005, Financial Advisory net revenue was $865
million, an increase of $210 million, or 32%, versus net revenue of $655 million in 2004. In 2005, M&A net revenue of $675 million increased $193 million, or 40%, versus 2004, driven by the improved productivity of our managing directors and the
improved environment for mergers and acquisitions activity. The increase in M&A net revenue was also accompanied by an approximate $7 million, or 8%, increase in Financial Restructuring net revenue versus 2004. Corporate Finance and Other
net revenue increased by $9 million, or 12%, principally as a result of a higher level of private equity fund raising.



Operating expenses were $589 million in 2005, an increase of $145 million, or 33%, versus operating expenses of $444 million in 2004. Compensation and
benefits expense increased by $164 million, or 71%, as compared to 2004. The increase was principally due to the inclusion, for the period subsequent to the consummation of the equity public offering, of all payments for services rendered by our
managing directors in compensation and benefits expense. In addition, incentive compensation to employees increased due to increased revenue and profitability in 2005. Other operating expenses decreased by $19 million, or 9%, versus 2004 reflecting
reductions in premises and occupancy expense, travel and entertainment expense and support group allocations.



Financial Advisory operating income was $276 million in 2005, an increase of $64 million, or 30%, versus operating income of $212 million for 2004.
Operating income as a percentage of segment net revenue was 32% in both 2005 and 2004, with the increase in recorded compensation expense in 2005 being offset by the leverage resulting from higher revenues. As stated above, historical results
for periods prior to the equity public offering on May 10, 2005 and subsequent thereto are not comparable.



51



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##### Table of Contents

Asset Management



The following table shows the composition of AUM for the Asset Management segment:



|                                        |  |                    |         |      |   |        |  |   |       
|--------------------------------------- |  | ------------------ | ------- | ---- | - | ------ |  | - | ------
|                                        |  | As of December 31,
|                                        |  | 2006               |         | 2005 |   | 2004  
|                                        |  | ($ in millions)   
|AUM:                                    |  |                    |         |      |   |        |  |   |       
|International Equities                  |  | $                  | 52,033  |      | $ | 42,104 |  | $ | 39,267
|Global Equities                         |  |                    | 26,453  |      |   | 15,872 |  |   | 17,762
|U.S. Equities                           |  |                    | 13,708  |      |   | 12,920 |  |   | 12,716
|                                        |  |                    |         |      |   |        |  |   |       
|Total Equities                          |  |                    | 92,194  |      |   | 70,896 |  |   | 69,745
|                                        |  |                    |         |      |   |        |  |   |       
|European and International Fixed Income |  |                    | 8,418   |      |   | 6,604  |  |   | 6,226 
|Global Fixed Income                     |  |                    | 1,095   |      |   | 2,135  |  |   | 2,008 
|U.S. Fixed Income                       |  |                    | 2,310   |      |   | 2,374  |  |   | 2,970 
|                                        |  |                    |         |      |   |        |  |   |       
|Total Fixed Income                      |  |                    | 11,823  |      |   | 11,113 |  |   | 11,204
|                                        |  |                    |         |      |   |        |  |   |       
|Alternative Investments                 |  |                    | 3,457   |      |   | 3,394  |  |   | 2,800 
|Merchant Banking                        |  |                    | 883     |      |   | 826    |  |   | 551   
|Cash Management                         |  |                    | 2,080   |      |   | 2,005  |  |   | 2,135 
|                                        |  |                    |         |      |   |        |  |   |       
|Total AUM                               |  | $                  | 110,437 |      | $ | 88,234 |  | $ | 86,435
|                                        |  |                    |         |      |   |        |  |   |       



Average AUM for the
years ended December 31, 2006, 2005 and 2004 is set forth below. Average AUM is based on an average of quarterly ending balances for the respective periods.



|            |  |                         |        |      |   |        |  |   |       
|----------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|            |  | Year Ended December 31,
|            |  | 2006                    |        | 2005 |   | 2004  
|            |  | ($ in millions)        
|Average AUM |  | $                       | 97,408 |      | $ | 86,106 |  | $ | 80,261
|            |  |                         |        |      |   |        |  |   |       



The following is a
summary of changes in AUM for the years ended December 31, 2006, 2005 and 2004.



|                             |  |                         |         |      |   |        |      |  |   |        |  
|---------------------------- |  | ----------------------- | ------- | ---- | - | ------ | ---- |  | - | ------ | -
|                             |  | Year Ended December 31, |        
|                             |  | 2006                    |         | 2005 |   |        | 2004 | 
|                             |  | ($ in millions)         |        
|AUMBeginning of Period      |  | $                       | 88,234  |      | $ | 86,435 |      |  | $ | 78,371 |  
|Net Flows                    |  |                         | 2,756   |      |   | (4,198 | )    |  |   | (3,489 | )
|Market Appreciation          |  |                         | 18,192  |      |   | 7,355  |      |  |   | 10,793 |  
|Foreign Currency Adjustments |  |                         | 1,255   |      |   | (1,358 | )    |  |   | 760    |  
|                             |  |                         |         |      |   |        |      |  |   |        |  
|AUMEnd of Period            |  | $                       | 110,437 |      | $ | 88,234 |      |  | $ | 86,435 |  
|                             |  |                         |         |      |   |        |      |  |   |        |  



AUM as of December 31,
2006 was $110.4 billion, an increase of $22.2 billion as compared to AUM of $88.2 billion as of December 31, 2005. Merchant banking AUM as of December 31, 2006, 2005 and 2004 includes approximately $0.6 billion, $0.4 billion and $0.2 billion,
respectively, of assets held by an investment company for which Lazard may earn carried interests. During the year ended December 31, 2006, market appreciation of $18.2 billion was accompanied by net inflows of $2.8 billion and the positive impact
of changes in foreign currency exchange rates of approximately $1.3 billion. Net inflows were experienced primarily in Emerging Markets, Global Thematic Equity, U.K. and European Equity products. During 2006, average AUM was $97.4 billion, an
increase of approximately $11.3 billion, or 13%, versus average AUM of $86.1 billion in 2005.



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AUM as of December 31, 2005 was $88.2 billion, an increase of $1.8 billion as compared to AUM of $86.4
billion as of December 31, 2004. During the year ended December 31, 2005, market appreciation of $7.4 billion was partially offset by net outflows of $4.2 billion and the negative impact of changes in foreign currency exchange rates of $1.4 billion.
Net outflows were experienced primarily in International and Global Equities, and were partially offset by new inflows, particularly in Emerging Market, Global Thematic Equity, U.S. Midcap Equity and European Fixed Income products. During 2005,
average AUM was $86.1 billion, an increase of approximately $5.8 billion, or 7%, versus average AUM of $80.3 billion in 2004.



The following table summarizes the operating results of the Asset Management segment.



|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                |  | Year Ended December 31, |        
|                                                |  | 2006                    |         |   | 2005 |   |         | 2004 | 
|                                                |  | ($ in thousands)        |        
|Management Fees                                 |  | $                       | 450,323 |   |      | $ | 389,414 |      |  | $ | 357,229 |  
|Incentive Fees                                  |  |                         | 59,371  |   |      |   | 44,627  |      |  |   | 27,354  |  
|Other Income                                    |  |                         | 38,404  |   |      |   | 29,363  |      |  |   | 31,692  |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Sub-total                                       |  |                         | 548,098 |   |      |   | 463,404 |      |  |   | 416,275 |  
|LAM GP-Related Revenue                          |  |                         | 5,114   |   |      |   | 2,784   |      |  |   | 891     |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Net Revenue                                     |  |                         | 553,212 |   |      |   | 466,188 |      |  |   | 417,166 |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Direct Compensation and Benefits                |  |                         | 250,881 |   |      |   | 199,600 |      |  |   | 134,097 |  
|Other Operating Expenses(a)                     |  |                         | 167,141 |   |      |   | 150,201 |      |  |   | 147,932 |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Total Operating Expenses                        |  |                         | 418,022 |   |      |   | 349,801 |      |  |   | 282,029 |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Operating Income                                |  | $                       | 135,190 |   |      | $ | 116,387 |      |  | $ | 135,137 |  
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Operating Income as a Percentage of Net Revenue |  |                         | 24      | % |      |   | 25      | %    |  |   | 32      | %
|                                                |  |                         |         |   |      |   |         |      |  |   |         |  



|                                                    |  |                    |  |      |  |     
|--------------------------------------------------- |  | ------------------ |  | ---- |  | ----
|                                                    |  | As of December 31,
|                                                    |  | 2006               |  | 2005 |  | 2004
|Headcount(b):                                       |  |                    |  |      |  |     
|Managing Directors                                  |  | 43                 |  | 38   |  | 33  
|Limited Managing Directors                          |  | 2                  |  | 2    |  | 2   
|Other Employees:                                    |  |                    |  |      |  |     
|Business segment professionals                      |  | 293                |  | 276  |  | 261 
|All other professionals and support staff functions |  | 348                |  | 327  |  | 320 
|                                                    |  |                    |  |      |  |     
|Total                                               |  | 686                |  | 643  |  | 616 
|                                                    |  |                    |  |      |  |     

---

|(a) | Includes indirect support costs (including compensation and benefits expense and other operating expenses related thereto).
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(b) | Excludes headcount related to indirect support functions. Such headcount is included in the Corporate headcount.
|--- | ----------------------------------------------------------------------------------------------------------------



There were no individual clients that constituted more than 10% of our Asset
Management segment net revenue for the years ended December 31, 2006, 2005 or 2004.



The geographical distribution of Asset Management net revenue is set forth below in percentage terms:



|              |  |                         |   |  |      |   |  |      |  
|------------- |  | ----------------------- | - |  | ---- | - |  | ---- | -
|              |  | Year Ended December 31, |  
|              |  | 2006                    |   |  | 2005 |   |  | 2004 |  
|North America |  | 58                      | % |  | 59   | % |  | 59   | %
|Europe        |  | 35                      |   |  | 33   |   |  | 33   |  
|Rest of World |  | 7                       |   |  | 8    |   |  | 8    |  
|              |  |                         |   |  |      |   |  |      |  
|Total         |  | 100                     | % |  | 100  | % |  | 100  | %
|              |  |                         |   |  |      |   |  |      |  



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##### Table of Contents

Asset Management Results of Operations



Year Ended December 31, 2006 versus December 31, 2005



Asset Management net revenue was $553 million for 2006, an increase of $87
million, or 19%, versus net revenue of approximately $466 million for 2005. Management fees for 2006 were $450 million, up $61 million, or 16%, slightly higher than the increase in average AUM for 2006 principally due to a shift in AUM to higher fee
based products. Incentive fees earned for 2006 were $59 million, an increase of $14 million versus approximately $45 million recorded in 2005 due to better performance in certain funds that provide for such incentive fees. Other income was $38
million, an increase of $9 million versus 2005. In addition, during the year ended December 31, 2006, revenue of approximately $5 million was recorded from LAM general partnerships held directly by certain of our LAM managing directors, with these
amounts being also included as minority interest in net income, versus $3 million for the year ended December 31, 2005.



Operating expenses were $418 million for 2006, an increase of $68 million, or 20%, versus operating expenses of $350 million for 2005. Compensation and
benefits expense increased by $51 million, or 26%, as compared to 2005. The increase was principally due to increases in incentive compensation as a result of the increase in operating revenues, as well as the inclusion, for periods subsequent to
the consummation of the equity public offering, of all payments for services rendered by managing directors of LAM (and employee members of LAM) in compensation and benefits expense which had previously been accounted for as minority interest in net
income. Other operating expenses increased by a net amount of $17 million, or 11%, versus 2005, principally due to higher professional fees for outsourced services and increases in legal fees and support costs.



Asset Management operating income was $135 million in 2006, an increase of
$19 million as compared to operating income of $116 million for 2005. Operating income as a percentage of segment net revenue was 24% for 2006 versus 25% for 2005, with the decline in 2006 attributable to the increase in recorded compensation
expense in 2006 as described above, partially offset by higher revenues versus 2005. As stated above, historical results for periods prior to the equity public offering on May 10, 2005 and subsequent thereto are not comparable.



Year Ended December 31, 2005 versus December 31, 2004



Asset Management net revenue was $466 million in 2005, an
increase of $49 million, or 12%, versus net revenue of $417 million in 2004. Management fees for 2005 were $389 million, up $32 million, or 9%, versus 2004, generally consistent with the 7% increase in average AUM in 2005. Incentive fees earned in
2005 were $45 million, an increase of $18 million versus $27 million recorded in 2004 due to better performance in certain funds that provide for such incentive fees. Other income was $29 million, in 2005, down $2 million versus 2004. In addition,
during the year ended December 31, 2005, revenue of approximately $3 million was recorded from LAM general partnerships held directly by certain of our LAM managing directors, with these amounts also included as minority interest in net
income, versus $1 million for the year ended December 31, 2004.



Operating expenses were $350 million for 2005, an increase of $68 million, or 24%, versus operating expenses of $282 million in 2004. Compensation and benefits expense increased by $66 million, or 49%, as compared to 2004. The increase was
principally due to the inclusion, for periods subsequent to the consummation of the equity public offering, of all payments for services rendered by managing directors of LAM (and employee members of LAM) in compensation and benefits expense which
had previously been accounted for as minority interest in net income. Other operating expenses increased in 2005 by $2 million, or 2%, due to higher professional fees, partially offset by net decreases in other operating expenses.



Asset Management operating income was $116 million in 2005, a decrease of $19
million, or 14%, versus operating income of $135 million in 2004. Operating income as a percentage of segment net revenue was 25% for 2005 versus 32% in 2004, with the decline in 2005 attributable to the increase in recorded compensation



54



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##### Table of Contents

expense in 2005 as described above, partially offset by higher revenues in 2005. As stated above, historical results for periods prior to the equity public
offering on May 10, 2005 and subsequent thereto are not comparable.



Cash
Flows



The Companys cash flows are influenced
primarily by the timing of the receipt of Financial Advisory and Asset Management fees, the timing of distributions to shareholders and payment of incentive compensation bonuses to managing directors and employees. The M&A and Asset Management
fee receivable collection periods generally are 60 days or less. However, the collection time for restructuring transactions may extend beyond 60 days, particularly those that involve bankruptcies due to issues such as court-ordered holdbacks. In
addition, fee receivables from our private fund advisory activities are generally collected over a four year period.



Lazard Group traditionally makes payments for employee incentive compensation and distributions to members primarily in the first four months of the year
with respect to the prior years results.



Summary of Cash Flows:



|                                          |  |                         |       |   |      |   |        |  
|----------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ------ | -
|                                          |  | Year Ended December 31, |      
|                                          |  | 2006                    |       |   | 2005 |  
|                                          |  | ($ in millions)         |      
|Cash Provided By (Used In):               |  |                         |       |   |      |   |        |  
|Operating activities:                     |  |                         |       |   |      |   |        |  
|Net income allocable to members(a)        |  | $                       | 264.0 |   |      | $ | 255.2  |  
|Noncash charges (b)                       |  |                         | 27.2  |   |      |   | 29.0   |  
|Other operating activities (c)            |  |                         | (49.4 | ) |      |   | 616.0  |  
|                                          |  |                         |       |   |      |   |        |  
|Net cash provided by operating activities |  |                         | 241.8 |   |      |   | 900.2  |  
|                                          |  |                         |       |   |      |   |        |  
|Investing activities (d)                  |  |                         | (8.1  | ) |      |   | 3.9    |  
|Financing activities (e)                  |  |                         | 213.6 |   |      |   | (706.2 | )
|Effect of exchange rate changes           |  |                         | 17.4  |   |      |   | (13.2  | )
|                                          |  |                         |       |   |      |   |        |  
|Net Increase in Cash and Cash Equivalents |  |                         | 464.7 |   |      |   | 184.7  |  
|Cash and Cash Equivalents:                |  |                         |       |   |      |   |        |  
|Beginning of Year                         |  |                         | 490.4 |   |      |   | 305.7  |  
|                                          |  |                         |       |   |      |   |        |  
|End of Year                               |  | $                       | 955.1 |   |      | $ | 490.4  |  
|                                          |  |                         |       |   |      |   |        |  

---

(a) As stated previously, net income
allocable to members for the year ended December 31, 2006 is not comparable to the year ended December 31, 2005 principally due to payments for services rendered by most of Lazard Groups managing directors, which had, prior to May 10, 2005,
been accounted for as distributions from members capital.



(b) Consists of the following:



|                                                                       |  |   |       |   |  |   |      |  
|---------------------------------------------------------------------- |  | - | ----- | - |  | - | ---- | -
|Depreciation and amortization of property                              |  | $ | 14.3  |   |  | $ | 15.3 |  
|Amortization of deferred expenses, stock units and interest rate hedge |  |   | 25.8  |   |  |   | 2.6  |  
|Deferred tax (benefit)                                                 |  |   | (4.3  | ) |  |   | (7.6 | )
|Minority interest in net income                                        |  |   | 5.1   |   |  |   | 18.7 |  
|Gain on termination of Strategic Alliance                              |  |   | (13.7 | ) |  |   |     |  
|                                                                       |  |   |       |   |  |   |      |  
|                                                                       |  | $ | 27.2  |   |  | $ | 29.0 |  
|                                                                       |  |   |       |   |  |   |      |  



(c) Includes net
changes in operating assets and liabilities, which, for the year ended December 31, 2005, also included a decrease in net assets related to the Companys discontinued operations and a decrease related to marketable investments.



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##### Table of Contents

(d) Relates to the net additions and disposals of property



(e) For the years ended December 31, 2006 and 2005 primarily includes
distributions to members and minority interest holders and repayments of senior borrowings. The year ended December 31, 2006 also includes the net proceeds contributed to Lazard Group from the sale of 8,050,400 shares of Lazard Ltds Class A
common stock (the Primary Offering). The year ended December 31, 2005 also included (i) the redemption, including capital withdrawals, of historical partner interests, (ii) distributions to members, (iii) distributions to LAZ-MD
Holdings and LFCM Holdings in connection with the separation, and (iv) the distribution of the separated businesses, with these items partially offset by proceeds from the financing transactions.



Liquidity and Capital Resources



Historically, the Companys source of liquidity has been cash provided
by operations, with a traditional seasonal pattern of cash flow. While employee salaries are paid throughout the year, annual incentive compensation has historically been paid to employees in the early months following year-end. The Companys
managing directors are paid a salary during the year, but a majority of their annual cash distributions with respect to the prior year have historically been paid to them in three monthly installments in February, March and April following year-end.
In addition, and to a lesser extent, during the year we pay certain tax advances on behalf of our managing directors, and these advances serve to reduce the amounts due to the managing directors in the three installments described above. As a
consequence, our level of cash on hand generally decreases significantly during the first four months of the year and gradually builds up over the remainder of the year. We expect this seasonal pattern of cash flow to continue.



Lazards consolidated financial statements are presented in U.S.
dollars. Many of Lazards non-U.S. subsidiaries have a functional currency, i.e., the currency in which operational activities are primarily conducted, that is other than the U.S. dollar, generally the currency of the country in which
such subsidiaries are domiciled. Such subsidiaries assets and liabilities are translated into U.S. dollars at the respective balance sheet date exchange rates, while revenue and expenses are translated at average exchange rates during the year
based on the daily closing exchange rates. Adjustments that result from translating amounts from a subsidiarys functional currency are reported as a component of members equity (deficiency). Such currency translation adjustments served
to increase (decrease) members equity (deficiency) by approximately $51 million, $(47) million and $30 million in the years ended December 31, 2006, 2005 and 2004, respectively. Foreign currency remeasurement gains and losses on
transactions in non-functional currencies are included on the consolidated statements of income.



We regularly monitor our liquidity position, including cash levels, credit lines, principal investment commitments, interest and principal payments on
debt, capital expenditures and matters relating to liquidity and to compliance with regulatory net capital requirements. We maintain lines of credit in excess of anticipated liquidity requirements. As of December 31, 2006, Lazard had approximately
$234 million in unused lines of credit available to it, including $54 million of unused lines of credit available to LFB.



Lazards annual cash flow generated from operations historically has been sufficient to enable it to meet its annual obligations. We believe that our
cash flows from operating activities, including use of our credit lines as needed, should be sufficient for us to fund our current obligations for the next 12 months and beyond. As noted above, we intend to maintain lines of credit that can be
utilized should the need arise. Concurrent with the equity public offering, Lazard Group entered into a five year, $125 million senior revolving credit facility with a group of lenders, with such revolving credit facility being amended on May 17,
2006 to provide for aggregate commitments of $150 million. As of December 31, 2006 there were no amounts outstanding under this credit facility. The senior revolving credit facility contains customary affirmative and negative covenants and events of
default for facilities of this type. In addition, the senior revolving credit facility, among other things, limits the ability of the borrower to incur debt, grant liens, pay dividends, enter into mergers or to sell all or substantially



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all of its assets and contains financial covenants that must be maintained. We may, to the extent required and subject to restrictions contained in our
financing arrangements, use other financing sources in addition to any new credit facilities.



Over the past several years, Lazard has entered into several financing agreements designed to strengthen both its capital base and liquidity, the most significant of which are described below. Each of these agreements
is discussed in more detail in our consolidated financial statements and related notes included elsewhere in this Form 10-K.



In 2001, the Company issued mandatorily redeemable preferred stock (Class C Preferred Interests) for an aggregate amount of $100 million. The
Class C Preferred Interests were subject to mandatory redemption by the Company in March 2011 and, prior to such date, were redeemable in whole or in part, at the Companys option. The Class C Preferred Interests were entitled to receive
distributions out of the profits of the Company at a rate of 8% per annum, which distributions were required to be paid prior to any distributions of profits to holders of any other existing class of interests in the Company. The Class C Preferred
Interests were redeemed in May 2005 as part of the recapitalization transactions. Interest on mandatorily redeemable preferred stock for the years ended December 31, 2005 and 2004 of $(8) million and $8 million, respectively, is included in
interest expense in the consolidated statements of income. The credit in 2005 represents accrued dividends which were cancelled in connection with the redemption of membership interests of historical partners.



In May 2001, a wholly-owned subsidiary of Lazard issued $50 million of Senior
Notes due March 2011. These notes, which were unsecured obligations and guaranteed by Lazard, were prepaid in May 2005 in connection with the separation and recapitalization transactions.



As described in more detail in Note 6 of Notes to Consolidated Financial Statements, on May 15, 2006, Lazard Group completed
the termination of its Strategic Alliance with Intesa, in accordance with the provisions of the Termination Agreement, dated as of March 31, 2006, by and among Intesa, Lazard Group and Lazard Italy. In connection with the termination, the following
adjustments were made to the terms of Intesas investment in Lazard Italy and Lazard Funding:



| |  |  | The then existing $150 million subordinated convertible note of Lazard Funding Limited LLC, a wholly-owned subsidiary of Lazard Group, held by Intesa was amended
and restated, among other things, to provide for its convertibility into shares of Lazard Ltd Class A common stock at an effective conversion price of $57 per share. The amended $150 million subordinated convertible note (the Amended $150
million Subordinated Convertible Note) matures on September 30, 2016 and has a fixed interest rate of 3.25% per annum. One-third in principal amount will generally be convertible after July 1, 2008, an additional one-third after July 1, 2009
and the last one-third after July 1, 2010, and no principal amount will be convertible after June 30, 2011. Lazard Ltd will enter into a Registration Rights Agreement with Intesa providing for certain customary registration rights with respect to
the shares of Class A common stock Intesa receives upon conversion. The Guaranty of the existing note by Lazard Group was also amended and restated to reflect the terms of the Amended $150 million Subordinated Convertible Note. The covenants and
events of default in the Amended $150 million Subordinated Convertible Note were not materially changed.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Intesas 40% equity interest in Lazard Italy and the $50 million Subordinated Promissory Note of Lazard Italy held by Intesa were acquired by Lazard Group in
exchange for the issuance to Intesa of a $96 million senior promissory note of Lazard Group due February 28, 2008 (the $96 million Senior Promissory Note) and a $50 million subordinated promissory note of Lazard Group due
February 28, 2008 (the $50 million Subordinated Promissory Note), respectively. The $96 million Senior Promissory Note and the $50 million Subordinated Promissory Note have fixed interest rates of 4.25% and 4.6% per annum,
respectively, and each Note contains customary events of default for indebtedness of its type. On May 15, 2006, Intesa sold and assigned all its rights and interests relating to the $96 million Senior Promissory Note and the $50 million
Subordinated Promissory Note to a commercial bank.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Lazard Group paid Intesa an amount equal to a 3% annualized return on Intesas ownership interest from April 1, 2006 through the termination closing and the
accrued and unpaid interest on the $50 million Subordinated Promissory Note as of the termination closing.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a result of the termination of the Strategic Alliance with Intesa and Lazard Groups repurchase of Intesas ownership interest, the Company
realized a gain of approximately $14 million, excluding transaction and other costs, which is included in revenueother on the consolidated statement of income for the year ended December 31, 2006 (with all of such gain being
recorded in the second quarter of 2006) and, after transaction and other costs, resulted in an increase in operating income of approximately $5 million.



The Company has provided financial advisory services to Intesa.



Substantially all of the net proceeds received from the equity public offering and the financing transactions in May, 2005 were used in connection with
the recapitalization, and, to a lesser extent, to capitalize LFCM Holdings and LAZ-MD Holdings. See Notes 1 and 2 of Notes to Consolidated Financial Statements.



On October 31, 2005, Lazard Group closed the exchange offer described in Note 2 of Notes to Consolidated Financial Statements, whereupon it exchanged
$546 million in aggregate principal amount of its old notes (approximately 99.3% of the aggregate principal amount outstanding) for $546 million in aggregate principal amount of its exchange notes. The exchange notes are substantially
identical to the old notes, except that the exchange notes have been registered under the Securities Act of 1933, as amended; and, as a result, the transfer restrictions applicable to the old notes do not apply to the exchange notes.



As described in more detail in Note 2 of Notes to Consolidated Financial
Statements, on December 6, 2006, Lazard Ltd sold 8,050,400 shares of its Class A common stock in the Primary Offering. The offering price to the public was $45.42 per share, and the offering provided Lazard Ltd with net proceeds of approximately
$349 million, after underwriters discounts of 3.75% and $2.8 million of other estimated expenses. In conjunction with the Primary Offering, a secondary offering (the Secondary Offering) of 6,000,000 shares were offered to the
public by certain current and former managing directors of Lazard and their permitted transferees (the Selling Shareholders). The 6,000,000 shares offered in the Secondary Offering were also newly-issued Class A common shares as a result
of the Selling Shareholders exchanging an equivalent amount of their membership interests in Lazard Group (received in exchange for their membership interests in LAZ-MD Holdings) for newly-issued Class A common shares of Lazard Ltd. Lazard Ltd did
not receive any proceeds from the sale of common stock in the Secondary Offering. Immediately following the Primary Offering, Lazard Ltd and its subsidiaries received 8,050,400 additional Lazard Group common membership interests in exchange for the
net proceeds from the Primary Offering. In the Secondary Offering, Lazard Ltd and its subsidiaries received an additional 6,000,000 Lazard Group common membership interests from the exchanging LAZ-MD members in exchange for the issuance to them of
6,000,000 Class A common shares. LAZ-MD members then sold those shares to the public.



Lazard Capital Markets (LCM), a wholly-owned subsidiary of LFCM Holdings, was a member of the underwriting group for both the Primary and Secondary Offerings, and, in such capacity, earned revenue, net of
estimated underwriting expenses, of approximately $4.1 million. The business alliance agreement provides for Lazard Group to receive a referral fee equal to approximately half of the net revenue obtained by LCM in respect of any underwriting or
distribution opportunity referred to it by Lazard Group. In that connection, as of December 31, 2006, Lazard Group has recorded a receivable from LFCM Holdings of approximately $2.1 million, with the portion of such amount relating to the
Primary Offering of $1.2 million being recorded as an increase to its members equity and the portion of such amount relating to the Secondary Offering of $0.9 million being recorded in other revenue.



As of December 31, 2006, Lazard was in compliance with all of its obligations
under its various borrowing arrangements.



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We actively monitor our regulatory capital base. Our principal subsidiaries are subject to regulatory
requirements in their respective jurisdictions to ensure their general financial soundness and liquidity, which require, among other things, that we comply with certain minimum capital requirements, record-keeping, reporting procedures,
relationships with customers, experience and training requirements for employees and certain other requirements and procedures. These regulatory requirements may restrict the flow of funds to affiliates. Regulatory approval is generally required for
paying dividends in excess of certain established levels. See Note 17 of Notes to Consolidated Financial Statements for further information. These regulations differ in the U.S., the U.K., France, and other countries in which we operate. Our capital
structure is designed to provide each of our subsidiaries with capital and liquidity consistent with its business and regulatory requirements. For a discussion of regulations relating to us, see Item 1-BusinessRegulation included
in this Form 10-K.



Net revenue and operating income
historically have fluctuated significantly between quarters. This variability arises from the fact that transaction completion fees comprise the majority of our net revenue, with the billing and recognition of such fees being dependent upon the
successful completion of client transactions, the occurrence and timing of which is irregular and not subject to Lazards control. In addition, incentive fees earned on AUM and compensation related thereto are generally not recorded until the
end of the applicable measurement period, which is generally the fourth quarter of Lazards fiscal year, when potential uncertainties regarding the ultimate realizable amounts have been determined.



Contractual Obligations



The following table sets forth information relating to Lazards contractual obligations as of December 31, 2006:



|                                                                                 |  |                                               |           |                 |   |           |  |   |           |     |                  |   |         |  |   |          
|-------------------------------------------------------------------------------- |  | --------------------------------------------- | --------- | --------------- | - | --------- |  | - | --------- | --- | ---------------- | - | ------- |  | - | ---------
|                                                                                 |  | Contractual Obligations Payment Due by Period
|                                                                                 |  | Total                                         |           | Less than1 Year |   | 1-3 Years |  |   | 3-5 Years |     | More than 5Years
|                                                                                 |  | ($ in thousands)                             
|Operating Leases (exclusive of $74,203 of sublease income)                       |  | $                                             | 488,183   |                 | $ | 63,488    |  | $ | 103,163   |     |                  | $ | 87,596  |  | $ | 233,936  
|Capital Leases (including interest)                                              |  |                                               | 35,903    |                 |   | 2,815     |  |   | 5,595     |     |                  |   | 5,569   |  |   | 21,924   
|Senior Debt (including interest)                                                 |  |                                               | 1,459,843 |                 |   | 75,808    |  |   | 623,402   | (a) |                  |   | 78,375  |  |   | 682,258  
|Subordinated Loans (including interest) (b)                                      |  |                                               | 250,202   |                 |   | 7,175     |  |   | 60,121    |     |                  |   | 9,750   |  |   | 173,156  
|Merchant Banking CommitmentsLAI managed funds (c)                               |  |                                               | 93,721    |                 |   | 35,200    |  |   | 58,521    |     |                  |   |        |  |   |         
|Merchant Banking Commitmentscompany sponsored funds                             |  |                                               | 3,656     |                 |   | 3,008     |  |   |          |     |                  |   | 611     |  |   | 37       
|Contractual Commitments to Managing Directors, Senior Advisors and Employees (d) |  |                                               | 58,774    |                 |   | 46,980    |  |   | 7,828     |     |                  |   | 1,463   |  |   | 2,503    
|                                                                                 |  |                                               |           |                 |   |           |  |   |           |     |                  |   |         |  |   |          
|Total (e)                                                                        |  | $                                             | 2,390,282 |                 | $ | 234,474   |  | $ | 858,630   |     |                  | $ | 183,364 |  | $ | 1,113,814
|                                                                                 |  |                                               |           |                 |   |           |  |   |           |     |                  |   |         |  |   |          

---

|(a) | Includes $437.5 million relating to Lazard Group Notes issued in connection with the issuance of the ESUs, for which the maturity date of the debt component can vary based on a
remarketing of the Lazard Group Notes, and will mature (1) in the event of a successful remarketing, on any date no earlier than May 15, 2010 and no later than May 15, 2035, as we may elect, (2) in the event of a failed
remarketing, on May 15, 2008 and (3) otherwise on May 15, 2035. While the Company currently expects a successful remarketing of the Lazard Group Notes, for purposes of the table above, a maturity in 2008, the earliest possible date,
was assumed to be the maturity date of the Lazard Group Notes. See Notes 2 and 10 of Notes to Consolidated Financial Statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | The Amended $150 million Subordinated Convertible Note matures on September 30, 2016, has a fixed interest rate of 3.25% per annum and is convertible into shares of
Lazard Ltd Class A common stock at an
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | effective conversion price of $57 per share. One-third in principal amount will generally be convertible after July 1, 2008, an additional one-third after
July 1, 2009 and the last one-third after July 1, 2010, and no principal amount will be convertible after June 30, 2011. For purposes of the table above, the Amended $150 million Subordinated Convertible Note was considered to remain outstanding
until its maturity date, with no assumed conversions into Class A common stock prior thereto. See Note 6 of Notes to Consolidated Financial Statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Pursuant to the business alliance agreement, Lazard Group has commitments to fund certain investment funds managed by Lazard Alternative Investments Holdings LLC (LAI).
Amounts in the table above relate to (1) obligations related to Corporate Partners II Limited, a private equity fund formed in February 2005, with $1 billion of institutional capital commitments and a $100 million capital commitment
from Lazard Group, the principal portion of which may require funding at any time through 2010 (as of December 31, 2006, Lazard Group contributed approximately $14.1 million of its capital commitment). For purposes of the table above,
Lazards remaining commitment of approximately $85.9 million as of December 31, 2006 is estimated to be funded in the amounts of $30 million, $30 million, and $25.9 million in the years ending December 31, 2007, 2008 and 2009, respectively;
(2) obligations related to Lazard Senior Housing Partners LP, a private equity fund which closed during 2006, with $201 million of capital commitments from institutional investors, including $10 million from Lazard Group, the principal portion
of which will require funding at any time through 2008 (as of December 31, 2006, Lazard Group contributed approximately $2.2 million of its capital commitment). For purposes of the table above, Lazards remaining commitment of
approximately $7.8 million as of December 31, 2006 is estimated to be funded in the amounts of $5.2 million and $2.6 million in the years ending December 31, 2007 and 2008, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | The Company has agreements relating to future minimum payments to certain managing directors, senior advisors and employees incurred for the purpose of recruiting and retaining
these senior professionals.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | The table above does not include:
|--- | ---------------------------------

| | (1) | any contingent obligations relating to the LAM equity rights;
| | --- | -------------------------------------------------------------

| | (2) | any potential payment related to the IXIS cooperation arrangement (the level of this contingent payment to IXIS would depend, among other things, on the level of revenue generated
by the cooperation activities, and the potential payment is limited, as of December 31, 2006, to a maximum of approximately 8 million (subject to further reduction in certain circumstances) which would only occur if the cooperation activities
generate no revenue over the course of the remaining initial period of such activities, the cooperation agreement is not renewed and Lazard Ltds Class A common stock price fails to sustain certain price levels);
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | the contingent limited partner capital commitment as described in Note 7 of Notes to Consolidated Financial Statements;
| | --- | -----------------------------------------------------------------------------------------------------------------------

| | (4) | the lending commitments and indemnifications provided by LFB to third parties as described in Note 12 of Notes to Consolidated Financial Statements; and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | the 2007 and 2008 pension fund obligations of approximately $16.1 million for each year as described in Note 14 of Notes to Consolidated Financial Statements.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition the table above does not include any recognition of the May, 2008 settlement of the purchase contracts component
of the ESUs which require the holders to purchase an aggregate of $437.5 million of Lazard Ltds Class A common stock for cash or exchange of outstanding debt, depending on the success of the remarketing of such debtsee (a) above. This
obligation is collateralized by the entire $437.5 million principal amount of Lazard Group Notes outstanding. See Note 2 of Notes to Consolidated Financial Statements.



Effect of Inflation



We do not believe inflation will significantly affect our compensation costs as they are substantially variable in nature. However, the rate of inflation
may affect Lazard expenses such as information technology and occupancy costs. To the extent inflation results in rising interest rates and has other effects upon the securities markets, it may adversely affect our financial position and results of
operations by reducing AUM, net revenue or otherwise. See Risk FactorsRisks Related to Our BusinessDifficult market conditions can adversely affect



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our business in many ways, including by reducing the volume of transactions involving our Financial Advisory business, and reducing the value or performance
of the assets we manage in our Asset Management business which, in each case, could materially reduce our revenue or income and adversely affect our financial position.



Critical Accounting Policies and Estimates



Managements discussion and analysis of our consolidated financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in conformity with U.S. GAAP. The preparation of Lazards consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, Lazard evaluates its estimates, including those related to revenue recognition, compensation liabilities, income taxes, investing activities and goodwill.
Lazard bases these estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.



Lazard believes that the critical accounting policies set forth below comprise the most significant estimates and judgments used in the preparation of its
consolidated financial statements.



Revenue Recognition



Lazard generates substantially all of its net revenue
from providing financial advisory and asset management services to clients. Lazard recognizes revenue when the following criteria are met:



| |  |  | there is persuasive evidence of an arrangement with a client,
| | - |  | -------------------------------------------------------------



| |  |  | the agreed-upon services have been provided,
| | - |  | --------------------------------------------



| |  |  | fees are fixed or determinable, and
| | - |  | -----------------------------------



| |  |  | collection is probable.
| | - |  | -----------------------



Lazards clients generally enter into agreements with Lazard that vary in duration depending on the nature of the service provided. Lazard typically
bills clients for the full amounts due under the applicable agreements on or after the dates on which the specified service has been provided. Generally, payments are collected within 60 days of billing (or over longer periods of time with respect
to billings related to restructurings and our private fund advisory activities). The Company also earns performance-based incentive fees on some investment products, such as hedge funds and merchant banking funds. Incentive fees on hedge funds
generally are recorded at the end of the year, when potential uncertainties regarding the ultimate realizable amounts have been determined, and typically are calculated based on a specified percentage of a funds net appreciation during the
year. Incentive fees on hedge funds generally are subject to loss carry-forward provisions in which losses incurred by the funds in any year are applied against future period net appreciation before any incentive fees can be earned.



Lazard assesses whether collection is probable based on a number of factors,
including past transaction history with the client and an assessment of the clients current creditworthiness. If, in Lazards judgment, collection of a fee is not probable, Lazard will not recognize revenue until the uncertainty is
removed. In rare cases, an allowance for doubtful collection may be established, for example, if a fee is in dispute or litigation has commenced.



Income Taxes



As part of the process of preparing its consolidated financial statements, Lazard is required to estimate its income taxes in each of the jurisdictions in
which it operates. This process requires Lazard to estimate its actual current tax liability and to assess temporary differences resulting from differing book versus tax treatment of items, such as deferred revenue, compensation and benefits
expense, unrealized gains on long-term investments



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and depreciation. These temporary differences result in deferred tax assets and liabilities, which are included within Lazards consolidated statements
of financial condition. Lazard must then assess the likelihood that its deferred tax assets will be recovered from future taxable income, and, to the extent it believes that recovery is not more likely than not, Lazard must establish a valuation
allowance. Significant management judgment is required in determining Lazards provision for income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against its net deferred tax assets. At December 31, 2006,
the Company recorded deferred tax assets of approximately $79 million, with such amount offset by a valuation allowance of approximately $64 million due to the uncertainty of realizing the benefits of the book versus tax basis differences
and certain net operating loss carry-forwards. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized and, when necessary,
valuation allowances are established. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the level
of historical taxable income, scheduled reversals of deferred taxes, projected future taxable income and tax planning strategies that can be implemented by the Company in making this assessment. If actual results differ from these estimates or
Lazard adjusts these estimates in future periods, Lazard may need to adjust its valuation allowance, which could materially impact Lazards consolidated financial position and results of operations.



In addition, in order to determine its quarterly tax rate, Lazard is required
to estimate full year pre-tax income and the related annual income tax expense in each jurisdiction. Tax exposures can involve complex issues and may require an extended period of time to resolve. Changes in the geographic mix or estimated level of
annual pre-tax income can affect Lazards overall effective tax rate. Significant management judgment is required in determining Lazards provision for income taxes, its deferred tax assets and liabilities and any valuation allowance
recorded against its net deferred tax assets. Furthermore, Lazards interpretation of complex tax laws may impact its measurement of current and deferred income taxes.



Valuation of Investments



Long-term investments consist principally of investments in merchant banking and alternative investment funds,
and other privately managed investments. These investments are carried at fair value on the consolidated statements of financial condition, with unrealized gains and losses reflected net on the consolidated statements of income. Gains and losses on
long-term investments, which arise from sales or changes in the fair value of the investments, are not predictable and can cause periodic fluctuations in net income allocable to members.



Where applicable, the fair value of a publicly traded investment is determined by quoted market prices. Most of the
Companys investments included in long-term investments, however, are not publicly traded and, as a result, are valued based upon managements best estimate. The fair value of such investments is based upon an analysis of the
investees financial results, condition, cash flows and prospects. The carrying value of such investments is adjusted when changes in the underlying fair values are readily ascertainable, generally as evidenced by third party transactions or
transactions that directly affect the value of such investments. Adjustments also are made, in the absence of third-party transactions, if Lazard determines that the expected realizable value of the investment differs from its carrying value. In
reaching that determination, Lazard considers many factors, including, but not limited to, the operating cash flows and financial performance of the investee, expected exit timing and strategy, and any specific rights or terms associated with the
investment, such as conversion features and liquidation preferences. The Companys investments in partnership interests, including general partnership and limited partnership interests in real estate funds, are recorded at fair value based on
changes in the fair value of the partnerships underlying net assets.



Because of the inherent uncertainty in the valuation of investments that are not readily marketable, estimated values may differ significantly from the values that would have been reported had a ready market for such
investments existed. Lazard seeks to maintain the necessary resources, with the appropriate experience and training, to ensure that control and independent price verification functions are adequately performed.



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Goodwill



In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets, goodwill is tested for impairment annually or more frequently if circumstances indicate impairment may have occurred. In this process, Lazard makes estimates and assumptions in order to determine the fair value of its assets and
liabilities and to project future earnings using valuation techniques, including a discounted cash flow model. Lazard uses its best judgment and information available to it at the time to perform this review. Because Lazards assumptions and
estimates are used in projecting future earnings as part of the valuation, actual results could differ.



Consolidation of VIEs



The consolidated financial statements include the accounts of Lazard Group and all other entities in which we are the primary beneficiary or control.
Lazard determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (VIE) under U.S. GAAP.



| |  |  | Voting Interest Entities.    Voting interest entities are entities in which (i) the total equity investment at risk is sufficient to
enable the entity to finance itself independently and (ii) the equity holders have the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entitys activities. Voting interest entities
are consolidated in accordance with Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements, as amended by SFAS No. 94, Consolidated Financial Statements. ARB No. 51 states that
the usual condition for a controlling financial interest in an entity is ownership of a majority voting interest. SFAS No. 94 amends ARB No. 51 to require consolidation of all majority-owned subsidiaries unless control is temporary or does not rest
with the majority owner. SFAS No. 94 also requires consolidation of a majority-owned subsidiary even if it has non-homogeneous operations, a large minority interest, or a foreign location. Accordingly, Lazard consolidates voting interest entities in
which it has the majority of the voting interest in accordance with ARB No. 51 and SFAS No. 94.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Variable Interest Entities.    VIEs are entities that lack one or more of the characteristics of a voting interest entity. A controlling
financial interest in a VIE is present when an enterprise has a variable interest, or a combination of variable interests, that will absorb a majority of the VIEs expected losses, receive a majority of the VIEs expected residual returns,
or both. The enterprise with a controlling financial interest, known as the primary beneficiary, consolidates the VIE.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Lazard determines whether it is the primary beneficiary of a VIE by first performing a qualitative analysis of the VIE that includes, among other
factors, its capital structure, contractual terms, and related party relationships. Where qualitative analysis is not conclusive, Lazard performs a quantitative analysis. For purposes of allocating a VIEs expected losses and expected residual
returns to the VIEs variable interest holders, Lazard calculates its share of the VIEs expected losses and expected residual returns using a cash flows model that allocates those expected losses and residual returns to it, based on
contractual arrangements and/or Lazards position in the capital structure of the VIE under various scenarios. Lazard would reconsider its assessment of whether it is the primary beneficiary if there are changes to any of the variables used in
determining the primary beneficiary. Those variables may include changes to financial arrangements, contractual terms, capital structure and related party relationships.



In accordance with FASB Interpretation No. 46R the assets, liabilities and results of operations of the VIE are included in
the consolidated financial statements of Lazard if it is determined that we are the primary beneficiary. Any third party interest in these consolidated entities is reflected as minority interest in our consolidated financial statements.



Lazard is involved with various entities in the normal course of business
that are VIEs and holds variable interests in such VIEs. Transactions associated with these entities primarily include investment management, real estate and private equity investments. Those VIEs for which Lazard was the primary beneficiary were



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consolidated at December 31, 2004 in accordance with FIN 46R. Those VIEs included company sponsored venture capital investment vehicles established in
connection with Lazards compensation plans. In connection with the separation, Lazard Group transferred its general partnership interests in those VIEs to a subsidiary of LFCM Holdings. Lazard Group has determined that it is no longer the
primary beneficiary with respect to those VIEs and, as a result, the Company no longer consolidates such VIEs.



Risk Management



We
encounter risk as part of the normal course of our business and we design risk management processes to help manage such risks considering both the nature of our business and our operating model. The Company is subject to varying degrees of credit,
market, operational and liquidity risks (see Liquidity and Capital Resources) and monitors these risks on a consolidated basis. Management within each of Lazards operating locations are principally responsible for managing
the risks within its respective businesses on a day-to day basis.



Market and Credit Risks



Lazard, in
general, is not a capital-intensive organization and as such, is not subject to significant credit or market risks. Nevertheless, Lazard has established procedures to assess both the credit and market risk, as well as specific interest rate,
currency and credit limits related to various positions.



With
respect to LFBs operations, LFB engages in banking activities that primarily include investing in securities, deposit taking and lending. In addition, LFB may take open foreign exchange positions with a view to profit, but does not sell
foreign exchange options in this context, and enters into forward foreign exchange contracts, interest rate swaps, and other derivative contracts to hedge exposures to interest rate and currency fluctuations.



At December 31, 2006, substantially all of the $550 million of securities
owned, at fair value, were fixed-income securities within LFBs portfolio, 88% of which were rated investment grade credit quality. At December 31, 2005, substantially all of the $272 million of securities owned, at fair value, were
fixed-income securities within the LFB portfolio, 92% of which were rated investment grade credit quality.



At December 31, 2006 and 2005, derivative contracts, all of which related to LFBs operations and which are recorded at fair value, were as follows:



|                             |  |              |       |      |   |      
|---------------------------- |  | ------------ | ----- | ---- | - | -----
|                             |  | December 31,
|                             |  | 2006         |       | 2005
|Assets                       |  |              |       |      |   |      
|Interest rate contracts      |  | $            | 2,750 |      | $ | 186  
|Exchange rate contracts      |  |              | 4,493 |      |   |      
|                             |  |              |       |      |   |      
|Total derivative assets      |  | $            | 7,243 |      | $ | 186  
|                             |  |              |       |      |   |      
|Liabilities                  |  |              |       |      |   |      
|Interest rate contracts      |  | $            | 922   |      | $ | 3,028
|Exchange rate contracts      |  |              | 706   |      |   |      
|                             |  |              |       |      |   |      
|Total derivative liabilities |  | $            | 1,628 |      | $ | 3,028
|                             |  |              |       |      |   |      



The primary market
risks associated with LFBs securities inventory, foreign exchange, hedging and lending activities is sensitivity to changes in the general level of credit spreads and, with respect to foreign currency risk, specific exchange rate spreads. The
risk management strategies that we employ use various risk sensitivity metrics to measure such risks and to examine behavior under significant adverse market conditions.



| |  |  | The Companys interest rate risk as measured by a 1% +/ change in interest rates totaled $65 thousand as of December 31, 2006 and was approximately $90
thousand as of December 31, 2005.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Foreign currency risk associated with our open positions, in aggregate, as measured by a 2% +/- change against the U.S. dollar, totaled approximately $80 thousand
as of December 31, 2006 and $2 thousand as of December 31, 2005.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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LFB fully collateralizes its collateralized financing transactions with fixed income securities.



Risks Related to Receivables



We maintain an allowance for bad debts to provide coverage for probable
losses from our customer receivables, including our lending portfolio in LFB. We determine the adequacy of the allowance by estimating the probability of loss based on managements analysis of the clients creditworthiness and specifically
reserve against exposures where, in our judgment, the receivables are impaired. At December 31, 2006 total receivables amounted to $1,235 million, net of an allowance for bad debts of $11 million. As of that date, inter-bank lending, financial
advisory and asset management fee, customer and related party receivables comprised 58%, 34%, 6% and 2% of total receivables, respectively. At December 31, 2005 total receivables amounted to $772 million, net of allowance for bad debts of $13
million. As of that date, inter-bank lending, financial advisory and asset management fee, customer and related party receivables comprised 45%, 36%, 12% and 7% of total receivables, respectively. The M&A and asset management fee receivables
collection periods generally are within 60 days of invoice. However, as discussed above, the collection time for restructuring transactions may extend beyond 60 days, and fee receivables from our private fund advisory activities are
generally collected over a four year period. The Company recorded bad debt expense of approximately $4 million and $6 million in the years ended December 31, 2006 and 2005, respectively.



Credit Concentration



To reduce the exposure to concentrations of credit from banking activities
within LFB, the Company has established limits for corporate counterparties and monitors the exposure against such limits. At December 31, 2006 the Company had no exposure to an individual counterparty that exceeded $44 million, in the aggregate,
excluding inter-bank counterparties.



Risks Related to
Short-Term Investments and Corporate Indebtedness



A
significant portion of the Companys liabilities has fixed interest rates or maximum interest rates, while its cash and short-term investments generally have floating interest rates. Lazard estimates that operating income relating to cash and
short-term investments and corporate indebtedness would change by approximately $9 million, on an annual basis, in the event interest rates were to increase or decrease by 1%.



Operational Risks



Operational risk is inherent in all our business and may, for example, manifest itself in the form of errors, breaches in the system of internal controls,
business interruptions, fraud or legal actions due to operating deficiencies or noncompliance. The Company maintains a framework including policies and a system of internal controls designed to monitor and manage operational risk and provide
management with timely and accurate information. Management within each of the operating companies is primarily responsible for its operational risk programs. The Company has in place a business continuity and disaster recovery programs that manages
its capabilities to provide services in the case of a disruption. We purchase insurance programs designed to protect the Company against accidental loss and losses, which may significantly affect our financial objectives, personnel, property, or our
ability to continue to meet our responsibilities to our various stakeholder groups.



Recently Issued Accounting Standards



In July 2006, the FASB issued FIN No. 48 Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109(FIN 48)whichclarifies the criteria
that must be met prior to recognition of the financial statement benefit of a tax position taken in a tax return. FIN 48 provides a benefit recognition model with a two-step approach consisting of a more-likely-than-not recognition
criteria, and a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50 percent likely of being



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##### Table of Contents

realized upon ultimate settlement. FIN 48 also requires the recognition of liabilities created by differences between tax positions taken in a tax return and
amounts recognized in the financial statements. FIN 48 is effective as of the beginning of the first annual period beginning after December 15, 2006. We are currently assessing the impact of adopting FIN 48 on the financial condition, results
of operations and cash flows of the Company.



In
September 2006, the FASB issued SFAS No. 157 Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value, and enhances disclosures about fair value measurements.
This Statement applies to other accounting pronouncements that require the use of fair value measurements. SFAS 157 is effective for interim and annual financial statements issued for fiscal years beginning after November 15, 2007. We are currently
assessing the impact of adopting SFAS 157 on the financial condition, results of operations, and cash flows of the Company.



In September 2006, the SEC issued Staff Accounting Bulletin No. 108 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (SAB 108). SAB 108 was issued in order to eliminate the diversity in practice surrounding how public companies quantify financial statement misstatements. SAB 108 requires that
registrants quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in a misstated amount that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108
is effective for the year ended December 31, 2006. The adoption of SAB 108 had no impact on the Companys financial statements.



In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Post-Retirement Plans, an
amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS 158), which the Company adopted as of December 31, 2006 (see Note 14 of Notes to Consolidated Financial Statements).



In February 2007, the FASB issued SFAS No. 159 The
Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 permits an entity to choose to measure various financial instruments and certain other
items at fair value. It provides entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement
requires that a business entity report unrealized gains and losses, on items for which the fair value option has been elected, in earnings at each subsequent reporting date. SFAS 159 is effective as of the beginning of the first annual period
beginning after November 15, 2007. We are currently assessing the impact of adopting SFAS 159 on the financial condition, results of operations, and cash flows of the Company.



|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk
|-------- | ----------------------------------------------------------



Risk Management



Quantitative and qualitative disclosures about market risk are included under the caption Managements Discussion and Analysis of Financial
Condition and Results of OperationsRisk Management. Because the Capital Markets and Other segment was separated from the operations of the Company in connection with the separation on May 10, 2005, the market risks specific to the
Capital Markets and Other segment no longer apply to the Company.



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|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------



|                                                                                                                        |  |      
|----------------------------------------------------------------------------------------------------------------------- |  | -----
|Index to Consolidated Financial Statements*                                                                             |  | Page 
|Managements Report On Internal Control Over Financial Reporting                                                        |  | 68   
|Reports of Independent Registered Public Accounting Firm                                                                |  | 69-70
|Consolidated Statements of Financial Condition as of December 31, 2006 and 2005                                         |  | 71   
|Consolidated Statements of Income for the years ended December 31, 2006, 2005 and 2004                                  |  | 73   
|Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004                              |  | 74   
|Consolidated Statements of Changes in Members Equity (Deficiency) for the years ended December 31, 2006, 2005 and 2004 |  | 75   
|Notes to Consolidated Financial Statements                                                                              |  | 76   
|                                                                                                                        | 
|Supplemental Financial Information                                                                                      |  |      
|Quarterly Results                                                                                                       |  | 116  
|                                                                                                                        | 
|Financial Statement Schedule                                                                                            |  |      
|                                                                                                                        | 
|Schedule ICondensed Financial Information of Registrant (Parent Company Only)                                          |  |      
|Condensed Statements of Financial Condition as of December 31, 2006 and 2005                                            |  | F-2  
|Condensed Statements of Income for the years ended December 31, 2006, 2005 and 2004                                     |  | F-3  
|Condensed Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004                                 |  | F-4  
|Condensed Statements of Changes in Members Equity (Deficiency) for the years ended December 31, 2006, 2005 and 2004    |  | F-5  
|Notes to Condensed Financial Statements                                                                                 |  | F-6  

---

* These consolidated financial statements reflect the
results of operations and financial position of Lazard Group LLC, formerly known as Lazard LLC and referred to herein as Lazard Group, Lazard and the Company for all periods presented. The results of operations
and financial condition for certain businesses that Lazard Group no longer owns are reported as discontinued operations. The consolidated financial statements do not reflect what the results of operations and financial position of Lazard Group would
have been had it been a stand-alone, public company for the periods presented. In addition, the results of operations for periods prior to May 10, 2005 are not comparable to results of operations for subsequent periods. Specifically, prior to
May 10, 2005, the results of operations of Lazard Group do not give effect to the following matters:



| |  |  | Payment for services rendered by Lazard Groups managing directors, which, as a result of Lazard Group operating as a limited liability company, historically
had been accounted for as distributions from members capital, or in some cases as minority interest, rather than as compensation and benefits expense. As a result, prior to May 10, 2005, Lazard Groups operating income included within the
accompanying consolidated financial statements did not reflect payments for services rendered by its managing directors. For periods subsequent to the consummation of the equity public offering, all payments for services rendered by our managing
directors and distributions to holders of profit participation interests in Lazard Group (profit participation members) are included within the accompanying consolidated financial statements in compensation and benefits
expense.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The use of proceeds from the financing transactions.
| | - |  | ----------------------------------------------------



| |  |  | The net incremental interest expense related to the financing transactions.
| | - |  | ---------------------------------------------------------------------------



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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING



Management of Lazard Group LLC and its subsidiaries (the Company) is responsible for establishing and maintaining adequate internal control
over financial reporting. Internal control over financial reporting is a process designed under the supervision of the Companys principal executive and principal financial officers to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the Companys financial statements for external purposes in accordance with U.S. generally accepted accounting principles.



Our internal control over financial reporting includes those policies and procedures that:

| |  |  | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of the Companys management and directors; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material
effect on the financial statements.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Management assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2006. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on managements assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of
December 31, 2006.



Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.



The Companys independent registered public accounting firm, Deloitte & Touche LLP, has audited managements assessment of the Companys internal control over financial reporting as of December 31,
2006 and on the effectiveness of the Companys internal control over financial reporting as of December 31, 2006, as stated in their report which appears under Reports of Independent Registered Public Accounting Firm.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Members of Lazard Group LLC:



We have audited managements assessment, included in the accompanying Lazard Group LLC Managements Report on Internal Control Over Financial Reporting, that Lazard Group LLC and subsidiaries (the Company) maintained
effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The
Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on
managements assessment and an opinion on the effectiveness of the Companys internal control over financial reporting based on our audit.



We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.



A companys
internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a material effect on the financial statements.



Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override
of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to
the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



In our opinion, managements assessment that the Company maintained effective internal control over financial reporting
as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.



We have
also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2006 of the Company and
our report dated February 27, 2007 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.



/s/    Deloitte & Touche LLP

New York, New York

February 27, 2007



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Members of Lazard Group LLC:



We have audited the accompanying consolidated statements of financial
condition of Lazard Group LLC and subsidiaries (the Company) as of December 31, 2006 and 2005, and the related consolidated statements of income, cash flows, and changes in members equity (deficiency), for each of the three years
in the period ended December 31, 2006. Our audits also included the financial statement schedule listed in the Index at Item 8. These consolidated financial statements and financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedule based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. 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, such consolidated financial
statements present fairly, in all material respects, the financial position of Lazard Group LLC and subsidiaries at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2006, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth therein.



We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Companys internal control over financial reporting as of December
31, 2006, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2007 expressed an unqualified opinion
on managements assessment of the effectiveness of the Companys internal control over financial reporting and an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.



/s/    Deloitte & Touche LLP

New York, New York

February 27, 2007



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LAZARD GROUP LLC



CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION

DECEMBER 31, 2006 AND 2005

(dollars in thousands)



|                                                                                                                     |  |              |           |      |   |          
|-------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | ---- | - | ---------
|                                                                                                                     |  | December 31,
|                                                                                                                     |  | 2006         |           | 2005
|                                                                                                                     |  |             
|ASSETS                                                                                                               |  |              |           |      |   |          
|Cash and cash equivalents                                                                                            |  | $            | 955,116   |      | $ | 490,446  
|Cash segregated for regulatory purposes or deposited with clearing organizations                                     |  |              | 16,023    |      |   | 20,596   
|Securities ownedat fair value:                                                                                      |  |              |           |      |   |          
|BondsCorporate                                                                                                      |  |              | 521,483   |      |   | 228,927  
|Non-U.S. Government and agency securities                                                                            |  |              | 25,438    |      |   | 40,285   
|Equities                                                                                                             |  |              | 3,222     |      |   | 2,964    
|                                                                                                                     |  |              |           |      |   |          
|                                                                                                                     |  |              | 550,143   |      |   | 272,176  
|                                                                                                                     |  |             
|Receivablesnet:                                                                                                     |  |              |           |      |   |          
|Banks                                                                                                                |  |              | 721,002   |      |   | 347,912  
|Fees                                                                                                                 |  |              | 417,519   |      |   | 280,923  
|Customers                                                                                                            |  |              | 77,832    |      |   | 88,611   
|Related parties                                                                                                      |  |              | 18,560    |      |   | 54,549   
|                                                                                                                     |  |              |           |      |   |          
|                                                                                                                     |  |              | 1,234,913 |      |   | 771,995  
|                                                                                                                     |  |             
|Long-term investments                                                                                                |  |              | 122,311   |      |   | 80,843   
|Other investments                                                                                                    |  |              | 5,938     |      |   | 4,473    
|                                                                                                                     |  |             
|Property (net of accumulated amortization and depreciation of $181,812 and $156,935 for 2006 and 2005, respectively) |  |              | 168,310   |      |   | 156,630  
|Goodwill                                                                                                             |  |              | 16,945    |      |   | 15,996   
|Other assets                                                                                                         |  |              | 117,508   |      |   | 93,978   
|                                                                                                                     |  |              |           |      |   |          
|Total assets                                                                                                         |  | $            | 3,187,207 |      | $ | 1,907,133
|                                                                                                                     |  |              |           |      |   |          



See notes to
consolidated financial statements.



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LAZARD GROUP LLC



CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(Continued)

DECEMBER 31, 2006 AND 2005

(dollars
in thousands)



|                                                                                                                       |  |              |           |   |      |   |           |  
|---------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---- | - | --------- | -
|                                                                                                                       |  | December 31, |          
|                                                                                                                       |  | 2006         |           |   | 2005 |  
|LIABILITIES, MINORITY INTEREST AND MEMBERS DEFICIENCY                                                                 |  |              |           |   |      |   |           |  
|Liabilities:                                                                                                           |  |              |           |   |      |   |           |  
|Deposits and other customer payables                                                                                   |  | $            | 1,195,014 |   |      | $ | 553,286   |  
|Accrued compensation and benefits                                                                                      |  |              | 437,738   |   |      |   | 346,090   |  
|Senior borrowings                                                                                                      |  |              | 1,087,057 |   |      |   | 1,022,082 |  
|Capital lease obligations                                                                                              |  |              | 25,445    |   |      |   | 23,844    |  
|Related party payables                                                                                                 |  |              | 3,513     |   |      |   | 9,514     |  
|Other liabilities                                                                                                      |  |              | 428,311   |   |      |   | 510,927   |  
|Subordinated borrowings                                                                                                |  |              | 200,000   |   |      |   | 200,000   |  
|                                                                                                                       |  |              |           |   |      |   |           |  
|Total liabilities                                                                                                      |  |              | 3,377,078 |   |      |   | 2,665,743 |  
|Commitments and contingencies                                                                                          |  |              |           |   |      |   |           |  
|Minority interest                                                                                                      |  |              | 54,617    |   |      |   | 111,729   |  
|                                                                                                                       |  |             
|MEMBERS DEFICIENCY                                                                                                    |  |              |           |   |      |   |           |  
|Members deficiency (net of 115,000 shares of Lazard Ltd Class A common stock, at cost of $4,179 at December 31, 2006) |  |              | (277,751  | ) |      |   | (835,997  | )
|Accumulated other comprehensive income (loss), net of tax                                                              |  |              | 33,263    |   |      |   | (34,342   | )
|                                                                                                                       |  |              |           |   |      |   |           |  
|Total members deficiency                                                                                              |  |              | (244,488  | ) |      |   | (870,339  | )
|                                                                                                                       |  |              |           |   |      |   |           |  
|Total liabilities, minority interest and members deficiency                                                           |  | $            | 3,187,207 |   |      | $ | 1,907,133 |  
|                                                                                                                       |  |              |           |   |      |   |           |  





See notes to consolidated financial statements.



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LAZARD GROUP LLC



CONSOLIDATED
STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(dollars in thousands)



|                                                                                                                      |  |                         |  |             |   |  |             |  
|--------------------------------------------------------------------------------------------------------------------- |  | ----------------------- |  | ----------- | - |  | ----------- | -
|                                                                                                                      |  | Year Ended December 31, | 
|                                                                                                                      |  | 2006                    |  | 2005        |   |  | 2004        |  
|REVENUE                                                                                                               |  |                         |  |             |   |  |             |  
|Investment banking and other advisory fees                                                                            |  | $   946,107             |  | $   846,390 |   |  | $   632,214 |  
|Money management fees                                                                                                 |  | 510,558                 |  | 435,015     |   |  | 385,776     |  
|Interest income                                                                                                       |  | 44,783                  |  | 34,597      |   |  | 27,668      |  
|Other                                                                                                                 |  | 96,069                  |  | 63,784      |   |  | 88,723      |  
|                                                                                                                      |  |                         |  |             |   |  |             |  
|Total revenue                                                                                                         |  | 1,597,517               |  | 1,379,786   |   |  | 1,134,381   |  
|Interest expense                                                                                                      |  | 104,348                 |  | 78,375      |   |  | 39,551      |  
|                                                                                                                      |  |                         |  |             |   |  |             |  
|Net revenue                                                                                                           |  | 1,493,169               |  | 1,301,411   |   |  | 1,094,830   |  
|                                                                                                                      |  |                         |  |             |   |  |             |  
|OPERATING EXPENSES                                                                                                    |  |                         |  |             |   |  |             |  
|Compensation and benefits(*)                                                                                          |  | 891,411                 |  | 698,683     |   |  | 466,064     |  
|Premises and occupancy costs                                                                                          |  | 67,653                  |  | 68,558      |   |  | 74,102      |  
|Professional fees                                                                                                     |  | 73,518                  |  | 50,910      |   |  | 48,706      |  
|Travel and entertainment                                                                                              |  | 45,071                  |  | 44,194      |   |  | 45,157      |  
|Communications and information services                                                                               |  | 29,532                  |  | 29,550      |   |  | 28,011      |  
|Equipment costs                                                                                                       |  | 20,274                  |  | 20,638      |   |  | 22,713      |  
|Other                                                                                                                 |  | 32,034                  |  | 43,202      |   |  | 42,253      |  
|                                                                                                                      |  |                         |  |             |   |  |             |  
|Total operating expenses                                                                                              |  | 1,159,493               |  | 955,735     |   |  | 727,006     |  
|                                                                                                                      |  |                         |  |             |   |  |             |  
|OPERATING INCOME FROM CONTINUING OPERATIONS(*)                                                                        |  | 333,676                 |  | 345,676     |   |  | 367,824     |  
|                                                                                                                      |  |                         | 
|Provision for income taxes                                                                                            |  | 64,559                  |  | 54,173      |   |  | 28,272      |  
|                                                                                                                      |  |                         |  |             |   |  |             |  
|INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST IN NET INCOME(*)                                           |  | 269,117                 |  | 291,503     |   |  | 339,552     |  
|Minority interest in net income                                                                                       |  | 5,124                   |  | 18,703      |   |  | 87,553      |  
|                                                                                                                      |  |                         |  |             |   |  |             |  
|INCOME FROM CONTINUING OPERATIONS(*)                                                                                  |  | 263,993                 |  | 272,800     |   |  | 251,999     |  
|LOSS FROM DISCONTINUED OPERATIONS(*) (net of income tax provision of $3,330 and $103 for 2005 and 2004, respectively) |  |                         |  | (17,576     | ) |  | (10,532     | )
|EXTRAORDINARY GAIN                                                                                                    |  |                         |  |             |   |  | 5,507       |  
|                                                                                                                      |  |                         |  |             |   |  |             |  
|NET INCOME ALLOCABLE TO MEMBERS(*)                                                                                    |  | $   263,993             |  | $   255,224 |   |  | $   246,974 |  
|                                                                                                                      |  |                         |  |             |   |  |             |  

---

(*) Excludes, as applicable, with respect to periods
ended prior to May 10, 2005, payments for services rendered by Lazard Groups managing directors, which, as a result of Lazard Group operating as a limited liability company, historically had been accounted for as distributions from
members capital, or in some cases as minority interest, rather than as compensation and benefits expense.



See notes to consolidated financial statements.



73



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##### Table of Contents

LAZARD GROUP LLC



CONSOLIDATED
STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(dollars in thousands)



|                                                                                                                                                                     |  |                         |          |   |      |   |            |      |  |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | ---------- | ---- |  | - | -------- | -
|                                                                                                                                                                     |  | Year Ended December 31, |         
|                                                                                                                                                                     |  | 2006                    |          |   | 2005 |   |            | 2004 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                                                                |  |                         |          |   |      |   |            |      |  |   |          |  
|Net income allocable to members                                                                                                                                      |  | $                       | 263,993  |   |      | $ | 255,224    |      |  | $ | 246,974  |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities:                                                                          |  |                         |          |   |      |   |            |      |  |   |          |  
|Noncash charges included in net income:                                                                                                                              |  |                         |          |   |      |   |            |      |  |   |          |  
|Depreciation and amortization of property                                                                                                                            |  |                         | 14,282   |   |      |   | 15,348     |      |  |   | 16,938   |  
|Amortization of deferred expenses, stock units and interest rate hedge                                                                                               |  |                         | 25,769   |   |      |   | 2,642      |      |  |   |          |  
|Deferred tax provision (benefit)                                                                                                                                     |  |                         | (4,290   | ) |      |   | (7,558     | )    |  |   | 452      |  
|Gain on termination of strategic alliance                                                                                                                            |  |                         | (13,695  | ) |      |   |            |      |  |   |          |  
|Minority interest in net income                                                                                                                                      |  |                         | 5,124    |   |      |   | 18,703     |      |  |   | 87,553   |  
|(Increase) decrease in operating assets:                                                                                                                             |  |                         |          |   |      |   |            |      |  |   |          |  
|Cash segregated for regulatory purposes or deposited with clearing organizations                                                                                     |  |                         | 6,667    |   |      |   | (10,433    | )    |  |   | (3,765   | )
|Securities owned, at fair value                                                                                                                                      |  |                         | (234,637 | ) |      |   | 66,839     |      |  |   | 3,036    |  
|Receivables                                                                                                                                                          |  |                         | (387,322 | ) |      |   | (109,234   | )    |  |   | (99,048  | )
|Marketable, long-term and other investments                                                                                                                          |  |                         | (30,782  | ) |      |   | 191,681    |      |  |   | 107,280  |  
|Other assets                                                                                                                                                         |  |                         | (24,100  | ) |      |   | 4,980      |      |  |   | (34,997  | )
|Assets of discontinued operations                                                                                                                                    |  |                         |          |   |      |   | 1,485,363  |      |  |   | (56,357  | )
|Increase (decrease) in operating liabilities:                                                                                                                        |  |                         |          |   |      |   |            |      |  |   |          |  
|Deposits and other payables                                                                                                                                          |  |                         | 547,495  |   |      |   | 44,232     |      |  |   | 34,662   |  
|Accrued compensation and other liabilities                                                                                                                           |  |                         | 73,316   |   |      |   | 165,710    |      |  |   | 131,490  |  
|Liabilities of discontinued operations                                                                                                                               |  |                         |          |   |      |   | (1,223,257 | )    |  |   | 99,835   |  
|                                                                                                                                                                     |  |                         |          |   |      |   |            |      |  |   |          |  
|Net cash provided by operating activities                                                                                                                            |  |                         | 241,820  |   |      |   | 900,240    |      |  |   | 534,053  |  
|                                                                                                                                                                     |  |                         |          |   |      |   |            |      |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                                                                |  |                         |          |   |      |   |            |      |  |   |          |  
|Additions to property                                                                                                                                                |  |                         | (10,163  | ) |      |   | (7,815     | )    |  |   | (19,012  | )
|Disposals and retirements of property                                                                                                                                |  |                         | 1,971    |   |      |   | 11,694     |      |  |   | 8,606    |  
|                                                                                                                                                                     |  |                         |          |   |      |   |            |      |  |   |          |  
|Net cash provided by (used in) investing activities                                                                                                                  |  |                         | (8,192   | ) |      |   | 3,879      |      |  |   | (10,406  | )
|                                                                                                                                                                     |  |                         |          |   |      |   |            |      |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                                                                |  |                         |          |   |      |   |            |      |  |   |          |  
|Proceeds from sale of common membership interests relating to Lazard Ltds Primary Offering and Equity Public Offering in December, 2006
and May, 2005, respectively |  |                         | 349,137  |   |      |   | 871,656    |      |  |   |          |  
|Proceeds from issuance of equity security units, net of expenses of $15,941                                                                                          |  |                         |          |   |      |   | 421,559    |      |  |   |          |  
|Distributions and withdrawals to members for the periods through May 9, 2005                                                                                         |  |                         |          |   |      |   | (419,115   | )    |  |   | (366,182 | )
|Distributions to members for the periods subsequent to May 9, 2005                                                                                                   |  |                         | (79,090  | ) |      |   | (32,310    | )    |  |   |          |  
|Repurchase of common membership interest from LAZ-MD Holdings                                                                                                        |  |                         |          |   |      |   | (4,507     | )    |  |   |          |  
|Purchase contracts relating to equity security units                                                                                                                 |  |                         |          |   |      |   | (6,013     | )    |  |   |          |  
|Settlement of interest rate hedge                                                                                                                                    |  |                         |          |   |      |   | (11,003    | )    |  |   |          |  
|Redemption of historical partner interests (including mandatorily redeemable preferred stock of $100,000)                                                            |  |                         |          |   |      |   | (1,617,032 | )    |  |   |          |  
|Distributions of separated business                                                                                                                                  |  |                         |          |   |      |   | (243,178   | )    |  |   |          |  
|Distribution to LAZ-MD Holdings and LFCM Holdings                                                                                                                    |  |                         |          |   |      |   | (150,000   | )    |  |   |          |  
|Indemnity from LFCM Holdings relating to U.K. pension                                                                                                                |  |                         |          |   |      |   | 53,600     |      |  |   |          |  
|Proceeds from issuance of Lazard Group senior notes, net of original discount and other expenses of $5,276                                                           |  |                         |          |   |      |   | 544,724    |      |  |   |          |  
|Proceeds from other senior borrowings                                                                                                                                |  |                         | 3,557    |   |      |   | 33,700     |      |  |   | 15,046   |  
|Repayment of other senior borrowings, including make-whole payment of $7,650 in 2005                                                                                 |  |                         | (34,582  | ) |      |   | (74,265    | )    |  |   | (1,567   | )
|Repayment of other senior borrowings of discontinued operations                                                                                                      |  |                         |          |   |      |   |            |      |  |   | (612     | )
|Repayment of capital lease obligations                                                                                                                               |  |                         | (1,115   | ) |      |   | (21,902    | )    |  |   | (14,242  | )
|Distributions relating to minority interests                                                                                                                         |  |                         | (19,507  | ) |      |   | (52,115    | )    |  |   | (102,330 | )
|Purchase of Lazard Ltd Class A common stock                                                                                                                          |  |                         | (4,179   | ) |      |   |            |      |  |   |          |  
|Other financing transactions                                                                                                                                         |  |                         | (617     | ) |      |   |            |      |  |   |          |  
|                                                                                                                                                                     |  |                         |          |   |      |   |            |      |  |   |          |  
|Net cash provided by (used in) financing activities                                                                                                                  |  |                         | 213,604  |   |      |   | (706,201   | )    |  |   | (469,887 | )
|                                                                                                                                                                     |  |                         |          |   |      |   |            |      |  |   |          |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                                                                                              |  |                         | 17,438   |   |      |   | (13,225    | )    |  |   | 9,961    |  
|                                                                                                                                                                     |  |                         |          |   |      |   |            |      |  |   |          |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                                                                                            |  |                         | 464,670  |   |      |   | 184,693    |      |  |   | 63,721   |  
|CASH AND CASH EQUIVALENTSJANUARY 1                                                                                                                                  |  |                         | 490,446  |   |      |   | 305,753    |      |  |   | 242,032  |  
|                                                                                                                                                                     |  |                         |          |   |      |   |            |      |  |   |          |  
|CASH AND CASH EQUIVALENTSDECEMBER 31                                                                                                                                |  | $                       | 955,116  |   |      | $ | 490,446    |      |  | $ | 305,753  |  
|                                                                                                                                                                     |  |                         |          |   |      |   |            |      |  |   |          |  
|Supplemental financing non-cash transaction:                                                                                                                         |  |                         |          |   |      |   |            |      |  |   |          |  
|Issuance of senior promissory note for the acquisition of equity interest in Lazard Italy                                                                            |  | $                       | 96,000   |   |      |   |            |      |  |   |          |  
|                                                                                                                                                                     |  |                         |          |   |      |   |            |      |  |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                                                                                                    |  |                         |          |   |      |   |            |      |  |   |          |  
|Cash paid during the year for:                                                                                                                                       |  |                         |          |   |      |   |            |      |  |   |          |  
|Interest                                                                                                                                                             |  | $                       | 93,462   |   |      | $ | 81,970     |      |  | $ | 41,639   |  
|                                                                                                                                                                     |  |                         |          |   |      |   |            |      |  |   |          |  
|Income taxes                                                                                                                                                         |  | $                       | 74,665   |   |      | $ | 24,496     |      |  | $ | 61,877   |  
|                                                                                                                                                                     |  |                         |          |   |      |   |            |      |  |   |          |  



See notes to
consolidated financial statements.



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LAZARD GROUP LLC



CONSOLIDATED
STATEMENTS OF CHANGES IN MEMBERS EQUITY (DEFICIENCY)

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(dollars in thousands)



|                                                                                                                                                                  |  |                              |   |  |                                                           |   |  |                                  |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | - |  | --------------------------------------------------------- | - |  | -------------------------------- | -
|                                                                                                                                                                  |  | Members Equity (Deficiency) |   |  | Accumulated Other Comprehensive Income (Loss), Net of Tax |   |  | TotalMembersEquity (Deficiency) |  
|BalanceJanuary 1, 2004                                                                                                                                           |  | $485,948                     |   |  | $49,777                                                   |   |  | $535,725                         |  
|                                                                                                                                                                  |  |                              |   |  |                                                           |   |  |                                  |  
|                                                                                                                                                                  |  |                              |  
|Comprehensive income (loss):                                                                                                                                      |  |                              |   |  |                                                           |   |  |                                  |  
|Net income allocable to members                                                                                                                                   |  | 246,974                      |   |  |                                                           |   |  | 246,974                          |  
|Other comprehensive incomenet of tax:                                                                                                                            |  |                              |   |  |                                                           |   |  |                                  |  
|Currency translation adjustments                                                                                                                                  |  |                              |   |  | 29,890                                                    |   |  | 29,890                           |  
|Minimum pension liability adjustments                                                                                                                             |  |                              |   |  | (61,609                                                   | ) |  | (61,609                          | )
|                                                                                                                                                                  |  |                              |   |  |                                                           |   |  |                                  |  
|Comprehensive income                                                                                                                                              |  |                              |   |  |                                                           |   |  | 215,255                          |  
|Distribution and withdrawals to members                                                                                                                           |  | (366,182                     | ) |  |                                                           |   |  | (366,182                         | )
|                                                                                                                                                                  |  |                              |   |  |                                                           |   |  |                                  |  
|BalanceDecember 31, 2004                                                                                                                                         |  | 366,740                      |   |  | 18,058                                                    |   |  | 384,798                          |  
|                                                                                                                                                                  |  |                              |   |  |                                                           |   |  |                                  |  
|                                                                                                                                                                  |  |                              |  
|Comprehensive income (loss):                                                                                                                                      |  |                              |   |  |                                                           |   |  |                                  |  
|Net income allocable to members                                                                                                                                   |  | 255,224                      |   |  |                                                           |   |  | 255,224                          |  
|Other comprehensive income (loss)net of tax:                                                                                                                     |  |                              |   |  |                                                           |   |  |                                  |  
|Currency translation adjustments                                                                                                                                  |  |                              |   |  | (46,552                                                   | ) |  | (46,552                          | )
|Minimum pension liability adjustment                                                                                                                              |  |                              |   |  | 4,449                                                     |   |  | 4,449                            |  
|Interest rate hedge                                                                                                                                               |  |                              |   |  | (10,297                                                   | ) |  | (10,297                          | )
|                                                                                                                                                                  |  |                              |   |  |                                                           |   |  |                                  |  
|Comprehensive income                                                                                                                                              |  |                              |   |  |                                                           |   |  | 202,824                          |  
|                                                                                                                                                                  |  |                              |   |  |                                                           |   |  |                                  |  
|Distribution of net assets of separated businesses                                                                                                                |  | (243,178                     | ) |  |                                                           |   |  | (243,178                         | )
|Indemnity from LFCM Holdings relating to U.K. pension                                                                                                             |  | 53,600                       |   |  |                                                           |   |  | 53,600                           |  
|Net proceeds from sale of common membership interests relating to Lazard Ltds equity public offering in May, 2005, including $32,921
issued in cashless exchange |  | 871,656                      |   |  |                                                           |   |  | 871,656                          |  
|Distributions and withdrawals to members for the period through May 9, 2005                                                                                       |  | (419,115                     | ) |  |                                                           |   |  | (419,115                         | )
|Distributions to members for the period subsequent to May 9, 2005                                                                                                 |  | (32,310                      | ) |  |                                                           |   |  | (32,310                          | )
|Redemption of historical partner interests                                                                                                                        |  | (1,517,032                   | ) |  |                                                           |   |  | (1,517,032                       | )
|Costs related to issuance of purchase contracts associated with equity security units                                                                             |  | (12,086                      | ) |  |                                                           |   |  | (12,086                          | )
|Purchase contracts associated with equity security units                                                                                                          |  | (6,013                       | ) |  |                                                           |   |  | (6,013                           | )
|Repurchase of common membership interest from LAZ-MD Holdings                                                                                                     |  | (4,507                       | ) |  |                                                           |   |  | (4,507                           | )
|Amortization of stock units                                                                                                                                       |  | 1,024                        |   |  |                                                           |   |  | 1,024                            |  
|Distribution to LAZ-MD Holdings and LFCM Holdings                                                                                                                 |  | (150,000                     | ) |  |                                                           |   |  | (150,000                         | )
|                                                                                                                                                                  |  |                              |   |  |                                                           |   |  |                                  |  
|BalanceDecember 31, 2005                                                                                                                                         |  | (835,997                     | ) |  | (34,342                                                   | ) |  | (870,339                         | )
|                                                                                                                                                                  |  |                              |   |  |                                                           |   |  |                                  |  
|                                                                                                                                                                  |  |                              |  
|Comprehensive income:                                                                                                                                             |  |                              |   |  |                                                           |   |  |                                  |  
|Net income allocable to members                                                                                                                                   |  | 263,993                      |   |  |                                                           |   |  | 263,993                          |  
|Other comprehensive incomenet of tax:                                                                                                                            |  |                              |   |  |                                                           |   |  |                                  |  
|Currency translation adjustments                                                                                                                                  |  |                              |   |  | 51,068                                                    |   |  | 51,068                           |  
|Minimum pension liability adjustment                                                                                                                              |  |                              |   |  | 13,683                                                    |   |  | 13,683                           |  
|Amortization of interest rate hedge                                                                                                                               |  |                              |   |  | 1,100                                                     |   |  | 1,100                            |  
|                                                                                                                                                                  |  |                              |   |  |                                                           |   |  |                                  |  
|Comprehensive income                                                                                                                                              |  |                              |   |  |                                                           |   |  | 329,844                          |  
|                                                                                                                                                                  |  |                              |   |  |                                                           |   |  |                                  |  
|Adoption of FASB Statement No. 158                                                                                                                                |  |                              |   |  | 1,754                                                     |   |  | 1,754                            |  
|Distributions to members                                                                                                                                          |  | (79,090                      | ) |  |                                                           |   |  | (79,090                          | )
|Purchase of 115,000 shares of Lazard Ltd Class A common stock                                                                                                     |  | (4,179                       | ) |  |                                                           |   |  | (4,179                           | )
|Amortization of stock units                                                                                                                                       |  | 22,995                       |   |  |                                                           |   |  | 22,995                           |  
|Net proceeds from sale of common membership interests relating to Lazard Ltds Primary Offering in December, 2006                                                 |  | 349,137                      |   |  |                                                           |   |  | 349,137                          |  
|Other capital transactions                                                                                                                                        |  | 5,390                        |   |  |                                                           |   |  | 5,390                            |  
|                                                                                                                                                                  |  |                              |   |  |                                                           |   |  |                                  |  
|BalanceDecember 31, 2006*                                                                                                                                        |  | $(277,751                    | ) |  | $33,263                                                   |   |  | $(244,488                        | )
|                                                                                                                                                                  |  |                              |   |  |                                                           |   |  |                                  |  

---

|* | Includes 107,652,516 common membership interests and two managing member interests outstanding.
|- | -----------------------------------------------------------------------------------------------



See notes to consolidated financial statements.



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LAZARD GROUP LLC



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, unless otherwise noted)



|1. | ORGANIZATION AND BASIS OF PRESENTATION
|-- | --------------------------------------



Organization



The accompanying consolidated financial statements are those of Lazard Group LLC and subsidiaries (formerly known as Lazard LLC and collectively referred
to with its subsidiaries as Lazard Group or the Company). Lazard Group is a Delaware limited liability company and is governed by an Operating Agreement dated as of May 10, 2005, as amended (the Operating
Agreement).



Lazard Ltd is a Bermuda holding company that
was incorporated in October 2004. Pursuant to a Registration Statement on Form S-1 (File No. 333-121407) declared effective by the SEC on May 4, 2005 (the Registration Statement) for the initial public offering of shares of Lazard
Ltds Class A common stock, par value $0.01 per share (Class A common stock), Lazard Ltd issued on May 10, 2005, at $25 per share, 34,183,162 shares of its Class A common stock in a registered initial public offering (the
equity public offering). In addition, on May 10, 2005, pursuant to the IXIS Placements (see Note 2 of Notes to Consolidated Financial Statements) and the cashless exchange of certain of our chief executive officers interests in
Lazard Group with Lazard Ltd, Lazard Ltd issued 2,000,000 shares of its Class A common stock and 1,316,838 shares of its Class A common stock, respectively. These issuances, together with the 34,183,162 shares of Class A common stock issued pursuant
to the equity public offering, resulted in Lazard Ltd having 37,500,000 shares of its Class A common stock outstanding at the time of the equity public offering. Lazard Ltd, through a number of newly-formed, wholly-owned subsidiaries, contributed
the net proceeds from the equity public offering, along with the net proceeds it received from the financing transactions (as described in Note 2 of Notes to Consolidated Financial Statements), to Lazard Group in exchange for 37,500,000 Lazard Group
common membership interests, representing 37.5% of Lazard Groups total common membership interests as of May 10, 2005, and, after giving effect to (i) the repurchase and forfeiture of a portion of the Lazard Group common membership interests
held by LAZ-MD Holdings LLC (LAZ-MD Holdings), as well as (ii) certain other share issuances by Lazard Ltd subsequent to December 31, 2005 (principally related to the primary and secondary offerings of Class A common stock as described
in Note 2 of Notes to Consolidated Financial Statements), approximately 47.9% and 37.6% of all outstanding Lazard Group common membership interests as of December 31, 2006 and 2005, respectively. Lazard Ltd, through its control of the managing
members of Lazard Group, controls Lazard Group.



Lazard
Groups current principal activities are divided into two business segments:



| |  |  | Financial Advisory, which includes providing advice on mergers and acquisitions, restructurings, capital raising and similar transactions, and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Asset Management, which includes the management of equity and fixed income securities and merchant banking funds.
| | - |  | -----------------------------------------------------------------------------------------------------------------



In addition, Lazard Group records selected other activities in Corporate,
including cash management, certain long-term investments and the commercial banking activities of Lazard Groups Paris-based Lazard Frères Banque SA (LFB). LFB is a registered bank regulated by the Banque de France.
LFBs primary commercial banking operations include the management of the treasury positions of Lazard Groups Paris House through its money market desk and, to a lesser extent, credit activities relating to securing loans granted to
clients of Lazard Frères Gestion SAS (LFG) and custodial oversight over assets of various clients. In addition, LFB operates many support functions relating to our business in Paris. Lazard Group also allocates outstanding
indebtedness to Corporate.



Prior to May 10, 2005, Lazard Group
also had a business segment called Capital Markets and Other, which consisted of equity, fixed income and convertibles sales and trading, broking, research and underwriting services



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



and merchant banking fund management activities outside of France as well as other specified non-operating assets and liabilities. This business
segments assets and liabilities (referred to below as the separated businesses) were separated from Lazard Group on May 10, 2005, and the operating results of this former segment are reflected as discontinued operations for periods
prior to May 10, 2005. We refer to the transfer of the separated business as the separation.



The consolidated financial statements include Lazard Group and Lazard Groups principal operating subsidiaries: Lazard Frères & Co. LLC
(LFNY), a New York limited liability company, along with its subsidiaries, including Lazard Asset Management LLC and its subsidiaries (collectively referred to as LAM); Lazard Frères SAS and Maison Lazard SAS, French
limited liability companies, along with their respective subsidiaries, including LFB and LFG (collectively referred to as LFP); and Lazard & Co., Limited (LCL), through Lazard & Co., Holdings Limited, an English
private limited company (LCH); together with their jointly-owned affiliates and subsidiaries.



The Separation and Recapitalization Transactions



On May 10, 2005, Lazard Group and Lazard Ltd completed the separation and recapitalization transactions, including the financing transactions, pursuant to the master separation agreement, dated as of May 10, 2005, by
and among Lazard Group, Lazard Ltd, LAZ-MD Holdings and LFCM Holdings (the master separation agreement).



The Separation



In the separation, Lazard Group transferred the separated businesses to LFCM Holdings LLC (LFCM Holdings) through several steps. First, LAZ-MD
Holdings was formed as the new holding company for Lazard Group. Pursuant to this formation, all of the persons who were members of Lazard Group prior to the formation became members of LAZ-MD Holdings and ceased to hold any membership interests in
Lazard Group. Lazard Group then contributed the separated businesses to LFCM Holdings, which was then a subsidiary of Lazard Group, and distributed all of the LFCM Holdings interests to LAZ-MD Holdings. After the redemption of the historical
partners described below, LAZ-MD Holdings distributed all of the LFCM Holdings interests to its members. Accordingly, after the separation, LFCM Holdings was wholly-owned by the members of LAZ-MD Holdings, including Lazard Groups managing
directors at the time of the separation.



In the separation,
Lazard Group retained all of the Companys Financial Advisory and Asset Management businesses. In addition, under the business alliance agreement, dated as of May 10, 2005, between Lazard Group and LFCM Holdings (the business alliance
agreement), Lazard Group was granted the option to acquire the North American and European merchant banking businesses of LFCM Holdings (see Note 7 of Notes to Consolidated Financial Statements).



The Recapitalization



On the same day as the separation, LAZ-MD Holdings and Lazard Group effected
a recapitalization of their companies. The recapitalization had three principal partsthe financing transactions, the redemption of the historical partners interests and mandatorily redeemable preferred interests of Lazard Group and the
issuance of LAZ-MD Holdings exchangeable interests to working members. Historical partners refers to certain former members of Lazard Group that existed prior to the recapitalization, which consisted of Eurazeo S.A., descendants and
relations of Lazard Groups founders, several historical partners of Lazard Groups predecessor entities, several current and former managing directors and the other members of these classes. Working members refers to members
of Lazard Group that existed prior to the recapitalization, which consisted of current and former managing directors of Lazard Group and the separated businesses.



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



The Financing Transactions



On May 10, 2005, Lazard Group and Lazard Ltd completed the financing
transactions, which consisted of:



| |  |  | the equity public offering,
| | - |  | ---------------------------



| |  |  | the initial offering of equity security units (the ESU offering),
| | - |  | -------------------------------------------------------------------



| |  |  | the private offering of Lazard Group senior notes, and
| | - |  | ------------------------------------------------------



| |  |  | the private placement of securities to IXISCorporate & Investment Bank (IXIS).
| | - |  | ---------------------------------------------------------------------------------



For a further description of the financing transactions, see Note 2 of Notes
to Consolidated Financial Statements.



The Company used the net
proceeds from the financing transactions primarily to:



| |  |  | redeem Lazard Group membership interests, including Lazard Groups mandatorily redeemable preferred stock, held by the historical partners for $1,617,032
(including the value of our chief executive officers historical interests ($32,921), which were exchanged for shares of Lazard Ltd Class A common stock in lieu of cash, and the exchange of certain of these membership interests for specific
Lazard Group long-term investments valued at $39,774),
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | capitalize LFCM Holdings and LAZ-MD Holdings in the amount of $67,000 and $83,000, respectively,
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | repay the 7.53% senior notes due 2011 in aggregate principal amount of $50,000 as well as a related make-whole payment of $7,650, and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | pay transaction fees and expenses.
| | - |  | ----------------------------------



The Redemption of the Historical Partners Interests



As noted above, a primary purpose of the financing transactions was the redemption of the historical partners
interests. Prior to the separation and recapitalization, Lazard Group had three general classes of membership interests:



| |  |  | the working member interests, which were owned by working members and consisted of capital and the right to participate in profit and the goodwill of Lazard Group
if a fundamental transaction occurred,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the historical partner interests, which were owned by the historical partners and consisted of capital and the right to participate in profit and the goodwill of
Lazard Group if a fundamental transaction occurred, and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the mandatorily redeemable preferred interests, which were owned by certain of the historical partners and consisted of the right to a preferred dividend of 8% per
annum and a fixed liquidation amount.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As
part of the recapitalization transactions, historical partner interests and preferred interests generally were redeemed for cash.



Exchange of Working Member Interests for LAZ-MD Holdings Interests



In connection with the formation of LAZ-MD Holdings, the working member interests were exchanged with LAZ-MD Holdings for
limited liability company interests in LAZ-MD Holdings. Each holder of a working member interest at the time of the separation and recapitalization transactions received, in exchange for his or her working member interest, a redeemable capital
interest in LAZ-MD Holdings consisting of an equivalent amount



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



of capital of LAZ-MD Holdings, an exchangeable interest in LAZ-MD Holdings and, if applicable, a right to receive distributions from LAZ-MD Holdings. The
former holders of working member interests hold all of the limited liability company interests in LAZ-MD Holdings.



Basis of Presentation



The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (U.S.
GAAP). The Companys policy is to consolidate (i) all majority-owned subsidiaries in which it has a controlling financial interest, (ii) variable interest entities (VIEs) where the Company is deemed to be the primary
beneficiary and (iii) beginning on January 1, 2006, limited partnerships where the Company is the general partner in the limited partnership, unless the presumption of control is overcome. When the Company does not have a controlling interest in an
entity, but exerts significant influence over the entitys operating and financial decisions (generally defined as owning a voting or economic interest of 20% to 50%), the Company applies the equity method of accounting. All material
intercompany transactions and balances have been eliminated.



In connection with the separation, Lazard Group transferred its general partnership interests in various VIEs to a subsidiary of LFCM Holdings. Lazard Group has determined that it is no longer the primary beneficiary with respect to those
VIEs and, as a result, the Company no longer consolidates such VIEs. Amounts related to consolidation of such VIEs, for the years ended December 31, 2005 and 2004 are included in loss from discontinued operations on the consolidated
statements of income.



The accompanying consolidated financial
statements do not reflect what the results of operations and financial position of the Company would have been had it been a stand-alone, public company prior to May 10, 2005. In addition, the results of operations for periods until the equity
public offering on May 10, 2005 are not comparable to results of operations for subsequent periods as described below.



| |  |  | Payments for services rendered by the Companys managing directors, which, as a result of Lazard Group operating as a limited liability company, historically
had been accounted for as distributions from members capital, or in some cases as minority interest, rather than as compensation and benefits expense. As a result, prior to May 10, 2005, Lazard Groups operating income included within the
accompanying consolidated financial statements did not reflect payments for services rendered by its managing directors. For periods subsequent to the consummation of the equity public offering as described in Note 2 of Notes to Consolidated
Financial Statements, all payments for services rendered by our managing directors and distributions to profit participation members are included within the accompanying consolidated financial statements in compensation and benefits
expense.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Payments for services rendered by managing directors of LAM (and employee members of LAM) had, prior to May 10, 2005, been accounted for as minority interest in net
income and since that date such payments have been included within compensation and benefits expense. See Note 4 of Notes to Consolidated Financial Statements.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The use of proceeds from the financing transactions.
| | - |  | ----------------------------------------------------



| |  |  | The net incremental interest expense related to the financing transactions.
| | - |  | ---------------------------------------------------------------------------



In accordance with U.S. GAAP, the results of operations of the separated businesses have been segregated and are reported as
discontinued operations in the consolidated statements of income for the years ended December 31, 2005 and 2004. See Note 20 of Notes to Consolidated Financial Statements for additional information relating to discontinued operations.



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



|2. | EQUITY PUBLIC OFFERING AND OTHER FINANCING TRANSACTIONS IN MAY, 2005, AND PRIMARY AND SECONDARY OFFERINGS IN DECEMBER, 2006
|-- | ---------------------------------------------------------------------------------------------------------------------------



Equity Public OfferingAs described above, on May 10, 2005,
Lazard Ltd consummated its equity public offering. The aggregate gross proceeds relating to the offering amounted to $854,579, and net proceeds to Lazard Ltd, after $65,844 of estimated expenses incurred by Lazard Ltd in connection with the issuance
and distribution of the Lazard Ltd Class A common stock (including underwriting discounts and commissions, expenses paid to the underwriters and certain other expenses), was $788,735. Lazard Ltd contributed all the net proceeds from this offering to
Lazard Group in exchange for a controlling interest in Lazard Group. In the year ended December 31, 2006, additional costs of $2,677 relating to the May, 2005 issuance of Lazard Ltd Class A common stock were incurred, representing amounts in excess
of estimated costs associated with the equity public offering. Such amount was recorded as a reduction of members equity.



Other Financing TransactionsOn May 10, 2005, Lazard Group and Lazard Ltd also completed the other financing transactions which are described
below.



ESU OfferingConcurrently with the
equity public offering, Lazard Ltd issued, for $25 per unit, equity security units (the ESUs) for an aggregate offering amount of $287,500 (and net proceeds of $276,535) in the ESU offering. Each unit consists of (a) a contract which
obligates holders to purchase, and Lazard Ltd to sell, on May 15, 2008, a number of newly-issued shares of its Class A common stock equal to a settlement rate based on the trading price of its Class A common stock during a period preceding that date
and (b) a 1/40, or 2.5%, ownership interest in a 6.12% senior note due 2035 of an affiliate, Lazard Group Finance LLC, a Delaware limited liability company (Lazard Group Finance), with a principal amount of $1 (the Lazard Group
Finance Senior Notes). Prior to its merger with Lazard Group discussed below, Lazard Group Finance was a wholly-owned subsidiary of Lazard Group that was controlled by Lazard Ltd. In the event of any issuance of shares of Lazard Ltd Class A
common stock pursuant to the ESUs, Lazard Ltd intends to cause Lazard Group to issue a proportionate amount of Lazard Group common membership interests to subsidiaries of Lazard Ltd in exchange for Lazard Ltds contribution of the consideration
received from the issuance of the shares of Lazard Ltd Class A common stock pursuant to the ESUs.



In connection with the quarterly contract adjustment payments on the purchase contracts, Lazard Group recorded a liability as of May 10, 2005 for $6,013
for the present value of such payments (including the similar contract adjustment payments related to IXIS as described below), with a corresponding charge to members equity. The liability will accrete over the three year period ending May 15,
2008, with a corresponding charge to interest expense.



Lazard
Ltd began making quarterly contract adjustment payments on the purchase contracts at an annual rate of 0.505% on August 15, 2005, with a corresponding payment being paid by Lazard Group to Lazard Ltd. Lazard Ltd has the right to defer these
quarterly contract adjustment payments (no such deferrals have occurred as of December 31, 2006). In general, during any period in which it defers such payments, Lazard Ltd cannot declare or pay dividends on, make distributions with respect to, or
redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock.



The Lazard Group Finance Senior Notes, which bear interest at annual rate of 6.12%, will mature (a) in the event of a successful remarketing, on any date
no earlier than May 15, 2010 and no later than May 15, 2035, as we may elect, (b) in the event of a failed remarketing, on May 15, 2008 (the stock purchase date) and (c) otherwise on May 15, 2035. Lazard Group Finance used the
proceeds from the ESU offering to purchase 6.12% senior notes from Lazard Group due 2035 (the Lazard Group Notes) with a principal amount of $287,500. The Lazard Group Notes, which have substantially similar terms to the Lazard Group
Finance Senior Notes, were pledged to secure the obligations of the Lazard Group Finance Senior Notes.



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



On December 19, 2005, Lazard Group consummated a Plan of Merger (the Merger Agreement)
with Lazard Group Finance. The Merger Agreement provided for the merger of Lazard Group Finance with and into Lazard Group (the Merger). Pursuant to the Merger, Lazard Group Finance merged with and into Lazard Group, with Lazard Group
continuing as the surviving company. In addition, Lazard Group Finance ceased to be the managing member of Lazard Group, and the co-managing members of Lazard Group Finance, which are two indirect wholly-owned subsidiaries of Lazard Ltd, became the
co-managing members of Lazard Group. In connection with the Merger, Lazard Group became the successor registrant for Lazard Group Finance under the Securities Exchange Act of 1934, as amended.



Pursuant to the Merger and in accordance with the Indenture, dated as of May
10, 2005 (the Lazard Group Finance Indenture), Lazard Group assumed the obligations, including the remarketing, of Lazard Group Finance with respect to an aggregate principal amount of $437,500 of Lazard Group Finance Senior Notes issued
pursuant to the Lazard Group Finance Indenture (including an aggregate principal amount of $150,000 related to IXIS as described below), which notes form a part of the 6.625% ESUs previously issued by Lazard Ltd. Simultaneously with the consummation
of the Merger, in accordance with the terms of the Lazard Group Finance Indenture, all of the outstanding Lazard Group Finance Senior Notes were exchanged for, and replaced by, an aggregate principal amount of $437,500 of Lazard Group Notes issued
pursuant to the Indenture, dated as of May 10, 2005 (the Lazard Group Indenture), which Lazard Group Notes were previously held by Lazard Group Finance, and the Lazard Group Finance Indenture was discharged. In accordance with the terms
of the Lazard Group Finance Indenture, after the completion of this exchange, the Lazard Group Notes replaced the Lazard Group Finance Senior Notes for all purposes under the ESUs, including by serving as collateral for the obligations of the
holders of the ESUs in substitution for the Lazard Group Finance Senior Notes.



IXIS PlacementsUnder the IXIS placements, IXIS, which was a subsidiary of Caisse Nationale des Caisses dEpargne (CNCE), purchased an aggregate of $200,000 of Lazard Ltds
securities on May 10, 2005, $150,000 of which were ESUs (the IXIS ESU placement) and $50,000 of which were shares of Lazard Ltd Class A common stock. The terms of the ESUs issued in connection with the IXIS ESU placement are the same as
the ESUs described above. The price per security paid by IXIS was equal, in the case of shares of Lazard Ltd Class A common stock, to the price per share in the equity public offering and, in the case of ESUs, the price per unit in the ESU offering.
Lazard Ltd contributed the net proceeds from the sale of Lazard Ltd Class A common stock to Lazard Group. Lazard Group Finance used the net proceeds from the IXIS ESU placement to purchase Lazard Group Notes with a principal amount of $150,000. In
November 2006, CNCE and BanqueFederaledesBanquesPopulaires formed a new investment banking entity, Natixis. Pursuant to this transaction, IXIS became a wholly-owned subsidiary of Natixis.



Lazard Group Senior NotesConcurrent with the equity
public offering, Lazard Group issued, in a private placement, $550,000 aggregate principal amount of 7.125% senior notes due May 15, 2015 (the Lazard Group Senior Notes). The Lazard Group Senior Notes were issued net of original issue
discount of $435. Interest on the notes is due May 15 and November 15 of each year, commencing on November 15, 2005. The notes are unsecured. A registration rights agreement, dated as of May 10, 2005, among Lazard Group and the initial purchasers of
the Lazard Group senior notes provided the holders of the Lazard Group senior notes with registration rights. In that agreement Lazard Group agreed to register the offer and sale of substantially identical notes (the exchange notes) in
exchange for the privately-placed notes (the old notes). In connection therewith, Lazard Group filed a registration statement on Form S-4 that was declared effective by the SEC on September 28, 2005 and Lazard Group commenced an exchange
offer (the exchange offer) on that date to exchange an aggregate principal amount of up to $550,000 of the old notes for an equal aggregate principal amount of the exchange notes. The exchange offer expired on October 26, 2005. On
October 31, 2005, Lazard Group closed the exchange offer, at which time it exchanged $546,000 in aggregate principal amount of its old



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



notes (approximately 99.3% of the aggregate principal amount of old notes outstanding) for $546,000 in aggregate principal amount of its exchange notes. The
exchange notes are substantially identical to the old notes, except that the exchange notes have been registered under the Securities Act of 1933, as amended; and, as a result, the transfer restrictions applicable to the old notes do not apply to
the exchange notes.



The indenture governing the Lazard Group
Senior Notes contains covenants that limit Lazard Groups ability and that of its subsidiaries, subject to important exceptions and qualifications, to, among other things, create a lien on any shares of capital stock of any designated
subsidiary, and consolidate, merge or transfer all or substantially all of its assets and the assets of its subsidiaries. The indenture also contains a customary make-whole provision in the event of early redemption.



In connection with the issuance of the Lazard Group Senior Notes, on April 1,
2005, Lazard Group entered into an interest rate forward agreement with a bank for a notional amount of $650,000 to ensure that the base rate (excluding market-driven credit spreads) on the Lazard Group Senior Notes would be no greater than 4.5%.
Lazard Group settled the interest rate forward agreement with the bank as of May 9, 2005, which required a payment by Lazard Group of $13,004. Of this amount, in accordance with Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS No. 133), $11,003 was deemed to be the effective portion of the hedge and has been recorded within other comprehensive income (loss) and is
being amortized as a charge to interest expense over the ten year term of the Lazard Group Senior Notes.



Credit FacilityConcurrent with the equity public offering, Lazard Group entered into a five year, $125,000 senior revolving credit
facility (the Credit Facility) with a group of lenders. On May 17, 2006, the Credit Facility was amended to provide for an increase in the aggregate commitments from $125,000 to $150,000. As of December 31, 2006 there were no amounts
outstanding under the credit facility. There was $30,000 outstanding under the Credit Facility as of December 31, 2005. The Credit Facility bears interest at either a Eurodollar or Federal Funds rate, plus an applicable margin, which varies from 125
to 200 basis points, depending on Lazard Groups rating as determined by designated credit rating agencies.



The Credit Facility contains affirmative and negative covenants. Such covenants include, among other things, limitations on the ability of Lazard Group to
incur debt, grant liens, pay dividends, enter into mergers or to sell all or substantially all of its assets, as well as financial maintenance covenants.



Primary and Secondary Offerings in December, 2006On December 6, 2006, Lazard Ltd closed an underwritten public offering of additional
shares of its Class A common stock. The offering was comprised of a primary offering (the Primary Offering) of 7,000,000 newly-issued shares by Lazard Ltd and a secondary offering (the Secondary Offering) of
6,000,000 shares offered to the public by certain current and former managing directors of Lazard and their permitted transferees (the Selling Shareholders). The 6,000,000 shares offered in the Secondary Offering were also
newly-issued shares of Lazard Ltd Class A common stock as a result of the Selling Shareholders exchanging an equivalent amount of their membership interests in Lazard Group (received in exchange for their membership interests in LAZ-MD
Holdings) for newly-issued shares of Lazard Ltd Class A common stock. In addition, on December 6, 2006, in connection with the Primary Offering and Secondary Offering, the underwriters exercised their over-allotment option to purchase an
additional 1,050,400 newly-issued shares of Lazard Ltd Class A common stock at the same price per share.



The offering price to the public was $45.42 per share, and the price, net of the underwriters discount of 3.75%, was approximately $43.72 per
share. Lazard Ltd received net proceeds of $349,137 as the result of the Primary Offering, including the exercise of the underwriters over-allotment option, after estimated expenses of $2,800.



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



Lazard Ltd did not receive any net proceeds from the sales of common stock offered by the Selling Shareholders. Immediately following the Primary Offering,
Lazard Ltd and its subsidiaries received 8,050,400 additional Lazard Group common membership interests in exchange for the net proceeds from the Primary Offering. In the Secondary Offering, Lazard Ltd and its subsidiaries received an additional
6,000,000 Lazard Group common membership interests from the exchanging LAZ-MD members in exchange for the issuance to them of 6,000,000 Class A common shares. LAZ-MD members then sold those shares to the public.



As a result of the offerings, Lazard Ltds ownership interest in Lazard
Group increased from 37.7% prior to the offerings to 47.9% subsequent thereto. Correspondingly, LAZ-MDs ownership in Lazard Group decreased from 62.3% prior to the offerings to 52.1% subsequent thereto.



Lazard Capital Markets (LCM), a wholly-owned subsidiary of LFCM
Holdings, was a member of the underwriting group for both the Primary and Secondary Offerings, and, in such capacity, earned revenue, net of estimated underwriting expenses, of approximately $4,118. The business alliance agreement provides for
Lazard Group to receive a referral fee equal to approximately half of the net revenue obtained by LCM in respect of any underwriting or distribution opportunity referred to it by Lazard Group. In that connection, as of December 31, 2006 Lazard
Group has recorded a receivable from LFCM Holdings of approximately $2,059, with the portion of such amount relating to the Primary Offering of $1,180 being recorded as an increase to its members equity and the portion of such amount relating
to the Secondary Offering of $879 being recorded in other revenue. See Note 16 of Notes to Consolidated Financial Statements for additional information regarding the business alliance agreement.



3.    SIGNIFICANT ACCOUNTING POLICIES



The accounting policies below relate to reported amounts on the consolidated
financial statements.



Foreign Currency
TranslationThe consolidated financial statements are presented in U.S. dollars. Many of the Companys non-U.S. subsidiaries have a functional currency (i.e., the currency in which operational activities are primarily
conducted) that is other than the U.S. dollar, generally the currency of the country in which such subsidiaries are domiciled. Such subsidiaries assets and liabilities are translated into U.S. dollars at year-end exchange rates, while revenue
and expenses are translated at average exchange rates during the year based on the daily closing exchange rates. Adjustments that result from translating amounts from a subsidiarys functional currency to U.S. dollars are reported as a
component of Members Equity (Deficiency). Foreign currency remeasurement gains and losses on transactions in non-functional currencies are included on the consolidated statements of income.



Use of EstimatesIn preparing the consolidated financial
statements, management makes estimates and assumptions regarding:



| |  |  | Valuations of assets and liabilities requiring fair value estimates including, but not limited to:
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | Securities owned;
| | - |  | -----------------



| |  |  | Long-term investments;
| | - |  | ----------------------



| |  |  | Allowance for doubtful accounts;
| | - |  | --------------------------------



| |  |  | The realization of deferred taxes and adequacy of tax reserves;
| | - |  | ---------------------------------------------------------------



| |  |  | The outcome of litigation;
| | - |  | --------------------------



| |  |  | The carrying amount of goodwill;
| | - |  | --------------------------------



| |  |  | Other matters that affect the reported amounts and disclosure of contingencies in the financial statements.
| | - |  | -----------------------------------------------------------------------------------------------------------



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



Estimates, by their nature, are based on judgment and available information. Therefore, actual
results could differ from those estimates and could have a material impact on the consolidated financial statements.



Cash and Cash EquivalentsThe Company defines cash equivalents as short-term, highly liquid securities and cash deposits with original
maturities of 90 days or less.



Cash Segregated for
Regulatory Purposes or Deposited with Clearing OrganizationsAt December 31, 2006 and 2005, restricted cash deposits made by the Company to satisfy the requirements of various non-U.S. regulatory authorities and clearing organizations
in which LFB participates as a registered bank were $16,023 and $20,596, respectively.



Securities Owned - at fair valueSecurities owned are stated at quoted market values, with realized and unrealized investment gains and losses and dividend income reflected in
revenueother on the consolidated statements of income. Any related interest amounts are included in interest income. Securities transactions and the related revenue and expenses are recorded on a trade date basis.



ReceivablesnetReceivables, net is
comprised of bank receivables, which represent those related to LFBs short-term inter-bank lending with registered banks, fees receivable, customer receivables, including those related to LFBs lending and collateralized financing
activities, and related party receivables.



In connection with
collateralized financing activities, the Company typically receives a pledge of specifically identified securities equal to or greater than the amount of the cash loaned. Collateralized financings, which amounted to $16,858 and $23,358 at December
31, 2006 and 2005, respectively, were secured by pledged collateral with a fair value of $16,858 and $23,556, at December 31, 2006 and 2005, respectively. Securities owned by customers and pledged to collateralize secured loans receivable are not
reflected on the consolidated statements of financial condition.



Receivables are stated net of an estimated allowance for doubtful accounts of $11,316 and $12,711 at December 31, 2006 and 2005, respectively. The Company recorded bad debt expense of $4,020, $5,597 and $4,093 for the years ended December
31, 2006, 2005 and 2004, respectively, and recorded recoveries, charge-offs and foreign currency translation adjustments, which resulted in a net decrease to the allowance for doubtful accounts, of $5,415, $9,330 and $7,609 for the years ended
December 31, 2006, 2005 and 2004, respectively.



Customer
receivables at December 31, 2006 and 2005 include $19,330 and $28,135, respectively, of loans granted by LFB to managing directors and employees that are made in the ordinary course of business at market terms.



Long-Term InvestmentsLong-term investments consist
principally of investments in merchant banking and alternative investment funds, and other privately managed investments. These investments are carried at fair value on the consolidated statements of financial condition, with unrealized gains and
losses reflected in revenueother on the consolidated statements of income. Where applicable, the fair value of a publicly traded investment is determined by quoted market prices. Most of the Companys investments included in
long-term investments, however, are not publicly traded and, as a result, are valued based upon managements best estimate. The fair value of such investments is based upon an analysis of the investees financial results,
condition, cash flows and prospects. The carrying value of such investments is adjusted when changes in the underlying fair values are readily ascertainable, generally as evidenced by third party transactions or transactions that directly affect the
value of such investments. Adjustments also are made, in the absence of third-party transactions, if Lazard determines that the expected realizable value of the investment differs from its carrying



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



value. In reaching that determination, Lazard considers many factors, including, but not limited to, the operating cash flows and financial performance of
the investee, expected exit timing and strategy, and any specific rights or terms associated with the investment, such as conversion features and liquidation preferences. The Companys investments in partnership interests, including general
partnership and limited partnership interests in real estate funds, are recorded at fair value based on changes in the fair value of the partnerships underlying net assets. Because of the inherent uncertainty in the valuation of investments
that are not readily marketable, estimated values may differ significantly from the values that would have been reported had a ready market for such investments existed.



The Companys gross investment gains of $30,747, $26,721 and $41,704 and gross investment losses of $4,767, $16,489 and
$8,324 for the years ended December 31, 2006, 2005 and 2004, respectively, are included in revenueother and for the years ended December 31, 2005 and 2004 in loss from discontinued operations on the consolidated
statements of income.



Property-netAt
December 31, 2006 and 2005 property, net consists of the following:



|                                               |  |                                   |      |              |          |      |  |   |          |  
|---------------------------------------------- |  | --------------------------------- | ---- | ------------ | -------- | ---- |  | - | -------- | -
|                                               |  | EstimatedDepreciableLife in Years |      | December 31, |         
|                                               |  |                                   | 2006 |              |          | 2005 | 
|Buildings                                      |  | 33                                |      | $            | 165,947  |      |  | $ | 148,795  |  
|Leasehold improvements                         |  | 5-20                              |      |              | 114,443  |      |  |   | 108,509  |  
|Furniture and equipment                        |  | 3-10                              |      |              | 69,732   |      |  |   | 56,261   |  
|                                               |  |                                   |      |              |          |      |  |   |          |  
|Total                                          |  |                                   |      |              | 350,122  |      |  |   | 313,565  |  
|LessAccumulated depreciation and amortization |  |                                   |      |              | (181,812 | )    |  |   | (156,935 | )
|                                               |  |                                   |      |              |          |      |  |   |          |  
|Property, net                                  |  |                                   |      | $            | 168,310  |      |  | $ | 156,630  |  
|                                               |  |                                   |      |              |          |      |  |   |          |  



Buildings, leasehold
improvements, and furniture and equipment are stated at cost, or in the case of buildings under capital leases, the present value of the future minimum lease payments, less accumulated depreciation and amortization. Buildings represent owned
property and amounts recorded pursuant to capital leases (Note 12 of Notes to Consolidated Financial Statements), with the related obligations recorded as capital lease obligations. Such buildings are depreciated on a straight-line basis over their
estimated useful lives. Leasehold improvements are capitalized and are amortized over the lesser of the economic useful life of the improvement or the term of the lease. Depreciation of furniture and equipment is determined on a
straight-line basis using estimated useful lives. Depreciation and amortization expense on buildings and leasehold improvements of $9,742, $10,454 and $11,972 for the years ended December 31, 2006, 2005 and 2004, respectively, is included in
premises and occupancy costs and for the years ended December 31, 2005 and 2004 in loss from discontinued operations on the consolidated statements of income. Depreciation expense on furniture and equipment of $4,540, $4,894
and $4,966 for the years ended December 31, 2006, 2005 and 2004, respectively, is included in equipment costs and for the years ended December 31, 2005 and 2004 in loss from discontinued operations on the consolidated
statements of income. Repairs and maintenance are expensed as incurred.



GoodwillIn accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is no longer amortized, but instead is tested annually for impairment or more frequently if circumstances
indicate impairment may have occurred. The Company has selected December 31 as the date to perform the annual impairment test. At December 31, 2006, 2005 and 2004, the Company compared the fair value of the reporting unit with its carrying
amount, including goodwill, and determined that the fair value exceeded its carrying value.



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



Therefore, the Company determined that no impairment existed. Goodwill reflected on the consolidated statements of financial condition relates to the
Financial Advisory business segment. Except for currency translation adjustments, there have been no changes to goodwill for the years ended December 31, 2006, 2005 and 2004.



Derivative InstrumentsA derivative is typically defined as an instrument whose value is
derived from underlying assets, indices or reference rates, such as a future, forward, swap, or option contract, or other financial instrument with similar characteristics. Derivative contracts often involve future commitments to
exchange interest payment streams or currencies based on a notional or contractual amount (e.g., interest rate swaps or currency forwards) or to purchase or sell other financial instruments at specified terms on a specified date (e.g.,
options to buy or sell securities or currencies).



The Company
reports its derivative instruments separately as assets and liabilities unless a legal right of set-off exists under a master netting agreement enforceable by law. The Companys derivative instruments are recorded at their fair value as of
December 31, 2006 and 2005 and are included in other assets and other liabilities on the consolidated statements of financial condition (see Note 8 of Notes to Consolidated Financial Statements). The Company elected to not
apply hedge accounting under SFAS No. 133 to the derivative instruments held as of December 31, 2006 and 2005 and, as such, the related gains and losses are reported within the consolidated statements of income.



Deposits and Other Customer PayablesDeposits and
other customer payables principally relate to LFB customer-related interest-bearing time and demand deposits, short-term inter-bank borrowing with registered banks and amounts due on collateralized financings.



Collateralized financings amounted to $19,229 and $31,853 at December 31,
2006 and 2005, respectively, and were collateralized with pledged assets with a fair value of $19,229 and $31,264 at December 31, 2006 and 2005, respectively.



Revenue Recognition



Investment Banking and Other Advisory FeesFees for mergers and acquisitions advisory services and financial restructuring advisory
services are recorded when earned, which is generally the date the related transactions are consummated. Transaction related expenses, which are directly related to such transactions and billable to clients, are deferred to match revenue
recognition. Client reimbursements of expenses are presented net in investment banking and other advisory fees on the Companys consolidated statements of income. The amounts of expenses reimbursed by clients for the years ended
December 31, 2006, 2005 and 2004 are $16,534, $12,360 and $11,583, respectively.



Money Management and Incentive FeesMoney management fees are derived from fees for investment management and advisory services provided to institutional and private clients. Revenue is recorded on
an accrual basis primarily based on a percentage of client assets managed. Fees vary with the type of assets managed, with higher fees earned on equity assets, alternative investment (such as hedge funds) and merchant banking products, and lower
fees earned on fixed income and money market products.



The
Company may earn performance-based incentive fees on various investment products, such as hedge funds, that are recorded in accordance with the contractual agreement, which is generally at the end of the year, when potential uncertainties
regarding the ultimate realizable amounts have been determined, and typically are calculated based on a specified percentage of a funds net appreciation during the fiscal period. Incentive fees



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



on hedge funds generally are subject to loss carry-forward provisions in which losses incurred by the funds in any year are applied against future period net
appreciation before any incentive fees can be earned. At December 31, 2006, 2005 and 2004 there were no fees subject to such reduction provisions.



The Company also may earn incentive fees on merchant banking funds in accordance with the terms of the funds respective agreements. These fees
are in the form of a carried interest and are recognized when earned, which is when gains relating to the underlying investments of the fund are realized.



Receivables relating to money management and incentive fees are reported in fees receivable on the consolidated statements of financial
condition.



Soft Dollar
ArrangementsThe Companys Asset Management business obtains research and other services through soft dollar arrangements. Consistent with the soft dollar safe harbor
established by Section 28(e) of the Securities Exchange Act of 1934, as amended, the Asset Management business does not have any contractual obligation or arrangement requiring it to pay for research and other services obtained through soft dollar
arrangements with brokers. Instead, the provider is obligated to pay for the services. Consequently, the Company does not incur any liability and does not accrue any expenses in connection with any research or other services obtained by the Asset
Management business pursuant to such soft dollar arrangements. If the use of soft dollars is limited or prohibited in the future by regulation, we may have to bear the costs of such research and other services.



Share-Based PaymentsPrior to
May 10, 2005, the date of the equity public offering, Lazard operated as a series of related partnerships under the control of the partners and Lazard did not have a capital structure that permitted share-based compensation. In connection with
equity awards granted pursuant to Lazard Ltds 2005 Equity Incentive Plan (the Equity Incentive Plan) (described in more detail in Note 13 of Notes to Consolidated Financial Statements), the Company adopted the fair value
recognition provisions under SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123). Accordingly, Lazard recognizes in compensation and benefits expense the amortized portion of the fair value of the equity
awards, net of an estimated forfeiture rate, over the service period specified in the award.



Beginning January 1, 2006, Lazard adopted SFAS No. 123R, Share-Based Payments (SFAS 123R). Accordingly, share-based awards that do not require future service are expensed immediately.
Share-based awards that require future service are amortized over the requisite service period. Lazard adopted SFAS 123R under the modified prospective method. Under that method, the provisions of SFAS 123R are applied to share-based awards granted
subsequent to adoption. Share-based awards granted prior to the adoption of SFAS 123R continue to be amortized over the stated service periods of the awards.



As a result of the Company adopting certain provisions consistent with SFAS 123R upon the introduction of its 2005 Equity Incentive Plan while under the
provisions of SFAS 123, there were no significant effects resulting from the adoption of the provisions of SFAS 123R.



Income TaxesThe Companys provision for income taxes is accounted for under the provisions of SFAS No. 109, Accounting
for Income Taxes.



Deferred income taxes
reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



when such differences are expected to reverse. Such temporary differences are reflected in deferred tax assets and liabilities and are included in
other assets and other liabilities, respectively, on the consolidated statements of financial condition.



In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred
tax assets will be realized and, when necessary, valuation allowances are established. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences
become deductible. Management considers the level of historical taxable income, scheduled reversals of deferred taxes, projected future taxable income and tax planning strategies that can be implemented by the Company in making this assessment (see
Note 15 to Notes to Consolidated Financial Statements).



Net Income Allocable to MembersFor periods prior to May 10, 2005, as a result of the Company operating as a limited
liability company, payment for services rendered by the Companys managing directors has been accounted for as distributions from members capital, or in some cases as minority interest, rather than as compensation and benefits expense. As
a result, the Companys operating income and net income allocable to members prior to May 10, 2005 do not reflect most payments for services rendered by its managing directors.



ReclassificationsCertain prior year amounts have been
reclassified to conform to the manner of presentation in the current year.



Recent Accounting PronouncementsIn July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation (FIN) No. 48 Accounting for
Uncertainty in Income Taxesan interpretation of FASB Statement No. 109(FIN 48), which clarifies the criteria that must be met prior to recognition of the financial statement benefit of a tax position taken in a
tax return. FIN 48 provides a benefit recognition model with a two-step approach consisting of a more-likely-than-not recognition criteria, and a measurement attribute that measures the position as the largest amount of tax benefit that
is greater than 50 percent likely of being realized upon ultimate settlement. FIN 48 also requires the recognition of liabilities created by differences between tax positions taken in a tax return and amounts recognized in the financial statements.
FIN 48 is effective as of the beginning of the first annual period beginning after December 15, 2006. We are currently assessing the impact of adopting FIN 48 on the financial condition, results of operations and cash flows
of the Company.



In September 2006, the FASB issued SFAS
No. 157 Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value, and enhances disclosures about fair value measurements. This Statement applies to other
accounting pronouncements that require the use of fair value measurements. SFAS 157 is effective for interim and annual financial statements issued for fiscal years beginning after November 15, 2007. We are currently assessing the impact of adopting
SFAS 157 on the financial condition, results of operations, and cash flows of the Company.



In September 2006, the SEC issued Staff Accounting Bulletin No. 108 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (SAB 108). SAB 108 was issued in order to eliminate the diversity in practice surrounding how public companies quantify financial statement misstatements. SAB 108 requires that
registrants quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in a misstated amount that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108
is effective for the year ended December 31, 2006. The adoption of SAB 108 had no impact on the Companys financial statements.



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



In February 2007, the FASB issued SFAS No. 159 The Fair Value Option for
Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 permits an entity to choose to measure various financial instruments and certain other items at fair value.
It provides entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement requires that a business
entity report unrealized gains and losses, on items for which the fair value option has been elected, in earnings at each subsequent reporting date. SFAS 159 is effective as of the beginning of the first annual period beginning after November 15,
2007. We are currently assessing the impact of adopting SFAS 159 on the financial condition, results of operations, and cash flows of the Company.



4.    FORMATION OF LAM



On January 1, 2003, in connection with the formation of the Companys LAM subsidiary, certain members of the Company (the managing directors of LAM)
who provide services to LAM exchanged their members equity in the Company in the amount of $27,483 for membership interests in LAM of a like amount. As a result, these managing directors ceased being members of the Company and became
exclusively members of LAM. Following the formation of LAM, the Company continues to control, and thereby consolidates, the operations of LAM with the membership interest held by the LAM managing directors included in minority interest
on its consolidated statement of financial condition.



Pursuant
to the formation of LAM, the LAM managing directors also were granted equity units in LAM. In addition, certain other key LAM employees were granted equity units in LAM. The LAM equity units entitle holders to payments only in connection with
selected fundamental transactions affecting the Company or LAM, including a dissolution or sale of all or substantially all of the assets of the Company or LAM, a merger of or sale of all of the interests in LAM whereby the Company ceases to own a
majority of, or have the right to appoint a majority of the board of directors of, LAM, or a non-ordinary course sale of assets by LAM that exceeds $50,000 in value. As a general matter, in connection with a fundamental transaction that triggers the
LAM equity units, the holders of the LAM equity units, as of December 31, 2006, would be entitled in the aggregate to approximately 23% of the net proceeds or imputed valuation of LAM in such a transaction after deductions for payment of creditors
of LAM and the return of LAM capital, with the remainder of approximately 77% being retained by Lazard Group. The LAM equity units are not entitled to share in the operating results of LAM. A separate class of interests in LAM, which we refer to as
LAM profit units, is entitled to the ordinary profit and losses of LAM, all of which is owned by the Company. Accordingly, in the absence of a fundamental transaction that triggers the LAM equity units, all of LAMs net income is
allocable to the Company. The equity units granted to LAM managing directors are a part of the LAM managing directors membership interest in LAM, and, therefore, all transactions related to the equity units are treated as equity transactions
among members. The equity units granted to LAM employees are considered to be compensation for financial accounting purposes. As a fundamental transaction has not yet been considered probable of occurrence, no compensation cost has been recognized
to date. The Company has no current intention to cause or otherwise trigger a fundamental transaction that would give rise to payment obligations to the holders of interests in LAM.



Commencing in 2003 and through May 10, 2005, payments for services rendered by LAM managing directors and other key LAM
employees were accounted for as minority interest in net income on the consolidated statements of income. Commencing with the equity public offering on May 10, 2005, all payments for services rendered by all of LAMs employees and
managing directors are included in compensation and benefits expense on the consolidated statements of income.



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



The board of directors of LAM, a majority of which are appointed by the Company, may, in its
discretion, grant LAM equity interests that include profit rights to managing directors of, and other persons providing services to, LAM, as a portion of their ongoing compensation. If granted, these equity interests will be subject to specified
vesting conditions. No such LAM equity interests have been granted as of December 31, 2006 nor is there any present intention to do so.



|5. | MINORITY INTEREST
|-- | -----------------



Minority interest consists of a number of components including minority interest in LAM and the Companys business in Italy which was owned 40% by
Banca Intesa S.p.A. (Intesa) through May 15, 2006 (see Note 6 of Notes to Consolidated Financial Statements). In addition, the Company consolidates various LAM-related general partnership interests that it controls but does not wholly
own. As a result of consolidating these companies, the Company recognizes the portion of income not associated with the Companys ownership as minority interest.



Also, as described in Note 4 of Notes to Consolidated Financial Statements, payments for services rendered by managing
directors of LAM (and employee members of LAM) had, prior to May 10, 2005, been accounted for as minority interest in net income and, since that date, such payments have been included in compensation and benefits expense on the
consolidated statements of income.



The tables below summarize
our minority interest in net income for the years ended December 31, 2006, 2005 and 2004 and minority interest as of December 31, 2006 and 2005 in Lazards consolidated financial statements:



|                           |  |                                                         |  |          |  |         
|-------------------------- |  | ------------------------------------------------------- |  | -------- |  | --------
|                           |  | Minority Interest In Net Income Year Ended December 31,
|                           |  | 2006                                                    |  | 2005     |  | 2004    
|LAM General Partnerships   |  | $5,114                                                  |  | $  2,784 |  | $    891
|LAM Members                |  |                                                         |  | 9,447    |  | 82,282  
|Italian Strategic Alliance |  |                                                         |  | 6,460    |  | 3,741   
|Other                      |  | 10                                                      |  | 12       |  | 639     
|                           |  |                                                         |  |          |  |         
|Total                      |  | $5,124                                                  |  | $18,703  |  | $87,553 
|                           |  |                                                         |  |          |  |         



|                           |  |                                      |  |           |  | 
|-------------------------- |  | ------------------------------------ |  | --------- |  | 
|                           |  |                                     
|                           |  | Minority Interest As Of December 31, |  |          
|                           |  | 2006                                 |  | 2005      |  | 
|LAM General Partnerships   |  | $47,152                              |  | $  43,077 |  | 
|LAM Members                |  | 7,446                                |  | 15,169    |  | 
|Italian Strategic Alliance |  |                                      |  | 53,459    |  | 
|Other                      |  | 19                                   |  | 24        |  | 
|                           |  |                                      |  |           |  | 
|Total                      |  | $54,617                              |  | $111,729  |  | 
|                           |  |                                      |  |           |  | 



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



|6. | TERMINATION OF STRATEGIC ALLIANCE IN ITALY
|-- | ------------------------------------------



Pursuant to a strategic alliance in effect from January 2003 until its termination, as described below, on May 15, 2006, Lazard Group and Intesa
conducted selected Italian investment banking business solely through Lazard & Co. S.r.l. (Lazard Italy), an indirect subsidiary of Lazard Group. As part of the strategic alliance, Intesa:



| |  |  | purchased in March 2003 from Lazard Funding Limited LLC (Lazard Funding), a wholly-owned subsidiary of Lazard Group, a $150,000 subordinated convertible
promissory note (the $150,000 Subordinated Convertible Note) issued by Lazard Funding, which was convertible into a contractual right that entitled the holder to receive payments that would be equivalent to the distributions that a
holder of a three percent equity goodwill interest in Lazard Group would have been entitled to receive (i.e., distributions of the net proceeds of selected fundamental corporate events affecting Lazard Group, such as a sale of all or substantially
all of the assets of Lazard Group or a disposition of a line of business);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | invested in June 2003 in Lazard Italy an amount of Euros then equal to $100,000 in exchange for 40% of the capital stock in Lazard Italy; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | purchased in June 2003 a $50,000 subordinated promissory note issued by Lazard Italy (the $50,000 Subordinated Promissory Note).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



The $150,000 Subordinated Convertible Note,
which was guaranteed by Lazard Group (the Guarantee), had a scheduled maturity date in March 2018 and had interest payable annually at a variable interest rate of not less than 3%, and not more than 3.25%, per annum. The $50,000
Subordinated Promissory Note had a scheduled maturity date in the year 2078 (subject to extension), with interest payable annually at the rate of 3.0% per annum.



The proceeds from the sale of capital stock in Lazard Italy exceeded the underlying book value of the net assets purchased
by Intesa by approximately $56,000. This amount had been deferred and included in other liabilities on the consolidated statement of financial condition as of December 31, 2005 as the Company could have been required to repurchase such
amount of capital stock held by Intesa in the event of a termination of the strategic alliance.



On May 15, 2006, Lazard Group completed the termination of its strategic alliance with Intesa, in accordance with the provisions of the Termination
Agreement, dated as of March 31, 2006, by and among Intesa, Lazard Group and Lazard Italy. In connection with the termination, the following adjustments were made to the terms of Intesas investment in Lazard Italy and Lazard Funding:



| |  |  | The $150,000 Subordinated Convertible Note, was amended and restated, among other things, to provide for its convertibility into shares of Class A common stock at
an effective conversion price of $57 per share. The amended $150,000 subordinated convertible note (the Amended $150,000 Subordinated Convertible Note) matures on September 30, 2016 and has a fixed interest rate of 3.25% per annum.
One-third in principal amount will generally be convertible after July 1, 2008, an additional one-third after July 1, 2009 and the last one-third after July 1, 2010, and no principal amount will be convertible after June 30, 2011. Lazard Ltd will
enter into a Registration Rights Agreement with Intesa providing for certain customary registration rights with respect to the shares of Class A common stock Intesa receives upon conversion. The Guaranty by Lazard Group was also amended and restated
to reflect the terms of the Amended $150,000 Subordinated Convertible Note. The covenants and events of default in the Amended $150,000 Subordinated Convertible Note were not materially changed.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Intesas 40% equity interest in Lazard Italy and the $50,000 Subordinated Promissory Note of Lazard Italy held by Intesa were acquired by Lazard Group in
exchange for the issuance to Intesa of a $96,000 senior promissory note of Lazard Group due February 28, 2008 (the $96,000 Senior Promissory Note)
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



| | and a $50,000 subordinated promissory note of Lazard Group due February 28, 2008 (the $50,000 Subordinated Promissory Note), respectively. The
$96,000 Senior Promissory Note and the $50,000 Subordinated Promissory Note have fixed interest rates of 4.25% and 4.6% per annum, respectively, and each Note contains customary events of default for indebtedness of its type. On May 15, 2006, Intesa
sold and assigned all its rights and interests relating to the $96,000 Senior Promissory Note and the $50,000 Subordinated Promissory Note to a commercial bank.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lazard Group paid Intesa an amount equal to a 3% annualized return on Intesas ownership interest from April 1, 2006 through the termination closing and the
accrued and unpaid interest on the $50,000 Subordinated Promissory Note as of the termination closing.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a result of the termination of the strategic alliance with Intesa and Lazard Groups repurchase of Intesas ownership interest, the Company
realized a gain of $13,695, excluding transaction and other costs, which is included in revenueother on the consolidated statement of income for the year ended December 31, 2006 and, after transaction and other costs, resulted in
an increase in operating income of $5,274.



|7. | LAZARD ALTERNATIVE INVESTMENTS
|-- | ------------------------------



Lazard Group and LFCM Holdings entered into a business alliance agreement that granted Lazard Group the option to acquire the North American and European
fund management activities of Lazard Alternative Investments Holdings LLC (LAI), the subsidiary of LFCM Holdings that owns and operates LFCM Holdings merchant banking activities. This option is exercisable at any time prior to the
ninth anniversary of the consummation of the equity public offering, for a total price of $10,000. The option may be exercised by Lazard Group in two parts, consisting of an $8,000 option to purchase the North American merchant banking activities
and a $2,000 option to purchase the European merchant banking activities. LAIs merchant banking activities consist of the merchant banking management and general partner entities, together with Lazard Groups direct investments in related
funds that were transferred to LFCM Holdings pursuant to or in anticipation of the separation.



The business alliance agreement provides Lazard Group with certain governance rights with respect to LAI and provides for support by LFCM Holdings of the business of LAI. With respect to historical investments and
funds transferred to LFCM Holdings as part of the separation, profits realized prior to the option exercise are for the account of LFCM Holdings, whereas profits realized after the exercise of the option are for the account of Lazard Group. The
master separation and business alliance agreements provide for Lazard Group (i) to invest capital in future funds to be managed by LFCM Holdings subsidiaries and (ii) to receive incentive fee payments from such funds, as well as profits
related to such investments, if any, irrespective of whether it exercises its purchase option.



In February 2005, Lazard Group formed a private equity fund, Corporate Partners II Limited, with $1,000,000 of institutional capital commitments and a $100,000 capital commitment from Lazard Group, the principal
portion of which may require funding at any time through 2010. As of December 31, 2006, Lazard Group contributed $14,082 of its capital commitment, which is recorded as a long-term investment on the consolidated statement of financial
condition. Pursuant to the master separation and business alliance agreements entered into between Lazard Group and LFCM Holdings, this fund is managed by a subsidiary of LFCM Holdings, and Lazard Group retained a capital commitment to the fund and
is entitled to receive the carried interest distributions made by the fund (other than the carried interest distributions made to investment professionals who manage the fund).



In July 2005, LFCM Holdings formed a private equity fund, Lazard Senior Housing Partners LP, which closed
during 2006 with capital commitments of approximately $201,000 from institutional investors, including



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



$10,000 from the Company, the principal portion of which will require funding at any time through 2008. In connection with such capital commitment, Lazard
funded $2,197 as of December 31, 2006, which is recorded as a long-term investment on the consolidated statement of financial condition.



Pursuant to the business alliance agreement, Lazard Group has a limited partner capital commitment to Lazard Technology Partners III, a planned investment
fund to be managed and controlled by LFCM Holdings, which commitment is contingent upon the formation of such investment fund. As of December 31, 2006 this capital commitment was 10% of the total fund capital commitments, with a minimum and maximum
commitment by Lazard Group of $15,000 and $20,000, respectively. As of December 31, 2006, this investment fund has not been formed and Lazard Group has not made any payment toward such contingent capital commitment.



8.    DERIVATIVE INSTRUMENTS



The Company enters into forward foreign currency exchange rate
contracts, interest rate swaps, interest rate futures and other derivative contracts primarily to hedge exposures to interest rate and currency exchange rate fluctuations. These contracts are recorded at their fair values and are included in
other assets and other liabilities on the consolidated statements of financial condition. The related gains and losses are included in interest income and interest expense, respectively, or
otherrevenue, depending on the nature of the underlying item, on the consolidated statements of income.



The table below presents the fair values of the Companys derivative instruments as of December 31, 2006 and 2005:



|                             |  |              |       |      |   |      
|---------------------------- |  | ------------ | ----- | ---- | - | -----
|                             |  | December 31,
|                             |  | 2006         |       | 2005
|Assets                       |  |              |       |      |   |      
|Interest rate contracts      |  | $            | 2,750 |      | $ | 186  
|Exchange rate contracts      |  |              | 4,493 |      |   |      
|                             |  |              |       |      |   |      
|Total derivative assets      |  | $            | 7,243 |      | $ | 186  
|                             |  |              |       |      |   |      
|Liabilities                  |  |              |       |      |   |      
|Interest rate contracts      |  | $            | 922   |      | $ | 3,028
|Exchange rate contracts      |  |              | 706   |      |   |      
|                             |  |              |       |      |   |      
|Total derivative liabilities |  | $            | 1,628 |      | $ | 3,028
|                             |  |              |       |      |   |      



|9. | OTHER ASSETS AND OTHER LIABILITIES
|-- | ----------------------------------



The following table sets forth the Companys other assets, by type, as of December 31, 2006 and 2005:



|                                                                                          |  |              |         |      |   |       
|----------------------------------------------------------------------------------------- |  | ------------ | ------- | ---- | - | ------
|                                                                                          |  | December 31,
|                                                                                          |  | 2006         |         | 2005
|Current and deferred income taxes (net of valuation allowance) receivable and other taxes |  | $            | 39,689  |      | $ | 27,996
|Accruals and prepayments                                                                  |  |              | 38,740  |      |   | 32,808
|Deferred debt issuance costs                                                              |  |              | 8,078   |      |   | 9,451 
|Other                                                                                     |  |              | 31,001  |      |   | 23,723
|                                                                                          |  |              |         |      |   |       
|Total                                                                                     |  | $            | 117,508 |      | $ | 93,978
|                                                                                          |  |              |         |      |   |       



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



The following table sets forth the Companys other liabilities, by type, as of December 31, 2006
and 2005:



|                                                                                                      |  |              |         |      |   |        
|----------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ---- | - | -------
|                                                                                                      |  | December 31,
|                                                                                                      |  | 2006         |         | 2005
|Accrued expenses                                                                                      |  | $            | 137,023 |      | $ | 110,747
|Current and deferred income taxes and other taxes                                                     |  |              | 84,439  |      |   | 74,174 
|Employee benefit-related liabilities                                                                  |  |              | 72,373  |      |   | 129,314
|Unclaimed funds at LFB                                                                                |  |              | 51,204  |      |   | 46,538 
|Abandoned leased space                                                                                |  |              | 31,910  |      |   | 37,490 
|Other (including, in 2005, deferred credit of $55,735 relating to the strategic alliance with Intesa) |  |              | 51,362  |      |   | 112,664
|                                                                                                      |  |              |         |      |   |        
|Total                                                                                                 |  | $            | 428,311 |      | $ | 510,927
|                                                                                                      |  |              |         |      |   |        



|10. | SENIOR AND SUBORDINATED DEBT
|--- | ----------------------------



Senior DebtSenior debt is comprised of the following as of December 31, 2006 and 2005:



|                                                        |  |                  |         |               |           |     |                      |         |      |                                |   |           |  |   |          
|------------------------------------------------------- |  | ---------------- | ------- | ------------- | --------- | --- | -------------------- | ------- | ---- | ------------------------------ | - | --------- |  | - | ---------
|                                                        |  | Principal Amount |         | Maturity Date |           |     | Annual Interest Rate |         |      | Outstanding As Of December 31,
|                                                        |  |                  |         |               | 2006      |     | 2005                
|Lazard Group Senior Notes(a)                            |  | $                | 550,000 |               | 2015      |     |                      | 7.125   | %    |                                | $ | 550,000   |  | $ | 550,000  
|Lazard Group Senior Note(b)                             |  |                  | 96,000  |               | 2008      |     |                      | 4.25    | %    |                                |   | 96,000    |  |   |         
|Lazard Group Notes issued in connectionwith the ESUs(a) |  |                  | 437,500 |               | 2008-2035 | (c) |                      | 6.12    | %    |                                |   | 437,500   |  |   | 437,500  
|Revolving Credit Agreement(a)                           |  |                  | 150,000 |               | 2010      |     |                      | 5.37    | %(d) |                                |   |          |  |   | 30,000   
|Other                                                   |  |                  |         |               | 2006-2008 |     |                      | Various |      |                                |   | 3,557     |  |   | 4,582    
|                                                        |  |                  |         |               |           |     |                      |         |      |                                |   |           |  |   |          
|Total                                                   |  |                  |         |               |           |     |                      |         |      |                                | $ | 1,087,057 |  | $ | 1,022,082
|                                                        |  |                  |         |               |           |     |                      |         |      |                                |   |           |  |   |          

---

|(a) | See Note 2 of Notes to Consolidated Financial Statements for additional information.
|--- | ------------------------------------------------------------------------------------

|(b) | See Note 6 of Notes to Consolidated Financial Statements.
|--- | ---------------------------------------------------------

|(c) | Maturity date can vary based on a remarketing of the Lazard Group Notes, and will mature (i) in the event of a successful remarketing, on any date no earlier than May 15, 2010 and
no later than May 15, 2035, as we may elect, (ii) in the event of a failed remarketing, on May 15, 2008 and (iii) otherwise on May 15, 2035.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Interest rates vary and are based on either a Federal Funds rate or a Eurodollar rate, in each case plus an applicable margin. As of December 31, 2005, the annual interest
rate, including the applicable margin, was 5.37%.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Subordinated DebtSubordinated debt at December 31, 2006 and 2005 amounted to $200,000 and consists of amounts associated with the strategic alliance transaction in Italy and the termination thereof (See Note 6 of Notes
to Consolidated Financial Statements).



Debt maturities
relating to senior and subordinated borrowings outstanding at December 31, 2006 for each of the five years in the period ending December 31, 2011 and thereafter are set forth in the table below. While the Company currently expects a successful
remarketing of the Lazard Group Notes, for purposes of this table it was assumed that the $437,500 aggregate principal amount of Lazard Group Notes issued in connection with the issuance of the ESUs mature in 2008, the earliest possible maturity. In
addition, it was assumed that the $150,000 Subordinated Convertible Note issued in connection with the termination of our strategic alliance with Intesa



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



remains outstanding in connection with its stated terms (see Note 6 of Notes to Consolidated Financial Statements).



|                         |  |             |           |                  |   |         |  |   |          
|------------------------ |  | ----------- | --------- | ---------------- | - | ------- |  | - | ---------
|Year Ending December 31, |  | Senior Debt |           | SubordinatedDebt |   | Total  
|2007                     |  | $           | 3,556     |                  | $ |        |  | $ | 3,556    
|2008                     |  |             | 533,501   |                  |   | 50,000  |  |   | 583,501  
|2009-2011                |  |             |          |                  |   |        |  |   |         
|Thereafter               |  |             | 550,000   |                  |   | 150,000 |  |   | 700,000  
|                         |  |             |           |                  |   |         |  |   |          
|Total                    |  | $           | 1,087,057 |                  | $ | 200,000 |  | $ | 1,287,057
|                         |  |             |           |                  |   |         |  |   |          



The debt maturities
reflected above exclude any recognition of the May, 2008 settlement of the purchase contracts component of the ESUs which require the holders to purchase an aggregate of $437,500 of Lazard Ltds Class A common stock. The holders
obligation is collateralized by the entire $437,500 principal amount of Lazard Group Notes outstanding.



As of December 31, 2006, the Company is in compliance with all obligations under its various senior and subordinated borrowing arrangements.



As of December 31, 2006, the Company had $233,551 in unused lines of
credit available to it, including $54,209 of unused lines of credit available to LFB.



11.    MANDATORILY REDEEMABLE PREFERRED STOCK



In 2001, the Company issued mandatorily redeemable preferred stock (Class C Preferred Interests) for an aggregate amount of $100,000. The Class C Preferred Interests were subject to mandatory redemption by
the Company in March 2011 and, prior to such date, were redeemable in whole or in part, at the Companys option. The Class C Preferred Interests were entitled to receive distributions out of the profits of the Company at a rate of 8% per annum,
which distributions were required to be paid prior to any distributions of profits to holders of any other existing class of interests in the Company. The Class C Preferred Interests were redeemed in May 2005 as part of the recapitalization
transactions. Interest on mandatorily redeemable preferred stock for the years ended December 31, 2005 and 2004 of $(8,000) and $8,000, respectively, is included in interest expense on the consolidated statements of income. The credit in
2005 represents accrued dividends which were cancelled in connection with the redemption of membership interests of historical partners.



|12. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------



LeasesThe Company leases office space under non-cancelable lease agreements, which expire on various dates through 2022.



Occupancy lease agreements, in addition to base rentals, generally are
subject to escalation provisions based on certain costs incurred by the landlord. Included in premises and occupancy costs and, with respect to the separated businesses, loss from discontinued operations on the consolidated
statements of income for the years ended December 31, 2006, 2005 and 2004 is $53,222, $51,948 and $54,689, respectively, of aggregate rental expense relating to operating leases. The Company subleases office space under agreements, which expire on
various dates through 2022. Sublease income from such agreements was $10,480, $4,505 and $3,201 for the years ended December 31, 2006, 2005 and 2004, respectively.



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



Capital lease obligations recorded under sale/leaseback transactions are payable through 2017 at a
weighted average interest rate of approximately 6.1%. Assets recorded under capital leases have a net carrying value of approximately $29,095 and $27,553 at December 31, 2006 and 2005, respectively. The carrying value of capital lease obligations
approximates fair value. During 2005, the Companys principal capital lease in Paris matured and ownership of the assets reverted to the Company.



At December 31, 2006, minimum rental commitments under non-cancelable leases relating to the Companys continuing operations, net of sublease income,
are approximately as follows:



|                                           |         |                            |           |         
|------------------------------------------ | ------- | -------------------------- | --------- | --------
|Year Ending December 31                    |         | Minimum Rental Commitments
|                                           | Capital |                            | Operating
|2007                                       |         | $2,815                     |           | $63,488 
|2008                                       |         | 2,802                      |           | 55,604  
|2009                                       |         | 2,793                      |           | 47,559  
|2010                                       |         | 2,786                      |           | 44,902  
|2011                                       |         | 2,783                      |           | 42,694  
|Thereafter                                 |         | 21,924                     |           | 233,936 
|                                           |         |                            |           |         
|Total minimum lease payments               |         | 35,903                     |           | 488,183 
|Less amount representing interest          |         | 10,458                     |           |         
|                                           |         |                            |           |         
|Present value of capital lease commitments |         | $25,445                    |           |         
|                                           |         |                            |           |         
|Sublease proceeds                          |         |                            |           | 74,203  
|                                           |         |                            |           |         
|Net lease payments                         |         |                            |           | $413,980
|                                           |         |                            |           |         



During the year ended
December 31, 2004, the Company recorded approximately $6,000 within loss from discontinued operations on the consolidated statement of income due to the reduction in expected sublease income as a result of rental market weakness and
increases in costs relating to abandoned space.



During the
year ended December 31, 2005, the Company recorded impairment costs of approximately $7,700, net of an indemnity from LFCM Holdings (as described below) relating to other abandoned leased facilities in the U.K, of which $6,300 and $1,400 is included
in loss from discontinued operations and premises and occupancy costs, respectively, on the consolidated statement of income for the year ended December 31, 2005. These costs represent write-offs of leasehold improvements as
well as a provision for lease obligations. In accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities,the provision recorded for lease obligations on the cease-use date was determined
based on the fair value of the liability for costs that will continue to be incurred for the remaining term of the lease without economic benefit to the Company, based on the remaining lease rentals, reduced by estimated sublease rentals.



With respect to the abandoned facilities, at December 31,
2006 and 2005 the Company has recorded liabilities of $31,910 and $37,490, respectively, exclusive of the indemnification described below, which are included in other liabilities on the consolidated statements of financial condition.
Payments toward the liabilities continue through the remaining term of the leases. Such liabilities are based on the discounted future commitment, net of expected sublease income.



Under the master separation agreement and a related lease indemnity agreement, dated as of May 10, 2005, LFCM Holdings is
obligated to indemnify Lazard Group for certain liabilities relating to abandoned leased space in the U.K. During the fourth quarter of 2005, Lazard Group entered into an agreement with LFCM Holdings



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



which provided for LFCM Holdings to pay to Lazard Group $25,000 in full satisfaction of its indemnification obligations with respect to the abandoned leased
space. After payments received in 2006 and 2005 of $7,798 and $6,209, respectively, the net present value of the balance due at December 31, 2006 and 2005 of $9,989 and $17,031, respectively, is included in receivables - related parties
on the consolidated statements of financial condition (see Note 16 of Notes to Consolidated Financial Statements). The balance is due based on a schedule of periodic payments through May 10, 2010.



Lending CommitmentsIn the normal course of business, LFB
enters into commitments to extend credit, predominately at variable interest rates. The commitments have an expiration date and, once drawn upon, may require the counterparty to post collateral depending on creditworthiness. Total outstanding
commitments at December 31, 2006 were $9,777. This amount may not represent future cash requirements as commitments may expire without being drawn upon.



Other CommitmentsAt December 31, 2006, the Company had commitments for capital contributions of $3,656 to merchant banking
Company-sponsored investment funds, which are contingent upon certain events and have no definitive final payment date (including $3,008 in connection with the Companys compensation planssee Note 14 of Notes to Consolidated Financial
Statements). In addition, the Company had agreements (which are cancelable under certain circumstances) relating to future minimum payments to certain senior advisors, managing directors and employees. These future minimum payments amount to
$46,980, $6,010, $1,818, $731, $732 and $2,503 for the years ending December 31, 2007, 2008, 2009, 2010, 2011 and thereafter, respectively.



See Note 7 and Note 14 of Notes to Consolidated Financial Statements for information regarding capital commitments in connection with merchant banking
funds managed by LAI and obligations to fund our pension plans in the U.K., respectively.



In the normal course of business, LFB provides indemnifications to third parties to protect them in the event of non-performance by its clients. At December 31, 2006, LFB had $17,304 of such indemnifications and held
$12,254 of collateral/counter-guarantees to secure these commitments. The Company believes the likelihood of loss with respect to these indemnities is remote. Accordingly, no liability is recorded in the consolidated statement of financial
condition.



The Company has various other contractual
commitments arising in the ordinary course of business. In the opinion of management, the consummation of such commitments will not have a material adverse effect on the Companys consolidated financial position or results of operations.



LegalThe Companys businesses,
as well as the financial services industry generally, are subject to extensive regulation throughout the world. The Company is involved in a number of judicial, regulatory and arbitration proceedings and inquiries concerning matters arising in
connection with the conduct of our businesses. The Company reviews such matters on a case by case basis and establishes its reserves in accordance with SFAS No. 5, Accounting For Contingencies. Management believes, based on
currently available information, that the results of such matters, in the aggregate, will not have a material adverse effect on its financial condition but might be material to its operating results or cash flows for any particular period, depending
upon the operating results for such period.



In 2004, we
received a request for information from the NASD as part of an industry investigation relating to gifts and gratuities, which was focused primarily on the Companys former Capital Markets business, which business was transferred to LFCM
Holdings as a part of the separation. In addition, the Company received



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



requests for information from the NASD, SEC and the U.S. Attorneys Office for the District of Massachusetts seeking information concerning gifts and
entertainment involving an unaffiliated mutual fund company, which are also focused on that same business. In the course of an internal review of these matters, there were resignations or discipline of certain individuals associated with
Lazards former Capital Markets business. These investigations are continuing and the Company cannot predict their potential outcomes. Accordingly, the Company has not recorded an accrual for losses related to any such judicial, regulatory or
arbitration proceedings.



Lazard Ltd and Goldman
Sachs & Co., the lead underwriter of Lazard Ltds equity public offering of its common stock, as well as several members of Lazard Ltds management and board of directors, have been named as defendants in several putative class
action lawsuits and putative stockholder derivative lawsuits filed in the U.S. District Court for the Southern District of New York and the Supreme Court of the State of New York. The putative class action lawsuits and putative derivative lawsuits
allege, respectively, various violations of the federal securities laws and breaches by Lazard Ltd directors of their fiduciary duties, all in connection with matters related to the equity public offering, and seek, among other things, compensatory,
rescissory and punitive damages. On February 7, 2007, the U.S. District Court for the Southern District of New York issued a Decision and Order dismissing plaintiffs claims and allowing plaintiffs twenty days to file an amended complaint
repleading any of the dismissed claims. Plaintiffs allowed the twenty-day period to pass without filing an amended complaint. Accordingly, the defendants have prevailed in the putative class action in the U.S. District Court. In the putative class
action lawsuit brought in the Supreme Court of the State of New York, the defendants have filed a motion to dismiss the complaint or, in the alternative, to stay the action pending final resolution of the putative class action lawsuit filed in the
U.S. District Court. We believe that all of these suits are meritless and intend to continue defending them vigorously.



|13. | MEMBERS EQUITY (DEFICIENCY)
|--- | ----------------------------



Pursuant to Lazard Groups operating agreement as in effect prior to the amended and restated Operating Agreement, Lazard Group allocates and
distributes to its members a substantial portion of its distributable profits in three monthly installments, as soon as practicable after the end of each fiscal year. Such installment distributions usually begin in February. In addition, other
periodic distributions to members included, as applicable, capital withdrawals, fixed return on members equity and income tax advances made on behalf of members.



In connection with the consummation of the equity public offering, during the period January 1 through May 9, 2005, Lazard
Groups members equity was reduced by approximately $145,000 for the repurchase of working member interests prior to consummation of the equity public offering.



At December 31, 2006, approximately 47.9% and 52.1% of the outstanding Lazard Group common membership interests are held by
subsidiaries of Lazard Ltd and by LAZ-MD Holdings, respectively. Pursuant to provisions of its amended and restated Operating Agreement, Lazard Group distributions in respect of common membership interests are allocated to the holders of such
interests on a pro rata basis. Such distributions represent amounts necessary to fund (i) any dividends Lazard Ltd may declare on its Class A common stock and (ii) tax distributions in respect of income taxes that Lazard Ltds subsidiaries and
the members of LAZ-MD Holdings incur as a result of holding Lazard Group common membership interests. During the years ended December 31, 2006 and 2005, Lazard Group distributed $22,357 and $8,821, respectively, to LAZ-MD Holdings and $13,480 and
$5,325, respectively, to the subsidiaries of Lazard Ltd, which latter amounts were used by Lazard Ltd to pay dividends to third party stockholders of its Class A common stock. In addition, during the years ended December 31, 2006 and 2005,
Lazard Group made tax distributions of $43,253 and $18,164, respectively, including $26,968 and $11,327, respectively, paid to LAZ-MD Holdings and $16,285 and $6,837, respectively, paid to subsidiaries of Lazard Ltd.





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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



A description of the Equity Incentive Plan, and activity with respect thereto during the years ended
December 31, 2006 and 2005 is presented below.



Shares
Available Under the Equity Incentive Plan



The Equity
Incentive Plan authorizes the issuance of up to 25,000,000 shares of Lazard Ltd Class A common stock pursuant to the grant or exercise of stock options, stock appreciation rights, restricted stock, stock units and other equity-based awards.
Each stock unit granted under the Equity Incentive Plan represents a contingent right to receive one share of Lazard Ltd Class A common stock, at no cost to the recipient. The fair value of such stock unit awards is determined based on the closing
market price of Lazard Ltds Class A common stock at the date of grant.



Restricted Stock Unit Grants (RSUs)



RSUs require future service as a condition for the delivery of the underlying shares of Lazard Ltd Class A common stock and convert into Lazard Ltd Class A common stock on a one-for-one basis after the stipulated
vesting periods. The fair value of the RSUs, net of an estimated forfeiture rate, is amortized over the vesting periods or requisite service periods as required under SFAS 123 or SFAS 123R. Expense charged to Lazard Group relating to RSUs is charged
to compensation and benefits within the consolidated statements of income, and amounted to $22,995 and $1,024 for the years ended December 31, 2006 and 2005, respectively. RSUs issued subsequent to December 31, 2005 generally
include a dividend participation right that provides that during vesting periods each RSU is attributed additional RSUs (or fractions thereof) equivalent to any ordinary quarterly dividends paid on Lazard Ltd Class A common stock during such
period. During the year ended December 31, 2006, such dividend participation rights required the issuance of 22,467 RSUs.



Deferred Stock Unit Grants (DSUs)



Non-executive members of the Board of Directors of Lazard Group (who are also the same Non-Executive Directors of Lazard Ltd) receive approximately 50% of
their annual compensation for service on the Board of Directors and its committees in the form of DSUs, which are convertible into Lazard Ltd Class A common stock at the time of cessation of service to the Board. Their remaining compensation is paid
in cash. The DSUs include a cash dividend participation right equivalent to any ordinary quarterly dividends paid on Lazard Ltd Class A common stock. DSU awards are expensed at their fair value on their date of grant, which totaled $275 and $127
during the years ended December 31, 2006 and 2005, respectively.



On May 9, 2006, the Board of Directors adopted the Directors Fee Deferral Unit Plan, which allows the Companys Non-Executive Directors to elect to receive additional DSUs pursuant to the Equity Incentive Plan in lieu of some or
all of their cash fees. The number of DSUs that shall be granted to a Non-Executive Director pursuant to this election shall equal the value of cash fees that the applicable Non-Executive Director has elected to forego pursuant to such election,
divided by the market value of a share of Lazard Ltd Class A common stock on the date on which the foregone cash fees would otherwise have been paid. As of December 31, 2006, 1,070 DSUs were granted pursuant to the Directors Fee Deferral Unit
Plan.



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



The following is a summary of activity relating to RSUs and DSUs during the years ended December 31,
2005 and 2006:



|                                                                   |  |           |   |  |                                        |       |  |       |        |   |                                        |   |      
|------------------------------------------------------------------ |  | --------- | - |  | -------------------------------------- | ----- |  | ----- | ------ | - | -------------------------------------- | - | -----
|                                                                   |  | RSUs      |   |  | DSUs                                  
|                                                                   |  | Units     |   |  | Grant Date Weighted Average Fair Value |       |  | Units |        |   | Grant Date Weighted Average Fair Value
|                                                                   |  |           |   | 
|Balance, January 1, 2005                                           |  |          |   |  |                                        |      |  |       |       |   |                                        |   |     
|Granted                                                            |  | 1,045,733 |   |  | $                                      | 23.87 |  |       | 9,968  |   |                                        | $ | 25.33
|Forfeited                                                          |  | (12,000   | ) |  | $                                      | 23.72 |  |       |       |   |                                        |   |     
|Converted                                                          |  |          |   |  |                                        |      |  |       |       |   |                                        |   |     
|                                                                   |  |           |   |  |                                        |       |  |       |        |   |                                        |   |      
|                                                                   |  |           |   | 
|Balance, December 31, 2005                                         |  | 1,033,733 |   |  | $                                      | 23.87 |  |       | 9,968  |   |                                        | $ | 25.33
|Granted (including 22,467 RSUs relating to dividend participation) |  | 3,133,712 |   |  | $                                      | 34.96 |  |       | 13,390 |   |                                        | $ | 41.02
|Forfeited                                                          |  | (158,063  | ) |  | $                                      | 34.04 |  |       |       |   |                                        |   |     
|Converted                                                          |  |          |   |  |                                        |      |  |       | (3,668 | ) |                                        | $ | 26.89
|                                                                   |  |           |   |  |                                        |       |  |       |        |   |                                        |   |      
|Balance, December 31, 2006                                         |  | 4,009,382 |   |  | $                                      | 32.13 |  |       | 19,690 |   |                                        | $ | 35.71
|                                                                   |  |           |   |  |                                        |       |  |       |        |   |                                        |   |      



As of December 31,
2006, unrecognized RSU compensation expense, adjusted for estimated forfeitures, was approximately $79,066, with such unrecognized compensation expense expected to be recognized over a weighted average period of approximately 3.3 years. The ultimate
amount of such expense is dependent upon the actual number of RSUs that will vest. The Company periodically assesses the forfeiture rates used for such estimates. A change in estimated forfeiture rates would cause the aggregate amount of
compensation expense recognized in future periods to differ from the estimated unrecognized compensation expense described herein.



In January, 2007, the Company granted 4,958,785 RSUs to eligible employees that vest at various dates during the period ending March, 2011, and had a
weighted average fair value on the date of grant of $50.08 per RSU. The compensation expense with respect to these grants, net of forfeitures, will be recognized over a weighted average period of 3.4 years.



Share Repurchase Program



On February 7, 2006, the Board of Directors of Lazard Ltd authorized the
repurchase of up to $100,000 in aggregate cost of Lazard Ltds Class A common stock. The Companys intention is that the share repurchase program will be used primarily to offset shares to be issued under the Equity Incentive Plan.
Purchases may be made in the open market or through privately negotiated transactions in 2006 and 2007. During the year ended December 31, 2006, Lazard Group purchased 115,000 shares of Lazard Ltd Class A common stock in the open market at an
average price of $36.34 per share, which was recorded, at cost, as a reduction of members equity within the consolidated statement of financial condition as of December 31, 2006.



|14. | EMPLOYEE BENEFIT PLANS
|--- | ----------------------



The Company, through its subsidiaries, provides retirement and other post-employment benefits to certain of its employees through defined contribution and
defined benefit pension plans and other post-retirement benefit plans. The Company has the right to amend or terminate its benefit plans at any time subject to the terms of such plans. Expenses (benefits) related to the Companys employee
benefit plans are included in compensation and benefits expense and, with respect to the separated businesses, loss from discontinued operations on the consolidated statements of income. The Company uses December 31 as the
measurement date for its employee benefit plans.



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Post-Retirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS 158), which the Company adopted as of December 31, 2006. In accordance with SFAS 158, the Company
recognized, in its consolidated statement of financial condition, the funded status of its defined benefit pension and other post-retirement benefit plans, measured as the difference between the fair value of the plan assets and the corresponding
benefit obligations. Additionally, pursuant to SFAS 158, the Company is required to recognize changes in the funded status of its defined benefit pension plans and other post-retirement benefit plans in accumulated other comprehensive income
(loss), net of tax, in its consolidated statement of financial condition.



The following table summarizes the effect of changes in the additional minimum pension liabilities (AML) as of December 31, 2006 prior to the adoption of SFAS 158, as well as the impact of the initial
adoption of SFAS 158 on the Companys consolidated statement of financial position as of December 31, 2006:



|                                                                     |  |                                                      |   |  |                |   |  |                     |   |  |                                                    |  
|-------------------------------------------------------------------- |  | ---------------------------------------------------- | - |  | -------------- | - |  | ------------------- | - |  | -------------------------------------------------- | -
|                                                                     |  | December 31, 2006Prior To AMLand SFAS 158Adjustments |   |  | AMLAdjustments |   |  | SFAS 158Adjustments |   |  | December 31, 2006After AML andSFAS 158 Adjustments |  
|Prepaid pension asset (included in other assets)                   |  | $16,695                                              |   |  |                |   |  | $(8,663             | ) |  | $8,032                                             |  
|Pension liabilities (included in other liabilities)                |  | (29,276                                              | ) |  | $14,518        |   |  | 8,663               |   |  | (6,095                                             | )
|Post-retirement liabilities (included in other liabilities)        |  | (12,057                                              | ) |  |                |   |  | 1,754               |   |  | (10,303                                            | )
|Accumulated other comprehensive (income) loss, excluding tax of $835 |  | 71,601                                               |   |  | (14,518        | ) |  | (1,754              | ) |  | 55,329                                             |  



The Companys
pension and post-retirement benefits plans are described below.



LFNY Defined Benefit Pension Plans and Post-Retirement Benefit PlanLFNY has two non-contributory defined benefit pension plansthe Employees Pension Plan (EPP), which provides benefits to
participants based on certain averages of compensation, as defined, and the Employees Pension Plan Supplement (EPPS), which provides benefits to certain employees whose compensation exceeds a defined threshold. It is LFNYs
policy to fund EPP to meet the minimum funding standard as prescribed by the Employee Retirement Income Security Act of 1974 (ERISA). EPPS is a non-qualified supplemental plan that was unfunded at December 31, 2006. LFNY utilizes the
projected unit credit actuarial method for financial reporting purposes.



Effective as of January 31, 2005, the EPP and EPPS were amended to cease future benefit accruals and future participation. As a result of such amendment, active participants continue to receive credit
for service completed after January 31, 2005 for purposes of vesting; however, future service does not count for purposes of future benefit accruals under these plans. Vested benefits for active participants as of January 31, 2005 have been
retained.



LFNY Post-Retirement Medical
PlanLFNY also has a non-funded contributory post-retirement medical plan (the Medical Plan) covering qualifying employees. The Medical Plan pays stated percentages of most necessary medical expenses incurred by retirees,
after subtracting payments by Medicare or other providers and after stated deductibles have been met. Participants become eligible for benefits if they retire from the Company after reaching age 62 and completing 10 years of service.



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



Effective January 1, 2005, post-retirement health care benefits are no longer offered to those
managing directors and employees hired on or after the effective date and for those managing directors and employees hired before the effective date who attain the age of 40 after December 31, 2005. In addition, effective January 1, 2006, the cost
sharing policy changed for those who qualify for the benefit.



Settlement Transactions Relating to LFNYs EPP, EPPS and Medical Plan In accordance with SFAS No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits (SFAS 88), during the year ended December 31, 2005 the Company recorded a net charge of $388 (comprised of charges (credits) of $3,369, ($27) and ($2,954) relating to the EPP, EPPS and Medical Plan
obligations, respectively), for the estimated costs relating to the settlement and curtailment of EPP, EPPS and Medical Plan obligations and special termination benefits to employees in the separated businesses. Of this amount, $2,420 is included in
loss from discontinued operations and ($2,032) is included in compensation and benefits expense on the consolidated statements of income.



During the year ended December 31, 2006, the Company recognized a settlement loss of $1,139 attributable to settlements with
pension plan participants who elect lump sum payments upon their retirement or discontinuation of service to the Company. In addition, during the year ended December 31, 2006, due to a cash settlement of plan obligations to LFCM Holdings, the
Company recognized a settlement loss of $303 relating to a Medical Plan remeasurement. Both of these losses described herein were included in compensation and benefits expense on the consolidated statement of income.



LCH Defined Benefit Pension PlansLCH has two defined
benefit pension plans and utilizes the projected unit credit actuarial method for financial reporting purposes.



During the fourth quarter of 2005, the Company announced that effective March 31, 2006, the LCH pension plans were amended to cease future accruals. As a
result of such amendment, future service and compensation increases will not count for purposes of future benefit accruals under the plans. Vested benefits for active participants as of March 31, 2006 were retained. In accordance with SFAS 88, as of
December 31, 2005 the projected benefit obligations under the plans were reduced by approximately $7,600 representing a reduction in the unrecognized net actuarial loss under the plans. In addition, during the fourth quarter of 2005 the Company
recorded within compensation and benefits expense on the consolidated statement of income a curtailment gain of $2,095 resulting from the release of an unamortized prior service credit in one of the plans.



Termination of LCHs Post-Retirement Medical PlanIn
April 2004, LCH announced a plan to terminate its post-retirement medical plan. As a result of such action, benefits available to eligible active employees and retirees will cease on February 28, 2007. In accordance with SFAS No. 106,
Employers Accounting for Post-Retirement Benefits Other Than Pensions, the Company is recognizing the effect of such termination as a reduction of employee compensation and benefits expense over the period ending February
2007. For the years ended December 31, 2006, 2005 and 2004, compensation and benefits expense on the consolidated statements of income was reduced by $9,515, $9,761 and $4,488, respectively, related to the effect of such termination.



Employer Contributions and Indemnities from LFCM
HoldingsAs of December 31, 2005, Lazard Groups principal U.K. pension plans had a combined deficit of approximately $46,800 (or approximately 27.2 million British pounds). This deficit would ordinarily be funded over time.
In the third quarter of 2005, agreements were executed between Lazard Group and the trustees of such pension plans dealing with a plan for the future funding of the deficit. As part of the separation, the Company made a contribution to LFCM Holdings
of $55,000 in connection with the provision by LFCM Holdings of support relating to U.K. pension liabilities and other indemnities. During the years ended December 31, 2006 and 2005, contributions of approximately $30,500 and $29,800, respectively
(equaling 16.4 million British pounds for both years) were made to the



102



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



Companys defined benefit pension plans in the U.K., of which 15.0 million British pounds were reimbursed by LFCM Holdings for each year, with such
reimbursement by LFCM Holdings in full satisfaction of their obligation of support described above (see Note 16 of Notes to Consolidated Financial Statements). Irrespective of the funded status of the plans, the Company is obligated to make
further payments amounting to 8.2 million British pounds on both June 1, 2007 and June 1, 2008, which approximates $16,100 for each period using exchange rates as of December 31, 2006. At December 31, 2006, the U.K. pension plans had a combined
surplus of $2,661.



The following table summarizes LFNYs
and LCHs benefit obligations, the fair value of the assets and the funded status at December 31, 2006 and 2005:



|                                                                                                                                                              |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ---------------------------------- | - | ------- | ---------------------------------------- |  | - | ------ | - |  | ---- | ------ | - | ---- | - | ------- | - |  | - | ------- | -
|                                                                                                                                                              |  | Pension Plans December 31, |         |   | Pension PlanSupplementDecember 31, |   |         | Post-RetirementMedical PlansDecember 31, | 
|                                                                                                                                                              |  | 2006                       |         |   | 2005                               |   |         | 2006                                     |  |   | 2005   |   |  | 2006 |        |   | 2005 |  
|Change in benefit obligation                                                                                                                                  |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Benefit obligation at beginning of year                                                                                                                       |  | $                          | 487,791 |   |                                    | $ | 525,437 |                                          |  | $ | 1,161  |   |  | $    | 1,472  |   |      | $ | 18,827  |   |  | $ | 32,431  |  
|Insured annuities                                                                                                                                             |  |                            |         |   |                                    |   | (10,239 | )                                        |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Service cost                                                                                                                                                  |  |                            | 1,595   |   |                                    |   | 7,061   |                                          |  |   |        |   |  |      |        |   |      |   | 134     |   |  |   | 224     |  
|Interest cost                                                                                                                                                 |  |                            | 24,815  |   |                                    |   | 26,165  |                                          |  |   | 62     |   |  |      | 86     |   |      |   | 362     |   |  |   | 519     |  
|Plan participants contributions                                                                                                                              |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   | (2      | )
|Amendments                                                                                                                                                    |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   | (10,143 | ) |  |   | (9,761  | )
|Actuarial (gain)/loss                                                                                                                                         |  |                            | (18,314 | ) |                                    |   | 25,936  |                                          |  |   |        |   |  |      | 205    |   |      |   | 1,959   |   |  |   | 350     |  
|Benefits paid                                                                                                                                                 |  |                            | (28,272 | ) |                                    |   | (26,816 | )                                        |  |   | (128   | ) |  |      | (697   | ) |      |   | (1,380  | ) |  |   | (1,277  | )
|Settlement to LFCM Holdings                                                                                                                                   |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   | (1,002  | ) |  |   |         |  
|Special termination benefit                                                                                                                                   |  |                            |         |   |                                    |   | 188     |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Settlements (curtailments)                                                                                                                                    |  |                            | 594     |   |                                    |   | (6,742  | )                                        |  |   | 7      |   |  |      | 95     |   |      |   |         |   |  |   | (1,341  | )
|Foreign currency translation adjustment                                                                                                                       |  |                            | 63,920  |   |                                    |   | (53,199 | )                                        |  |   |        |   |  |      |        |   |      |   | 1,546   |   |  |   | (2,316  | )
|                                                                                                                                                              |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Benefit obligation at end of year                                                                                                                             |  | $                          | 532,129 |   |                                    | $ | 487,791 |                                          |  | $ | 1,102  |   |  | $    | 1,161  |   |      | $ | 10,303  |   |  | $ | 18,827  |  
|                                                                                                                                                              |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Change in plan assets                                                                                                                                         |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Fair value of plan assets at beginning of year                                                                                                                |  | $                          | 439,686 |   |                                    | $ | 430,659 |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Insured annuities                                                                                                                                             |  |                            |         |   |                                    |   | (10,239 | )                                        |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Actual return on plan assets                                                                                                                                  |  |                            | 31,432  |   |                                    |   | 58,550  |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Employer contribution                                                                                                                                         |  |                            | 32,673  |   |                                    |   | 33,304  |                                          |  | $ | 128    |   |  | $    | 697    |   |      | $ | 1,380   |   |  | $ | 1,217   |  
|Plan participants contributions                                                                                                                              |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   | 60      |  
|Benefits paid                                                                                                                                                 |  |                            | (28,272 | ) |                                    |   | (26,816 | )                                        |  |   | (128   | ) |  |      | (697   | ) |      |   | (1,380  | ) |  |   | (1,277  | )
|Foreign currency translation adjustment                                                                                                                       |  |                            | 59,649  |   |                                    |   | (45,772 | )                                        |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|                                                                                                                                                              |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Fair value of plan assets at end of year                                                                                                                      |  |                            | 535,168 |   |                                    |   | 439,686 |                                          |  |   |       |   |  |      |       |   |      |   |        |   |  |   |        |  
|                                                                                                                                                              |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Funded surplus (deficit) at end of year                                                                                                                       |  | $                          | 3,039   |   |                                    | $ | (48,105 | )                                        |  | $ | (1,102 | ) |  | $    | (1,161 | ) |      | $ | (10,303 | ) |  |   | (18,827 | )
|                                                                                                                                                              |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Unrecognized prior service costs (credit)                                                                                                                     |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   | (6,550  | )
|Unrecognized net actuarial loss                                                                                                                               |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   | 2,040   |  
|                                                                                                                                                              |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Amounts recognized in the consolidated statement of financial condition consist of:                                                                           |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Prepaid pension asset (included in other assets)                                                                                                            |  | $                          | 8,032   |   |                                    | $ | 7,604   |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Accrued benefit liability (included in other liabilities)                                                                                                   |  |                            | (4,993  | ) |                                    |   | (55,709 | )                                        |  | $ | (1,102 | ) |  | $    | (1,161 | ) |      | $ | (10,303 | ) |  | $ | (23,337 | )
|                                                                                                                                                              |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Net amount recognized                                                                                                                                         |  | $                          | 3,039   |   |                                    | $ | (48,105 | )                                        |  | $ | (1,102 | ) |  | $    | (1,161 | ) |      | $ | (10,303 | ) |  | $ | (23,337 | )
|                                                                                                                                                              |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Amounts recorded within accumulated other comprehensive (income)/loss in the consolidated statement of financial condition includes components
consisting of: |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Actuarial net loss                                                                                                                                            |  |                            | $57,068 |   |                                    |   | $71,599 |                                          |  |   | $15    |   |  |      | $1     |   |      |   | $3,414  |   |  |   |         |  
|Prior service credit                                                                                                                                          |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   | (5,168  | ) |  |   |         |  
|                                                                                                                                                              |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|Net amount recognized                                                                                                                                         |  |                            | $57,068 |   |                                    |   | $71,599 |                                          |  |   | $15    |   |  |      | $1     |   |      |   | $(1,754 | ) |  |   |         |  
|                                                                                                                                                              |  |                            |         |   |                                    |   |         |                                          |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  



103



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



The following table summarizes the fair value of plan assets, the accumulated benefit obligation and
the projected benefit obligation at December 31, 2006 and 2005:



|                               |  |                                      |  |                                      |  |          |  |          |  |          |  |         
|------------------------------ |  | ------------------------------------ |  | ------------------------------------ |  | -------- |  | -------- |  | -------- |  | --------
|                               |  | LFNY Pension PlansAs Of December 31, |  | LCH Pension Plans As Of December 31, |  | Total   
|                               |  | 2006                                 |  | 2005                                 |  | 2006     |  | 2005     |  | 2006     |  | 2005    
|Fair value of plan assets      |  | $28,868                              |  | $28,238                              |  | $506,300 |  | $411,448 |  | $535,168 |  | $439,686
|Accumulated benefit obligation |  | $28,491                              |  | $29,564                              |  | $503,638 |  | $458,227 |  | $532,129 |  | $487,791
|Projected benefit obligation   |  | $28,491                              |  | $29,564                              |  | $503,638 |  | $458,227 |  | $532,129 |  | $487,791



The following table
summarizes the components of benefit costs, the return on plan assets, benefits paid and contributions for the years ended December 31, 2006, 2005 and 2004 for LFNY and LCH, as well as the allocation of total costs between continuing and
discontinued operations for each period:



|                                                       |  |                                                |         |   |                                                        |   |         |                                                               |  |   |         |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |        |   |  |   |         |   |  |   |        |  
|------------------------------------------------------ |  | ---------------------------------------------- | ------- | - | ------------------------------------------------------ | - | ------- | ------------------------------------------------------------- |  | - | ------- | - |  | ---- | --- | - | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | ------ | - |  | - | ------- | - |  | - | ------ | -
|                                                       |  | Pension Plans For The Years Ended December 31, |         |   | Pension Plan SupplementFor The Years EndedDecember 31, |   |         | Post-Retirement Medical PlansFor The Years Ended December 31, | 
|                                                       |  | 2006                                           |         |   | 2005                                                   |   |         | 2004                                                          |  |   | 2006    |   |  | 2005 |     |   | 2004 |   |     | 2006 |  |   | 2005 |   |  | 2004 |       
|Components of net periodic benefit costs:              |  |                                                |         |   |                                                        |   |         |                                                               |  |   |         |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |        |   |  |   |         |   |  |   |        |  
|Service cost                                           |  | $                                              | 1,595   |   |                                                        | $ | 7,061   |                                                               |  | $ | 16,998  |   |  |      |     |   |      |   |     |      |  | $ | 341  |   |  | $    | 134    |   |  | $ | 224     |   |  | $ | 1,926  |  
|Interest cost                                          |  |                                                | 24,815  |   |                                                        |   | 26,165  |                                                               |  |   | 25,373  |   |  | $    | 62  |   |      | $ | 86  |      |  |   | 138  |   |  |      | 362    |   |  |   | 519     |   |  |   | 1,088  |  
|Expected return on plan assets                         |  |                                                | (29,027 | ) |                                                        |   | (27,259 | )                                                             |  |   | (27,422 | ) |  |      |     |   |      |   |     |      |  |   |      |   |  |      |        |   |  |   |         |   |  |   |        |  
|Amortization of transition (asset)/obligation          |  |                                                |         |   |                                                        |   |         |                                                               |  |   | (116    | ) |  |      |     |   |      |   |     |      |  |   |      |   |  |      |        |   |  |   |         |   |  |   |        |  
|Amortization of:                                       |  |                                                |         |   |                                                        |   |         |                                                               |  |   |         |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |        |   |  |   |         |   |  |   |        |  
|Prior service cost                                     |  |                                                |         |   |                                                        |   | (442    | )                                                             |  |   | 532     |   |  |      |     |   |      |   |     |      |  |   | 87   |   |  |      | (1,382 | ) |  |   | (1,564  | ) |  |   |        |  
|Net actuarial (gain) loss                              |  |                                                | 1,796   |   |                                                        |   | 3,098   |                                                               |  |   | 2,588   |   |  |      |     |   |      |   | (7  | )    |  |   | (17  | ) |  |      | 283    |   |  |   | 313     |   |  |   | 30     |  
|                                                       |  |                                                |         |   |                                                        |   |         |                                                               |  |   |         |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |        |   |  |   |         |   |  |   |        |  
|Net periodic benefit cost (credit)                     |  |                                                | (821    | ) |                                                        |   | 8,623   |                                                               |  |   | 17,953  |   |  |      | 62  |   |      |   | 79  |      |  |   | 549  |   |  |      | (603   | ) |  |   | (508    | ) |  |   | 3,044  |  
|Settlements (curtailments)                             |  |                                                | 1,139   |   |                                                        |   | 1,086   |                                                               |  |   | 3,656   |   |  |      | (7  | ) |      |   |     |      |  |   | (609 | ) |  |      | (9,212 | ) |  |   | (12,715 | ) |  |   | (4,488 | )
|Special termination benefits                           |  |                                                |         |   |                                                        |   | 188     |                                                               |  |   |         |   |  |      |     |   |      |   | (27 | )    |  |   |      |   |  |      |        |   |  |   |         |   |  |   |        |  
|                                                       |  |                                                |         |   |                                                        |   |         |                                                               |  |   |         |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |        |   |  |   |         |   |  |   |        |  
|Total benefit cost (credit)                            |  |                                                | 318     |   |                                                        |   | 9,897   |                                                               |  |   | 21,609  |   |  |      | 55  |   |      |   | 52  |      |  |   | (60  | ) |  |      | (9,815 | ) |  |   | (13,223 | ) |  |   | (1,444 | )
|Less portion related to discontinued operations        |  |                                                |         |   |                                                        |   | 2,252   |                                                               |  |   | 2,020   |   |  |      |     |   |      |   | (15 | )    |  |   | 194  |   |  |      |        |   |  |   | 324     |   |  |   | 755    |  
|                                                       |  |                                                |         |   |                                                        |   |         |                                                               |  |   |         |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |        |   |  |   |         |   |  |   |        |  
|Total benefit cost (credit) from continuing operations |  | $                                              | 318     |   |                                                        | $ | 7,645   |                                                               |  | $ | 19,589  |   |  | $    | 55  |   |      | $ | 67  |      |  | $ | (254 | ) |  | $    | (9,815 | ) |  | $ | (13,547 | ) |  | $ | (2,199 | )
|                                                       |  |                                                |         |   |                                                        |   |         |                                                               |  |   |         |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |        |   |  |   |         |   |  |   |        |  
|                                                       |  |                                                |         |   |                                                        |   |         |                                                               | 
|Actual return on plan assets                           |  | $                                              | 31,432  |   |                                                        | $ | 58,550  |                                                               |  | $ | 33,951  |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |        |   |  |   |         |   |  |   |        |  
|Employer contribution                                  |  | $                                              | 32,673  |   |                                                        | $ | 33,304  |                                                               |  | $ | 13,024  |   |  | $    | 128 |   |      | $ | 697 |      |  | $ | 131  |   |  | $    | 1,380  |   |  | $ | 1,217   |   |  | $ | 1,297  |  
|Plan participants contribution                        |  |                                                |         |   |                                                        |   |         |                                                               |  |   |         |   |  |      |     |   |      |   |     |      |  |   |      |   |  |      |        |   |  | $ | (2      | ) |  | $ | 46     |  
|Benefits paid                                          |  | $                                              | 28,272  |   |                                                        | $ | 26,816  |                                                               |  | $ | 17,061  |   |  | $    | 128 |   |      | $ | 697 |      |  | $ | 131  |   |  | $    | 1,380  |   |  | $ | 1,277   |   |  | $ | 1,343  |  



The amounts in
accumulated other comprehensive income on the consolidated statement of financial condition that are expected to be recognized as components of net periodic benefit cost (credit) for the year ending December 31, 2007 are as follows:



|                            |  |              |  |                             |   |  |         |  
|--------------------------- |  | ------------ |  | --------------------------- | - |  | ------- | -
|                            |  | PensionPlans |  | Post-RetirementMedicalPlans |   |  | Total   |  
|Prior service cost (credit) |  |              |  | $(1,382                     | ) |  | $(1,382 | )
|Net actuarial loss          |  | $387         |  | $588                        |   |  | $975    |  



104



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



The assumptions used to develop actuarial present value of the projected benefit obligation and net
periodic pension cost are set forth below:



|                                                                          |  |                                                        |   |  |                                                                 |   |  |                                                                        |   |  |      |   |  |      |   |  |      |   |  |      |  |      |  |      |  
|------------------------------------------------------------------------- |  | ------------------------------------------------------ | - |  | --------------------------------------------------------------- | - |  | ---------------------------------------------------------------------- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- |  | ---- |  | ---- | -
|                                                                          |  | Pension Plans As Of Or For the Years EndedDecember 31, |   |  | Pension Plan SupplementAs Of Or For the Years EndedDecember 31, |   |  | Post-Retirement Medical Plans As Of Or For the Years EndedDecember
31, |  
|                                                                          |  | 2006                                                   |   |  | 2005                                                            |   |  | 2004                                                                   |   |  | 2006 |   |  | 2005 |   |  | 2004 |   |  | 2006 |  | 2005 |  | 2004 |  
|Weighted average assumptions used to determine benefit obligations:       |  |                                                        |   |  |                                                                 |   |  |                                                                        |   |  |      |   |  |      |   |  |      |   |  |      |  |      |  |      |  
|Discount rate                                                             |  | 4.8                                                    | % |  | 4.8                                                             | % |  | 5.4                                                                    | % |  | 5.5  | % |  | 5.5  | % |  | 6.0  | % |  | 5.5% |  | 5.5% |  | 5.0  | %
|Rate of compensation increase                                             |  |                                                        |   |  |                                                                 |   |  | 3.8%-6.3                                                               | % |  |      |   |  |      |   |  | 5.5  | % |  |      |  |      |  |      |  
|Weighted average assumptions used to determine net periodic benefit cost: |  |                                                        |   |  |                                                                 |   |  |                                                                        |   |  |      |   |  |      |   |  |      |   |  |      |  |      |  |      |  
|Discount rate                                                             |  | 5.2                                                    | % |  | 5.3                                                             | % |  | 5.8                                                                    | % |  | 5.5  | % |  | 6.0  | % |  | 6.3  | % |  | 5.5% |  | 6.0% |  | 5.3  | %
|Expected long-term rate of return on plan assets                          |  | 6.1                                                    | % |  | 6.2                                                             | % |  | 7.4                                                                    | % |  |      |   |  |      |   |  |      |   |  |      |  |      |  |      |  
|Rate of annual compensation increases                                     |  |                                                        |   |  |                                                                 |   |  | 3.8%-6.3                                                               | % |  |      |   |  |      |   |  | 5.5  | % |  |      |  |      |  |      |  
|Healthcare cost trend rates used to determine net periodic benefit cost:  |  |                                                        |   |  |                                                                 |   |  |                                                                        |   |  |      |   |  |      |   |  |      |   |  |      |  |      |  |      |  
|Initial                                                                   |  |                                                        |   |  |                                                                 |   |  |                                                                        |   |  |      |   |  |      |   |  |      |   |  | 8.0% |  | 9.5% |  |      |  
|Ultimate                                                                  |  |                                                        |   |  |                                                                 |   |  |                                                                        |   |  |      |   |  |      |   |  |      |   |  | 6.0% |  | 6.0% |  |      |  
|Year ultimate trend rate achieved                                         |  |                                                        |   |  |                                                                 |   |  |                                                                        |   |  |      |   |  |      |   |  |      |   |  | 2008 |  | 2008 |  |      |  



Generally, the Company
determined the discount rates for its defined benefit plans by utilizing indices for long-term, high-quality bonds and ensuring that the discount rate does not exceed the yield reported for those indices after adjustment for the duration of the
plans liabilities.



In selecting the expected long-term
rate of return on plan assets, the Company considered the average rate of earnings expected on the funds invested or to be invested to provide for the benefits of the plan, giving consideration to expected returns on different asset classes held by
the plans in light of prevailing economic conditions as well as historic returns. This basis is consistent for all years presented.



The assumed cost of healthcare has an effect on the amounts reported for the Companys post-retirement plans. A 1% change in the assumed healthcare
cost trend rate would increase (decrease) our cost and obligation as follows:



|           |  |             |  |             |  |       |   |  |       |  
|---------- |  | ----------- |  | ----------- |  | ----- | - |  | ----- | -
|           |  | 1% Increase |  | 1% Decrease | 
|           |  | 2006        |  | 2005        |  | 2006  |   |  | 2005  |  
|Cost       |  | $69         |  | $103        |  | $(58  | ) |  | $(85  | )
|Obligation |  | $1,073      |  | $1,113      |  | $(908 | ) |  | $(924 | )



105



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



Expected Benefit PaymentsThe following table summarizes the expected benefit
payments for the Companys plans for each of the next five fiscal years and in the aggregate for the five fiscal years thereafter:



|          |  |              |        |                        |   |                               |  |   |      
|--------- |  | ------------ | ------ | ---------------------- | - | ----------------------------- |  | - | -----
|          |  | PensionPlans |        | Pension PlanSupplement |   | Post-Retirement Medical Plans
|2007      |  | $            | 15,624 |                        | $ | 24                            |  | $ | 430  
|2008      |  |              | 15,977 |                        |   | 76                            |  |   | 430  
|2009      |  |              | 16,264 |                        |   | 126                           |  |   | 462  
|2010      |  |              | 16,348 |                        |   | 119                           |  |   | 500  
|2011      |  |              | 16,337 |                        |   | 160                           |  |   | 538  
|2012-2016 |  |              | 80,665 |                        |   | 441                           |  |   | 3,113



Plan
AssetsThe Companys weighted-average asset allocations relating to the Companys pension plans at December 31, 2006 and 2005, by asset category, are as follows:



|                                                       |  |              |   |  |      |  
|------------------------------------------------------ |  | ------------ | - |  | ---- | -
|                                                       |  | December 31, |  
|                                                       |  | 2006         |   |  | 2005 |  
|Asset Category                                         |  |              |   |  |      |  
|Equity Securities                                      |  | 47           | % |  | 48   | %
|Debt Securities                                        |  | 51           |   |  | 44   |  
|Other (includes cash, annuities and accrued dividends) |  | 2            |   |  | 8    |  
|                                                       |  |              |   |  |      |  
|Total                                                  |  | 100          | % |  | 100  | %
|                                                       |  |              |   |  |      |  



Investment
Policies and StrategiesThe primary investment goal is to ensure that the plans remain well funded, taking account of the likely future risks to investment returns and contributions. As a result, a portfolio of assets is maintained with
appropriate liquidity and diversification that can be expected to generate long-term future returns that minimize the long-term costs of the pension plan without exposing the trust to an unacceptable risk of under funding. The Companys likely
future ability to pay such contributions as are required to maintain the funded status of the plans over a reasonable time period is considered when determining the level of risk that is appropriate.



Defined Contribution PlansLFNY and LCH also
contribute to employer sponsored defined contribution plans. Contributions to these plans amount to $7,944, $4,975 and $1,646 for the years ended December 31, 2006, 2005 and 2004, respectively, which are included in compensation and
benefits expense and $1,182 and $1,686 for the years ended December 31, 2005 and 2004, respectively, which are included in loss from discontinued operations on the consolidated statements of income. Effective January 1, 2005, the
LFNY defined contribution plan was amended to provide for certain matching contributions by the Company. Effective April 1, 2006, the LCH defined contribution plan was amended to provide benefits to substantially all its employees who were
previously covered under the LCH defined benefit pension plans.



Other PlansThe Company also has an incentive compensation plan (the Plan) pursuant to which amounts are invested in a Company sponsored investment vehicle for certain key employees. The Company records
expenses for the Plan on the dates on which capital calls from such vehicle are funded. Net costs related to the Plan for the years ended December 31, 2006, 2005 and 2004 amounted to approximately $900, $1,300 and $100, respectively. At December 31,
2006, the Company had remaining commitments of $3,008 under the Plan.



LFNY sponsors a profit sharing plan, which covers eligible managing directors of LFNY. Contributions to the profit sharing plan are included in distributions and withdrawals to members on the consolidated statement



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



of changes in members equity (deficiency) prior to May 10, 2005 and compensation and benefits expense on the consolidated statements of
income for the periods commencing May 10, 2005. Effective January 1, 2005, the profit sharing plan was amended to cease future participation.



|15. | INCOME TAXES
|--- | ------------



Income taxes from continuing operations for the years ended December 31, 2006, 2005 and 2004 consist of:



|                            |  |                         |        |   |      |   |        |      |  |   |       
|--------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------
|                            |  | Year Ended December 31,
|                            |  | 2006                    |        |   | 2005 |   |        | 2004
|Current expense:            |  |                         |        |   |      |   |        |      |  |   |       
|Federal                     |  | $                       | 29     |   |      | $ | 4      |      |  |   |       
|Foreign                     |  |                         | 64,524 |   |      |   | 57,861 |      |  | $ | 23,726
|UBT                         |  |                         | 4,296  |   |      |   | 3,866  |      |  |   | 4,094 
|                            |  |                         |        |   |      |   |        |      |  |   |       
|Total current               |  |                         | 68,849 |   |      |   | 61,731 |      |  |   | 27,820
|Deferred expense (benefit): |  |                         |        |   |      |   |        |      |  |   |       
|Foreign                     |  |                         | (4,290 | ) |      |   | (7,558 | )    |  |   | 452   
|                            |  |                         |        |   |      |   |        |      |  |   |       
|Total                       |  | $                       | 64,559 |   |      | $ | 54,173 |      |  | $ | 28,272
|                            |  |                         |        |   |      |   |        |      |  |   |       



A reconciliation of
the U.S. federal statutory income tax rate to the Companys effective tax rate on income from continuing operations is set forth below:



|                                             |  |                         |   |  |       |   |  |       |  
|-------------------------------------------- |  | ----------------------- | - |  | ----- | - |  | ----- | -
|                                             |  | Year Ended December 31, |  
|                                             |  | 2006                    |   |  | 2005  |   |  | 2004  |  
|U.S. federal statutory income tax rate       |  | 35.0                    | % |  | 35.0  | % |  | 35.0  | %
|Rate benefit for U.S. partnership operations |  | (35.0                   | ) |  | (35.0 | ) |  | (35.0 | )
|Foreign taxes                                |  | 18.1                    |   |  | 14.6  |   |  | 6.6   |  
|UBT                                          |  | 1.2                     |   |  | 1.1   |   |  | 1.1   |  
|                                             |  |                         |   |  |       |   |  |       |  
|Effective income tax rate                    |  | 19.3                    | % |  | 15.7  | % |  | 7.7   | %
|                                             |  |                         |   |  |       |   |  |       |  



The effective tax
rates reflected above differ from the U.S. federal statutory tax rate of 35.0% primarily because Lazard Group is treated as a partnership for U.S. federal income tax purposes. As a result, Lazard Groups income is not subject to U.S. federal
income taxes because taxes related to its income represent obligations of the individual partners. Outside the U.S., Lazard Group operates principally through subsidiary corporations that are subject to local income taxes. Additionally, Lazard Group
is subject to UBT attributable to Lazard Groups operations apportioned to New York City which are incremental to the U.S. federal statutory tax rate.



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



Deferred income taxes are provided for the effects of temporary differences between the tax basis of
an asset or liability and its reported amount in the consolidated statements of financial condition. These temporary differences result in taxable or deductible amounts in future years. Details of the Companys deferred tax assets and
liabilities, which are included in other assets and other liabilities, respectively, on the consolidated statements of financial condition, are as follows:



|                                                       |  |              |         |   |      |   |         |  
|------------------------------------------------------ |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                       |  | December 31, |        
|                                                       |  | 2006         |         |   | 2005 |  
|Deferred Tax Assets:                                   |  |              |         |   |      |   |         |  
|Compensation and benefits                              |  | $            | 11,905  |   |      | $ | 9,333   |  
|Pensions                                               |  |              | 1,255   |   |      |   | 15,841  |  
|Depreciation and amortization                          |  |              | 1,953   |   |      |   | 2,247   |  
|Other                                                  |  |              | 417     |   |      |   | 584     |  
|Bad debt provision                                     |  |              | 991     |   |      |   | 2,344   |  
|Property                                               |  |              | 4,358   |   |      |   | 3,455   |  
|Net operating loss and tax credit carryforwards        |  |              | 57,783  |   |      |   | 43,793  |  
|                                                       |  |              |         |   |      |   |         |  
|Gross deferred tax assets                              |  |              | 78,662  |   |      |   | 77,597  |  
|Valuation allowance                                    |  |              | (64,164 | ) |      |   | (67,459 | )
|                                                       |  |              |         |   |      |   |         |  
|Total deferred tax assets (net of valuation allowance) |  | $            | 14,498  |   |      | $ | 10,138  |  
|                                                       |  |              |         |   |      |   |         |  
|Deferred Tax Liabilities:                              |  |              |         |   |      |   |         |  
|Unrealized gains on long-term investments              |  | $            | 4,522   |   |      | $ | 3,634   |  
|Other                                                  |  |              | 644     |   |      |   | 13      |  
|Depreciation and amortization                          |  |              | 19,221  |   |      |   | 17,782  |  
|                                                       |  |              |         |   |      |   |         |  
|Total deferred tax liabilities                         |  | $            | 24,387  |   |      | $ | 21,429  |  
|                                                       |  |              |         |   |      |   |         |  



The deferred tax
assets are offset by a valuation allowance of $64,164 and $67,459 at December 31, 2006 and 2005, respectively, due to the uncertainty of realizing the benefits of the book versus tax basis differences and certain net operating loss
carry-forwards.



The Companys net operating loss and tax
credit carryforwards primarily relate to (i) carryforwards in the U.K., at December 31, 2006 and 2005, which may be carried forward indefinitely, subject to various limitations and (ii) carryforwards in Italy at December 31,
2006, which begin expiring in years after 2011.



UBT
attributable to certain member distributions has been reimbursed by the members under an agreement with the Company.



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



|16. | RELATED PARTIES
|--- | ---------------



Amounts receivable from, and payable to, related parties as of December 31, 2006 and 2005 are set forth below:



|                        |  |              |        |      |   |       
|----------------------- |  | ------------ | ------ | ---- | - | ------
|                        |  | December 31,
|                        |  | 2006         |        | 2005
|Receivables             |  |              |        |      |   |       
|LFCM Holdings           |  | $            | 18,493 |      | $ | 53,787
|LAZ-MD Holdings         |  |              | 50     |      |   | 145   
|Lazard Ltd Subsidiaries |  |              | 17     |      |   | 617   
|                        |  |              |        |      |   |       
|Total                   |  | $            | 18,560 |      | $ | 54,549
|                        |  |              |        |      |   |       
|Payables                |  |              |        |      |   |       
|LFCM Holdings           |  | $            | 376    |      | $ | 1,234 
|Lazard Ltd Subsidiaries |  |              | 3,137  |      |   | 8,280 
|                        |  |              |        |      |   |       
|Total                   |  | $            | 3,513  |      | $ | 9,514 
|                        |  |              |        |      |   |       



LFCM Holdings



LFCM Holdings owns and operates the separated businesses
and is owned by the working members, including Lazards managing directors (which also include our executive officers) who are also members of LAZ-MD Holdings. In addition to the master separation agreement which effected the separation and
recapitalization discussed in Note 1 of Notes to Consolidated Financial Statements, LFCM Holdings entered into an insurance matters agreement and a license agreement that addressed various business matters associated with the separation, as well as
several other agreements discussed below.



Under the employee
benefits agreement, dated as of May 10, 2005, by and among Lazard Ltd, Lazard Group, LAZ-MD Holdings and LFCM Holdings, LFCM Holdings generally assumed, as of the completion of the separation and recapitalization transactions, all outstanding and
future liabilities in respect of the current and former employees of the separated businesses. The Company retained all accrued liabilities under, and assets of, the pension plans in the U.S. and the U.K. as well as the 401(k) Plan accounts of the
inactive employees of LFCM Holdings and its subsidiaries. See Note 14 of Notes to Consolidated Financial Statements for additional information regarding employer contributions and indemnities from LFCM Holdings.



Pursuant to the administrative services agreement dated as of May 10, 2005,
by and among LAZ-MD Holdings, LFCM Holdings and Lazard Group (the administrative services agreement), Lazard Group provides selected administrative and support services to LAZ-MD Holdings and LFCM Holdings, such as cash management and
debt service administration, accounting and financing activities, tax, payroll, human resources administration, financial transaction support, information technology, public communications, data processing, procurement, real estate management, and
other general administrative functions. Lazard Group charges for these services based on Lazard Groups cost allocation methodology.



The services provided by Lazard Group to LFCM Holdings and by LFCM Holdings to Lazard Group under the administrative services agreement generally will be
provided until December 31, 2008. LFCM Holdings and Lazard Group have a right to terminate the services earlier if there is a change of control of either party or the business alliance provided in the business alliance agreement expires or is
terminated. The party receiving a service may also terminate a service earlier upon 180 days notice as long as the receiving party pays the service provider an additional three months of service fee for terminated service.



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



The business alliance agreement provides that Lazard Group will refer to LFCM Holdings selected
opportunities for underwriting and distribution of securities. In addition Lazard Group will provide assistance in the execution of any such referred business. In exchange for the referral obligation and assistance, Lazard Group will receive a
referral fee from LFCM Holdings equal to approximately half of the revenue obtained by LFCM Holdings in respect of any underwriting or distribution opportunity. In addition, LFCM Holdings will refer opportunities in the Financial Advisory and Asset
Management businesses to Lazard Group. In exchange for this referral, LFCM Holdings will be entitled to a customary finders fee from Lazard Group. The business alliance agreement further provides that, during the term of the business alliance,
LFNY and LAM Securities, subsidiaries of Lazard Group, will introduce execution and settlement transactions to newly-formed broker-dealer entities affiliated with LFCM Holdings. The term of the business alliance will expire on the fifth anniversary
of the equity public offering, subject to periodic automatic renewal, unless either party elects to terminate in connection with any such renewal or elects to terminate on account of a change of control of either party.



Amounts recorded by Lazard Group in its consolidated statements of income
relating to administrative and support services and referral fees for underwriting transactions amounted to $5,322 and $5,953, respectively, for the year ended December 31, 2006, and approximately $3,084 and $6,338, respectively, for the period May
10, 2005 through December 31, 2005. Such amounts are reported as reductions to operating expenses and as other revenue, respectively.



Receivables from LFCM Holdings and its subsidiaries as of December 31, 2006 and 2005 include $9,989 and $17,031, respectively, related to the lease
indemnity agreement and $26,800 as of December 31, 2005 related to the U.K. pension indemnity (see Notes 12 and 14 of Notes to Consolidated Financial Statements, respectively). The remaining receivables of $8,504 and $9,956 at December 31, 2006 and
2005, respectively, relate primarily to administrative and support services and reimbursement of expenses incurred on behalf of LFCM Holdings ($3,061 and $2,615 as of December 31, 2006 and 2005, respectively) and referral fees for underwriting
transactions ($4,091 and $6,307 as of December 31, 2006 and 2005, respectively).



See also Note 2 of Notes to Consolidated Financial Statement for information regarding Lazard Ltds Primary and Secondary Offerings in December, 2006, and for which LCM participated as an underwriter.



LAZ-MD Holdings



LAZ-MD Holdings held approximately 52.1% and 62.4% of the common membership
interest in Lazard Group as of December 31, 2006 and 2005, respectively, and Lazard Ltd held the remaining 47.9% and 37.6% of the common membership interest at such dates. Additionally, LAZ-MD Holdings is the sole owner of the one issued and
outstanding share of Class B common stock (the Class B common stock) of Lazard Ltd at both dates. As of December 31, 2006 and 2005, the Lazard Ltd Class B common stock provides LAZ-MD Holdings with approximately 52.1% and 62.4% of
the voting power but no economic rights in Lazard Ltd. Subject to certain limitations, LAZ-MD Holdings exchangeable interests are exchangeable for Lazard Ltd Class A common stock. However, the Lazard Ltd Class B common stock will represent no less
than 50.1% of the voting power until December 31, 2007.



Lazard
Group provides selected administrative and support services to LAZ-MD Holdings through the administrative services agreement as discussed above, with such services generally to be provided until December 31, 2014 unless terminated earlier because of
a change in control of either party. Lazard Group charges LAZ-MD Holdings for these services based on Lazard Groups cost allocation methodology and, for the year ended December 31, 2006 and for the period May 10, 2005 through
December 31, 2005, such charges amounted to $200 and $145, respectively.



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



Lazard Ltd Subsidiaries



As of December 31, 2006 and 2005, Lazard Groups receivables from Lazard Ltd subsidiaries primarily relate to amounts
paid by Lazard Group on behalf of such wholly-owned subsidiaries of Lazard Ltd.



As of December 31, 2006 and 2005, Lazard Groups payables to Lazard Ltd subsidiaries primarily relate to the liability for the quarterly contract adjustment payments on the purchase contracts associated with
the ESUs (see Note 2 of Notes to Consolidated Financial Statements) of $3,137 and $5,647, respectively, and, as of December 31, 2005, a $2,000 interest-bearing loan payable to a wholly-owned subsidiary of Lazard Ltd, plus accrued
interest thereon. The $2,000 interest-bearing loan payable was repaid during 2006. For the years ended December 31, 2006 and 2005, interest expense relating to Lazard Groups obligations to Lazard Ltd subsidiaries amounted to $346 and
$226, respectively.



|17. | REGULATORY AUTHORITIES
|--- | ----------------------



LFNY is a U.S. registered broker-dealer and is subject to the net capital requirements of Rule 15c3-1 under the Securities Exchange Act of 1934, as
amended (the Exchange Act). Under the basic method permitted by this rule, the minimum required net capital, as defined, is a specified fixed percentage of total aggregate indebtedness recorded on LFNYs statement of financial
condition, or $5, whichever is greater. At December 31, 2006, LFNYs regulatory net capital was $119,633 which exceeded the minimum requirement by $113,867.



Certain U.K. subsidiaries of the Company, including LCL, Lazard Fund Managers Limited and Lazard Asset Management Limited
(the U.K. Subsidiaries) are regulated by the Financial Services Authority (the FSA). At December 31, 2006, the aggregate regulatory net capital of the U.K. Subsidiaries was $189,255, which exceeded the minimum requirement by
$102,852.



The Financial Advisory activities of Lazard
Frères SAS (LF) and its wholly-owned subsidiaries, including LFB, are authorized by the Comité des Etablissements de Crédit et des Entreprises dInvestissement and are regulated by the Comité de la
Réglementation Bancaire et Financière. Supervision is exercised by the Commission Bancaire, which is responsible, in liaison with the Banque de France, for ensuring compliance with the regulations. In this context LF has the status of
a bank holding company (Compagnie Financière) and LFB is a registered bank (Etablissement de Crédit). In addition, the investment services activities of the Paris group, exercised through LFB and other
subsidiaries, primarily LFG (asset management) and Fonds Partenaires Gestion (private equity, merchant banking), are subject to regulation and supervision by the Autorité des Marchés Financiers. At December 31, 2006, the consolidated
regulatory net capital of LF was $166,157, which exceeded the minimum requirement set for regulatory capital levels by $69,785.



Certain other U.S. and non-U.S. subsidiaries are subject to various other capital adequacy requirements promulgated by various regulatory and exchange
authorities in the countries in which they operate. At December 31, 2006, for those subsidiaries with regulatory capital requirements, their aggregate net capital was $47,439, which exceeded the minimum required capital by $33,494.



At December 31, 2006, each of these subsidiaries individually was in
compliance with its regulatory capital requirements.



|18. | EXTRAORDINARY GAIN
|--- | ------------------



In January 2004, the Company acquired certain assets, net of certain liabilities, of West LB Panmure Limited, an unrelated entity in the U.K. Subsequent
to the acquisition, the acquired business became part of the Companys Capital Markets and Other segment, operating as Panmure Gordon, a division of LCL. Panmure Gordon provides



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



clients with corporate finance advisory services, corporate broking capabilities and equity sales and trading. The total purchase price allocated to the net
assets of the business acquired was $1,580 related to legal costs incurred to complete the transaction. The fair value of the net assets acquired exceeded the purchase price of those net assets by $5,658. In accordance with SFAS No. 141,
Business Combinations, the Company recognized an extraordinary gain of $5,507 after reducing long-lived assets, principally representing property, to $0.



On April 26, 2005, the Company completed the sale of Panmure Gordon to Durlacher Corporation plc, a U.K.
broking firm renamed Panmure Gordon & Co. plc (PG&C) following the transaction. As part of the April 2005 transaction, Lazard Group received an ownership interest in PG&C, which was transferred to LFCM Holdings in connection
with the separation. As of December 31, 2006, such ownership interest in PG&C was approximately 30.2%. Lazard Group and LFCM Holdings have agreed to share any net cash proceeds, derived prior to May 2013, from any subsequent sale by LFCM
Holdings of the shares it owns in PG&C. As of December 31, 2006 LFCM Holdings had not sold any such shares.



|19. | SEGMENT OPERATING RESULTS
|--- | -------------------------



The Companys reportable segments offer different products and services and are managed separately as different levels and types of expertise are
required to effectively manage the segments transactions. Each segment is reviewed to determine the allocation of resources and to assess its performance. Prior to May 10, 2005, the Companys business results were categorized into
the following three segments: Financial Advisory, Asset Management and Capital Markets and Other. On May 10, 2005 the Capital Markets and Other segment was disposed of in connection with the separation discussed in Note 1 of Notes to Consolidated
Financial Statements. Consequently, subsequent to May 10, 2005, the Company has two segments: Financial Advisory which includes providing advice on mergers and acquisitions, restructurings, capital raising and similar transactions, and Asset
Management which includes the management of equity and fixed income securities and merchant banking funds. Capital Markets and Other consisted of equity, fixed income and convertibles sales and trading, broking, research and underwriting services,
merchant banking fund management activities outside of France and specified non-operating assets and liabilities. In addition, the Company records selected other activities in Corporate, including cash management, certain long-term investments and
the commercial banking activities of LFB. The Company also allocates outstanding indebtedness to Corporate.



As discussed in Note 1 of Notes to Consolidated Financial Statements, results of operations are reported as an historical partnership until the equity
public offering on May 10, 2005 and do not include payments for services rendered by managing directors as compensation expense. Such payments are included in subsequent periods. Therefore, results for periods prior to the equity public offering on
May 10, 2005 and subsequent thereto are not comparable.



The Companys segment information for the years ended December 31, 2006, 2005 and 2004 is prepared using the following methodology:



| |  |  | Revenue and expenses directly associated with each segment are included in determining operating income.
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Expenses not directly associated with specific segments are allocated based on the most relevant measures applicable, including headcount, square footage and other
factors.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Segment assets are based on those directly associated with each segment, and include an allocation of certain assets relating to various segments, based on the most
relevant measures applicable, including headcount, square footage and other factors.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



The Company allocates investment gains and losses, interest income and interest expense among the
various segments based on the segment in which the underlying asset or liability is reported.



Each segments operating expenses include (i) compensation and benefits expenses, including amounts for certain senior advisors that are incurred directly in support of the businesses and (ii) other operating
expenses, which include directly incurred expenses for premises and occupancy, professional fees, travel and entertainment, communications and information services, equipment and indirect support costs (including compensation and other operating
expenses related thereto) for administrative services. Such administrative services include, but are not limited to, accounting, tax, legal, facilities management and senior management activities.



There were no clients for the years ended December 31, 2006, 2005 and 2004
that individually constituted more than 10% of the net revenue of either of the Companys business segments.



Management evaluates segment results based on net revenue and operating income and believes that the following information provides a reasonable
representation of each segments contribution to continuing operations with respect to net revenue, operating income and total assets:



|                   |  |                        |  |                                         |           |   |      |   |           |      |  |   |          
|------------------ |  | ---------------------- |  | --------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | ---------
|                   |  |                        |  | As Of Or For The Year EndedDecember 31,
|                   |  |                        |  | 2006                                    |           |   | 2005 |   |           | 2004
|Financial Advisory |  | Net Revenue            |  | $                                       | 973,337   |   |      | $ | 864,812   |      |  | $ | 655,200  
|                   |  | Operating Expenses (a) |  |                                         | 722,151   |   |      |   | 589,024   |      |  |   | 443,682  
|                   |  |                        |  |                                         |           |   |      |   |           |      |  |   |          
|                   |  | Operating Income       |  | $                                       | 251,186   |   |      | $ | 275,788   |      |  | $ | 211,518  
|                   |  |                        |  |                                         |           |   |      |   |           |      |  |   |          
|                   |  | Total Assets           |  | $                                       | 452,627   |   |      | $ | 336,576   |      |  | $ | 380,331  
|                   |  |                        |  |                                         |           |   |      |   |           |      |  |   |          
|                   |  |                        |  |                                        
|Asset Management   |  | Net Revenue            |  | $                                       | 553,212   |   |      | $ | 466,188   |      |  | $ | 417,166  
|                   |  | Operating Expenses (a) |  |                                         | 418,022   |   |      |   | 349,801   |      |  |   | 282,029  
|                   |  |                        |  |                                         |           |   |      |   |           |      |  |   |          
|                   |  | Operating Income       |  | $                                       | 135,190   |   |      | $ | 116,387   |      |  | $ | 135,137  
|                   |  |                        |  |                                         |           |   |      |   |           |      |  |   |          
|                   |  | Total Assets           |  | $                                       | 418,538   |   |      | $ | 308,054   |      |  | $ | 245,449  
|                   |  |                        |  |                                         |           |   |      |   |           |      |  |   |          
|Corporate          |  | Net Revenue            |  | $                                       | (33,380   | ) |      | $ | (29,589   | )    |  | $ | 22,464   
|                   |  | Operating Expenses (a) |  |                                         | 19,320    |   |      |   | 16,910    |      |  |   | 1,295    
|                   |  |                        |  |                                         |           |   |      |   |           |      |  |   |          
|                   |  | Operating Income       |  | $                                       | (52,700   | ) |      | $ | (46,499   | )    |  | $ | 21,169   
|                   |  |                        |  |                                         |           |   |      |   |           |      |  |   |          
|                   |  | Total Assets           |  | $                                       | 2,316,042 |   |      | $ | 1,262,503 |      |  | $ | 1,384,769
|                   |  |                        |  |                                         |           |   |      |   |           |      |  |   |          
|                   |  |                        |  |                                        
|Total              |  | Net Revenue            |  | $                                       | 1,493,169 |   |      | $ | 1,301,411 |      |  | $ | 1,094,830
|                   |  | Operating Expenses (a) |  |                                         | 1,159,493 |   |      |   | 955,735   |      |  |   | 727,006  
|                   |  |                        |  |                                         |           |   |      |   |           |      |  |   |          
|                   |  | Operating Income       |  | $                                       | 333,676   |   |      | $ | 345,676   |      |  | $ | 367,824  
|                   |  |                        |  |                                         |           |   |      |   |           |      |  |   |          
|                   |  | Total Assets (b)       |  | $                                       | 3,187,207 |   |      | $ | 1,907,133 |      |  | $ | 2,010,549
|                   |  |                        |  |                                         |           |   |      |   |           |      |  |   |          

---

|(a) | Operating expenses include depreciation and amortization from continuing operations as set forth in table below.
|--- | ----------------------------------------------------------------------------------------------------------------



|                                                                                                               |  |                         |        |      |   |        |  |   |       
|-------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|                                                                                                               |  | Year Ended December 31,
|                                                                                                               |  | 2006                    |        | 2005 |   | 2004  
|Financial Advisory                                                                                             |  | $                       | 3,311  |      | $ | 4,030  |  | $ | 4,792 
|Asset Management                                                                                               |  |                         | 2,525  |      |   | 2,099  |  |   | 1,871 
|Corporate                                                                                                      |  |                         | 8,446  |      |   | 8,649  |  |   | 7,980 
|                                                                                                               |  |                         |        |      |   |        |  |   |       
|Total (excluding amounts relating to discontinued operations of$570 and $2,295 in 2005 and 2004, respectively) |  | $                       | 14,282 |      | $ | 14,778 |  | $ | 14,643
|                                                                                                               |  |                         |        |      |   |        |  |   |       



|(b) | Excludes assets of discontinued operations of $1,488,675 at December 31, 2004.
|--- | ------------------------------------------------------------------------------



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



Geographic Information



Due to the highly integrated nature of international financial markets, the Company manages its business based on the
profitability of the enterprise as a whole. Accordingly, management believes that profitability by geographic region is not necessarily meaningful. The Companys revenue and identifiable assets are generally allocated based on the country or
domicile of the legal entity providing the service.



The
following table sets forth the net revenue from and identifiable assets for continuing operations of the Company and its consolidated subsidiaries by geographic region allocated on the basis described above.



|                     |  |                                          |           |      |   |           |  |   |          
|-------------------- |  | ---------------------------------------- | --------- | ---- | - | --------- |  | - | ---------
|                     |  | As Of Or For The Year Ended December 31,
|                     |  | 2006                                     |           | 2005 |   | 2004     
|Net Revenue:         |  |                                          |           |      |   |           |  |   |          
|North America        |  | $                                        | 775,655   |      | $ | 638,127   |  | $ | 537,504  
|United Kingdom       |  |                                          | 245,409   |      |   | 209,812   |  |   | 171,200  
|France               |  |                                          | 267,806   |      |   | 208,393   |  |   | 188,586  
|Other Western Europe |  |                                          | 158,897   |      |   | 197,384   |  |   | 175,065  
|Rest of World        |  |                                          | 45,402    |      |   | 47,695    |  |   | 22,475   
|                     |  |                                          |           |      |   |           |  |   |          
|Total                |  | $                                        | 1,493,169 |      | $ | 1,301,411 |  | $ | 1,094,830
|                     |  |                                          |           |      |   |           |  |   |          
|Identifiable Assets: |  |                                          |           |      |   |           |  |   |          
|North America        |  | $                                        | 985,862   |      | $ | 480,967   |  | $ | 427,706  
|United Kingdom       |  |                                          | 335,953   |      |   | 261,966   |  |   | 288,656  
|France               |  |                                          | 1,663,523 |      |   | 959,695   |  |   | 1,078,614
|Other Western Europe |  |                                          | 160,814   |      |   | 165,794   |  |   | 182,144  
|Rest of World        |  |                                          | 41,055    |      |   | 38,711    |  |   | 33,429   
|                     |  |                                          |           |      |   |           |  |   |          
|Total (a)            |  | $                                        | 3,187,207 |      | $ | 1,907,133 |  | $ | 2,010,549
|                     |  |                                          |           |      |   |           |  |   |          

---

|(a) | Excludes assets of discontinued operations of $1,488,675 at December 31, 2004.
|--- | ------------------------------------------------------------------------------



|20. | DISCONTINUED OPERATIONS
|--- | -----------------------



Operating results from discontinued operations for the years ended December 31, 2005 and 2004 were as follows:



|                                               |  |                         |         |   |      |   |         |  
|---------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                               |  | Year Ended December 31, |        
|                                               |  | 2005                    |         |   | 2004 |  
|Net revenue                                    |  | $                       | 39,599  |   |      | $ | 179,475 |  
|                                               |  |                         |         |   |      |   |         |  
|Pre-tax loss                                   |  | $                       | (14,246 | ) |      | $ | (10,429 | )
|Provision for income taxes                     |  |                         | 3,330   |   |      |   | 103     |  
|                                               |  |                         |         |   |      |   |         |  
|Loss from discontinued operations (net of tax) |  | $                       | (17,576 | ) |      | $ | (10,532 | )
|                                               |  |                         |         |   |      |   |         |  



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LAZARD GROUP LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



21.    FAIR VALUE OF FINANCIAL INSTRUMENTS



The majority of the Companys assets and liabilities are recorded at
fair value or at amounts that approximate fair value. Such assets and liabilities include cash and cash equivalents, cash and securities segregated for regulatory purposes, long-term investments, securities owned, derivative instruments, receivables
and payables, and other short-term borrowings and payables (also see discussion in Note 3 of Notes to Consolidated Financial Statements).



Senior Borrowings and Subordinated LoansThe Companys senior borrowings and subordinated loans are recorded at historical
amounts. The fair value of the Companys senior borrowings and subordinated loans was estimated using a discounted cash flow analysis based on the Companys current borrowing rates for similar types of borrowing arrangements or based on
market quotations where available. At December 31, 2006 and 2005, the carrying value of the Companys senior borrowings and subordinated loans approximated fair value.



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SUPPLEMENTAL FINANCIAL INFORMATION



QUARTERLY RESULTS (UNAUDITED)



The following represents the Companys unaudited quarterly results from continuing operations for the years ended December 31, 2006 and 2005. These quarterly results were prepared in conformity with generally accepted accounting
principles and reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results. These adjustments are of a normal recurring nature.



|                                  |  |                      |  |          |  |          |  |          |  |           
|--------------------------------- |  | -------------------- |  | -------- |  | -------- |  | -------- |  | ----------
|                                  |  | 2006 Fiscal Quarter*
|                                  |  | First                |  | Second   |  | Third    |  | Fourth   |  | Year      
|                                  |  | ($ in thousands)    
|                                  |  |                      |  |          | 
|Net revenue                       |  | $336,216             |  | $386,823 |  | $297,386 |  | $472,744 |  | $1,493,169
|Operating expenses                |  | 257,966              |  | 301,781  |  | 248,156  |  | 351,590  |  | 1,159,493 
|                                  |  |                      |  |          |  |          |  |          |  |           
|Operating income                  |  | $78,250              |  | $85,042  |  | $49,230  |  | $121,154 |  | $333,676  
|                                  |  |                      |  |          |  |          |  |          |  |           
|Net income                        |  | $59,703              |  | $72,402  |  | $40,546  |  | $91,342  |  | $263,993  
|                                  |  |                      |  |          |  |          |  |          |  |           
|                                  | 
|                                  |  | 2005 Fiscal Quarter*
|                                  |  | First                |  | Second   |  | Third    |  | Fourth   |  | Year      
|                                  |  | ($ in thousands)    
|                                  |  |                      |  |          | 
|Net revenue                       |  | $260,099             |  | $317,363 |  | $356,901 |  | $367,048 |  | $1,301,411
|Operating expenses                |  | 161,830              |  | 227,552  |  | 279,126  |  | 287,227  |  | 955,735   
|                                  |  |                      |  |          |  |          |  |          |  |           
|Operating income                  |  | $98,269              |  | $89,811  |  | $77,775  |  | $79,821  |  | $345,676  
|                                  |  |                      |  |          |  |          |  |          |  |           
|Income from continuing operations |  | $80,206              |  | $63,049  |  | $58,298  |  | $71,247  |  | $272,800  
|                                  |  |                      |  |          |  |          |  |          |  |           
|Net income allocable to members   |  | $73,356              |  | $52,731  |  | $57,890  |  | $71,247  |  | $255,224  
|                                  |  |                      |  |          |  |          |  |          |  |           

---

|* | This quarterly operating data reflects the results of continuing operations of Lazard Group. The results of operations for certain businesses that Lazard Group no longer owns have
been reported as discontinued operations. This quarterly data does not reflect what the results of operations of Lazard Group would have been had it been a stand-alone, public company for the periods presented. In addition, the results of operations
for periods prior to May 10, 2005 are not comparable to results of operations for subsequent periods. Specifically, prior to May 10, 2005, the results of operations of Lazard Group do not give effect to the following matters:
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Payment for services rendered by Lazard Groups managing directors, which, as a result of Lazard Group operating as a limited liability company, historically
had been accounted for as distributions from members capital, or in some cases as minority interest, rather than as compensation and benefits expense. As a result, prior to May 10, 2005, Lazard Groups operating income historically did
not reflect payments for services rendered by its managing directors. For periods subsequent to the consummation of the equity public offering, Lazard Group includes all payments for services rendered by its managing directors and distributions to
holders of profit participation interests in Lazard Group are included within the accompanying consolidated financial statements in compensation and benefits expense.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The use of proceeds from the financing transactions.
| | - |  | ----------------------------------------------------



| |  |  | The net incremental interest expense related to the financing transactions.
| | - |  | ---------------------------------------------------------------------------



|Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
|------- | -------------------------------------------------------------------------------------



There were no changes in or disagreements with accountants on accounting and financial disclosure during the last two fiscal years.



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|Item 9A. | Controls and Procedures
|-------- | -----------------------



Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of December 31, 2006 (the end of
the period covered by this annual report on Form 10-K). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this annual report on Form 10-K, our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective, in all material respects, to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.



In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during our most recent fiscal quarter that has materially affected, or is likely
to materially affect, our internal control over financial reporting.



Managements Report on Internal Controls Over Financial Reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act), and the related report of our independent registered public accounting firm, are set forth in Part II,
Item 8 of this annual report on Form 10-K and are incorporated herein by reference.



|Item 9B. | Other Information
|-------- | -----------------



None.



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PART III



|Item 10. | Directors, Executive Officers and Corporate Governance
|-------- | ------------------------------------------------------



Information regarding our executive officers is included in Part I of this Form 10-K under the caption Executive Officers of the Registrant.
Our Board of Directors is divided into three classes, members of each class serve for a three year term. Lazard Groups board of directors and executive officers are the same as those of Lazard Ltd.



Class II Directors with Terms Expiring in 2007



Ellis Jones, age 53, has served as a director of Lazard Ltd and
Lazard Group since May 2005. Mr. Jones has served as Chief Executive Officer of Wasserstein & Co., LP since January 2001. Prior to becoming Chief Executive Officer of Wasserstein & Co., LP, Mr. Jones was a Managing
Director of the investment banking firm Wasserstein Perella Inc. from February 1995 to January 2001. Prior to joining Wasserstein Perella Inc., Mr. Jones was a Managing Director at Salomon Brothers Inc. in its Corporate Finance Department from
March 1989 to February 1995. Prior to joining Salomon Brothers Inc., Mr. Jones worked in the Investment Banking Department at The First Boston Corporation from September 1979 to March 1989. Mr. Jones is a member of the board of directors
of Harry & David Holdings, Inc.



Anthony
Orsatelli, age 55, has served as a director of Lazard Ltd and Lazard Group since May 2005. Mr. Orsatelli has served as a Member of the Executive Board of Natixis since November 2006 and as a Member of the Executive Board of IXIS Corporate
and Investment Bank (IXIS) since December 2006. Mr. Orsatelli served as the Chief Executive Officer of IXIS Corporate and Investment Bank from November 2004 to December 2006 and as a Member of the Executive Board of Caisse Nationale
des Caisses dEpargne from December 2003 until November 2006. Previously, Mr. Orsatelli held various senior positions with CDC IXIS and CDC Marchés since June 1996. Prior to joining CDC Marchés, Mr. Orsatelli served as
the Deputy Head of the Capital Markets Department of Caisse des Dépôts Paris from March 1995 to June 1996. Mr. Orsatelli previously served as the Head of the BNP Group in Japan from January 1992 to March 1995, as a Managing
Director of BNP Securities London from October 1988 to December 1991, and as the Head of the international department and risk management at BNPs financial division from July 1987 to October 1988. Mr. Orsatelli held positions with the
French Ministry of Finance from September 1981 to July 1987 and with the Prime Ministers office in France from September 1977 to September 1981. Mr. Orsatelli is chairman of the Audit Committee of the board of directors of Lazard Ltd.



Hal S. Scott, age 63, has served as a director of
Lazard Ltd and Lazard Group since March 2006. Professor Scott is the Nomura Professor and Director of the Program on International Financial Systems at Harvard Law School, where he has taught since 1975. Before joining Harvard he served as a Law
Clerk for the Hon. Justice Byron R. White, U.S. Supreme Court, from 1973 to 1974, and as an Assistant Professor of Law, University of California at Berkeley from 1974 to 1975. Professor Scott has published numerous books and articles on finance,
international trade and securities laws. He is the Director of the Committee on Capital Markets Regulation, past President of the International Academy of Consumer and Commercial Law and past Governor of the American Stock Exchange (2002-2005).
Professor Scott is the chairman of the Nominating & Governance Committee and a member of the Audit Committee of the board of directors of Lazard Ltd.



Class I Directors with Terms Expiring in 2008



Bruce Wasserstein, age 59, has served as Chairman and Chief Executive Officer of Lazard Ltd and Lazard Group since May 2005. Mr. Wasserstein
has served as a director of Lazard Group since January 2002 and as a director of Lazard Ltd since April 2005. Mr. Wasserstein served as the Head of Lazard and Chairman of the Executive Committee of Lazard Group from January 2002 until May 2005.
Prior to joining Lazard, Mr. Wasserstein was Executive Chairman at Dresdner Kleinwort Wasserstein from January 2001 to November 2001. Prior to joining Dresdner Kleinwort Wasserstein, he served as CEO of Wasserstein Perella Group (an



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investment banking firm he co-founded) from February 1988 to January 2001, when Wasserstein Perella Group was sold to Dresdner Bank. Prior to founding
Wasserstein Perella Group, Mr. Wasserstein was the Co-Head of Investment Banking at The First Boston Corporation. Prior to joining First Boston, Mr. Wasserstein was an attorney at Cravath, Swaine & Moore. Mr. Wasserstein also
currently serves as Chairman of Wasserstein & Co., LP, a private merchant bank and is a member of the board of directors of Harry & David Holdings, Inc.



Ronald J. Doerfler, age 65, has served as a director of Lazard Ltd and Lazard Group since June 2006.
Mr. Doerfler has been senior vice president and chief financial officer of The Hearst Corporation since February 1998, and was elected a member of Hearsts board of directors in August 2002. Hearst is one of the nations largest
diversified communications companies, with interests in magazine and newspaper publishing, television and radio stations, newspaper comics and features syndication, cable TV networks, television production and syndication, and new media activities.
Mr. Doerfler arrived at Hearst from ABC, Inc., where he was senior vice president and chief financial officer. He joined Capital Cities Communications in 1969, was appointed treasurer in 1977 and senior vice president and chief financial
officer in 1980. He played a major role in Capital Cities acquisition of ABC in 1986, and with the combined groups 1996 merger with The Walt Disney Company. Mr. Doerfler is a member of the Audit Committee of the board of directors
of Lazard Ltd.



Michael J. Turner, CBE, age 58, has
served as a director of Lazard Ltd and Lazard Group since March 2006. Mr. Turner has served as Chief Executive Officer of BAE Systems Plc since March 2002. Mr. Turner joined BAE Systems in 1966 and since that time has held a number of
commercial, marketing and general management positions, including Chief Operating Officer from 1999 to March 2002. Mr. Turner is a member of the Shareholders Committee of Airbus SAS, a member of the Board of Directors of Art Properties UK Ltd
and joint chairman of the Aerospace Innovation and Growth Team in the UK. Mr. Turner is a member of the Compensation Committee and the Nominating & Governance Committee of the board of directors of Lazard Ltd.



Class III Directors with Terms Expiring in 2009



Steven J. Heyer, age 54, has served as a director of Lazard Ltd and
Lazard Group since June 2005. Mr. Heyer has served as Chief Executive Officer of Starwood Hotels & Resorts Worldwide since October 2004. Prior to joining Starwood, he was President and Chief Operating Officer of The Coca-Cola Company
from April 2001 to September 2004. From 1994 to 2002 he was President and Chief Operating Officer of Turner Broadcasting System, Inc., and a member of AOL Time Warners Operating Committee. Previously, Mr. Heyer was President and Chief
Operating Officer of Young & Rubicam Advertising Worldwide, and before that spent 15 years at Booz Allen & Hamilton, ultimately becoming Senior Vice President and Managing Partner. He currently serves on the Board of Directors of
the National Collegiate Athletic Association and the Special Olympics. Mr. Heyer is the chairman of the Compensation Committee and a member of the Nominating & Governance Committee of of the board of directors of Lazard Ltd.



Sylvia Jay, CBE, age 60, has served as a director of
Lazard Ltd and Lazard Group since March 2006. Lady Jay is Vice Chairman of LOreal UK, a position she has held since September 2005. From January 2001 to August 2005, she was the Director General of the Food & Drink Federation, a UK
trade body. Lady Jay joined the United Kingdom Civil Service in 1971. Her civil service career, until she resigned in 1995, mainly concerned government financial aid to developing countries, including being a non-executive director to the Gibraltar
Ship Repair Company. She also worked in the Civil Service Selection Board to recruit fast stream administrators and diplomats; the French Ministere de la Cooperation; the French Tresor and was one of a small international team which set up the
European Bank for Reconstruction and Development. Lady Jay is on the board of directors of Saint-Gobain and Alcatel-Lucent, as well as, Chairman of Food from Britain. Lady Jay is a member of the Compensation Committee and the Nominating &
Governance Committee of the board of directors of Lazard Ltd.



Vernon E. Jordan, Jr., age 71, has served as a director of Lazard Ltd and Lazard Group since May 2005. Mr. Jordan has served as a Senior Managing Director of Lazard Frères & Co. LLC since January 2000.
Mr. Jordan has been Of Counsel at Akin, Gump, Strauss, Hauer & Feld L.L.P. since January 2000, where he served as Senior Executive Partner from January 1982 to December 1999. Prior to that, Mr. Jordan served as



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President and Chief Executive Officer of the National Urban League, Inc. from January 1972 to December 1981. Mr. Jordan currently serves on the boards
of directors of American Express Company, Asbury Automotive Group, Inc., J.C. Penney Company, Inc. and Xerox Corporation; as a trustee to Howard University and DePauw University; and on the International Advisory Board of Barrick Gold.



Agreement with IXIS Corporate & Investment Bank



IXIS participated as an investor in Lazard Ltds
recapitalization transactions in May 2005, purchasing $150 million of Lazard Ltds equity security units (which represent a contract to purchase Lazard Ltd Class A common stock on May 15, 2008 and a senior note of Lazard Group in an
aggregate amount of $150 million) and 2,000,000 shares of Lazard Ltd Class A common stock at the initial public offering (IPO) price of $25 per share. In connection with IXISs investment, we have agreed that we will nominate
one person designated by IXIS to our Board of Directors until such time as (1) the shares of Lazard Ltds common stock then owned by IXIS, plus (2) the shares of Lazard Ltds common stock issuable under the terms of any
exchangeable securities issued by us then owned by IXIS, constitute less than 50% of the sum of (a) the shares of Lazard Ltds common stock initially purchased by IXIS, plus (b) the shares of Lazard Ltds common stock issuable
under the terms of any exchangeable securities issued by Lazard Ltd initially purchased by IXIS. Anthony Orsatelli is the IXIS nominee to our Board of Directors.



Audit Committee Financial Expert



Since Lazard Ltds Class A common stock is listed on the New York Stock Exchange and Lazard Group is part of Lazard Ltds
consolidated reporting group, Lazard Group is not required to have a separate audit committee. Lazard Ltd maintains an independent audit committee and the Board of Directors of Lazard Ltd has determined that Mr. Anthony Orsatelli and Mr. Ronald
J. Doerfler have the requisite qualifications to satisfy the SEC definition of audit committee financial expert.



Code of Business Conduct and Ethics



Lazard Ltd has adopted the Code of Business Conduct and Ethics that is applicable to all directors, managing directors, officers and employees of Lazard Ltd, Lazard Group
and their subsidiaries and affiliates, as well as a Supplement to the Code of Business Conduct and Ethics for certain other senior officers, including Lazard Groups chief executive officer, chief financial officer and principal accounting
officer. Each of these codes are available on our website at http://www.lazard.com/investorrelations/ConductsandEthics.html and a copy is attached as an exhibit to this Form 10-K. A print copy of each of these documents is available upon
request. We intend to disclose amendments to, or waivers from, the Code of Business Conduct and Ethics, if any, on our website.



|Item 11. | Executive Compensation
|-------- | ----------------------



The Lazard Ltd Compensation Committee oversees the compensation of the Lazard Group executive officers. The executive officers of Lazard Group are the
same as those of Lazard Ltd.



Compensation Discussion and
Analysis



Philosophy and Objectives of Our Compensation Programs



General. Our compensation programs are designed to
attract, retain, and motivate executives and professionals of the highest level of quality and effectiveness. These compensation programs focus on rewarding the types of performance that increase shareholder value, including growing revenue,
retaining clients, developing new client relationships, improving operational efficiency and managing risks. A substantial portion of each executives total compensation is intended to be variable and delivered on a pay-for-performance basis.



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The programs will provide compensation opportunities, contingent upon performance, that are competitive with practices of other similar financial services
organizations. We target annual operating revenue, earnings and total shareholder return as our key performance metrics, with a goal of keeping compensation and benefits expense at or below 57.5% of our annual operating revenue. In allocating
compensation to our executive officers, managing directors and other senior professionals, the primary emphasis, in addition to our performance, is on each individuals contribution to the Company, business unit performance and compensation
recommendations of the individuals to whom participants report. The Lazard Ltd Compensation Committee monitors the effectiveness of our compensation programs throughout the year and performs an annual reassessment of the programs in January of each
year in connection with year-end compensation decisions. The Lazard Ltd Compensation Committee directly engaged Steven Hall & Partners, an independent compensation consulting firm, to assist it with benchmarking and compensation analyses.



Competitive Compensation Considerations. Because the
competition to attract and retain high performing executives and professionals in the financial services industry is intense, the amount of total compensation paid to our executives must be considered in light of competitive compensation levels. In
this regard, for our named executive officers, the Lazard Ltd Compensation Committee used as a benchmark an independently prepared survey regarding compensation levels in 2005 and, to the extent available, 2006, for comparable positions at The Bear
Stearns Companies Inc., Black Rock, Inc., Goldman Sachs Group, Inc., Greenhill & Co., Inc., Jefferies Group, Inc., Legg Mason, Inc., Lehman Brothers Holdings Inc., Merrill Lynch & Co., Inc., and Morgan Stanley. While some of the
companies listed above are larger than Lazard, we chose this comparator group because we compete in the same marketplace with these companies for highly qualified and talented financial service professionals.



Design of Our Compensation Programs



Compensation for each of our executive officers, managing directors and
other senior professionals is viewed on a total compensation basis and then subdivided into two primary categoriesbase salary and incentive compensation. Our incentive compensation has two components: annual cash bonus and an equity based
award. Decisions with regard to incentive compensation are made in January of each year and are based on Company and individual performance in the prior fiscal year. The Lazard Ltd Compensation Committee determines and approves the total
compensation package (salary, cash bonus, and equity based awards) to be paid to our chief executive officer, Mr. Wasserstein. Mr. Wasserstein, in turn, makes recommendations to the Committee as to the total compensation package to be paid
to the other named executive officers, which are then subject to the review and approval of the Lazard Ltd Compensation Committee. Before any year-end compensation decisions are made, the Lazard Ltd Compensation Committee reviews a comprehensive
tally sheet of all elements of each named executive officers compensation, including unrealized gains on prior equity-based awards and potential amounts to be delivered under all post-employment scenarios.



Base Salary. Base salaries are intended to reflect the experience,
skill and knowledge of our executive officers, managing directors and other senior professionals in their particular roles and responsibilities. Base salaries for our executive officers and any subsequent adjustments thereto are reviewed and
approved by the Lazard Ltd Compensation Committee annually, based on a review of relevant market data and each executives performance for the prior year, as well as each executives experience, expertise and position.



Incentive Compensation. Incentive compensation is a key component of
our executive compensation strategy. Incentive compensation payouts can be highly variable from year to year and are generally based on our operating revenue, earnings and total shareholder return in the immediately preceding fiscal year, as well as
each individuals contribution to revenue and to the Companys development, including business unit performance. In addition, careful attention is paid to competitive compensation practices in the financial services industry.



In January of each year a determination is made as to the total amount of
incentive compensation to be paid to our managing directors and senior professionals, including our named executive officers, based on Company and individual performance in the prior fiscal year. An allocation is then made between cash and
equity-based



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awards. In January of 2007, we applied a progressive formula based on total compensation for all of our managing directors and senior professionals,
including the named executive officers, except with respect to Mr. Wasserstein who received all of his incentive compensation in the form of an equity based award. Pursuant to this formula, as a participants total compensation (salary,
bonus and equity-based award) increases, a greater percentage of his or her total compensation is composed of an equity-based award. This formula is based on a sliding scale that effectively begins at 7.5% for some of our vice presidents and
directors and generally reaches 50% for our highest paid managing directors. The remainder of an individuals total incentive compensation award is payable in cash.



For 2006, the portion of total incentive compensation paid in equity-based compensation was awarded in the form of
restricted stock units, or RSUs granted under the 2005 Equity Incentive Plan. An RSU is a contractual right to receive a fixed number of shares of Lazard Ltds Class A common stock upon the vesting of the RSU. The RSUs granted to our named
executive officers generally vest in approximately three or four years after the date of grant, subject to the executives continued service with the company. See Grant Plan Based Awards below for a discussion of the terms of the
RSUs. The purpose of the RSU awards is to maximize shareholder value by aligning the long-term interests of our senior executives with those of our shareholders. Each individual who receives an RSU becomes, economically, a long-term shareholder of
Lazard, with the same interests as our other shareholders. This economic interest results because the amount a recipient ultimately realizes from an RSU depends on the value of Lazard Ltd Class A common stock when actual shares are delivered
upon vesting. RSU awards also serve as an important retention mechanism for Lazard by putting a significant portion of each recipients compensation at risk of forfeiture if they leave the firm prior to the vesting date. In exchange for their
RSU awards, our named executive officers agreed to limits on their ability to compete with Lazard or to solicit our customers and employees, which serves to protect the Companys intellectual and human capital. In addition, each of our named
executive officers own considerable interests in Lazard through their holdings of LAZ-MD Holdings exchangeable interests. See Beneficial Ownership of Directors, Director Nominees and Executive Officers. As a result, we believe our
executive officers have a demonstrable and significant interest in increasing shareholder value over the long term.



RSU awards are typically made in the third week of January, which this year was prior to our public announcement of year-end earnings on February 7,
2007. The number of RSUs granted in 2007 (which relate to 2006 performance) was determined by dividing the dollar amount allocated to be granted as an equity based award by the closing price-per-share of the Lazard Ltd Class A common stock on
the NYSE on the grant date, January 23, 2007 ($50.08). The RSUs granted in January 2007 to our named executive officers will vest 50% on March 31, 2010 and 50% on March 31, 2011.



Impact of 2006 Performance on Compensation



In setting compensation levels for our employees we primarily consider annual operating revenue, earnings and total shareholder return. Our goal is to
limit total compensation and benefits expense to 57.5% or less of our annual operating revenue, while maintaining a competitive compensation package for our executive officers, managing directors and other senior professionals. Our ratio of
compensation and benefits expense to annual operating revenue is somewhat higher than that of the companies in our comparator group for three reasons. First, many of the companies in our comparator group are engaged in businesses, such as capital
markets businesses which have a large number employees serving in administrative and support roles, that generally pay their employees lower levels of compensation relative to our business. Second, part of our business strategy is to recruit and
retain proven senior professionals who have strong client relationships and industry expertise. These individuals, because of the value they bring to the Company, command higher compensation. Third, many of the companies in our comparator group
generate significant amounts of revenue in their capital markets business through the utilization of capital held on their balance sheet, which tends to increase the relative size of their annual operating revenues. These three factors cause our
ratio of compensation and benefits expense to annual operating revenue to appear higher than our competitors. For 2006, the Lazard Ltd Compensation Committee determined that, in light of our annual operating revenue of $1.57 billion, the target
level of total compensation



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and benefits expense to operating revenue could be set at 56.7%, while still meeting our compensation and retention objectives. The Lazard Ltd Compensation
Committee concluded that this ratio of total compensation and benefits expense to annual operating revenue was appropriate for us in light of its discussions with our executive officers, information provided by Steven Hall & Partners, and
our financial performance in 2006. This represents a 15% increase in total compensation and benefits expense to $891.4 million for 2006 compared with pro forma $774.2 million for 2005. This increase was slightly less than our 16% increase in annual
operating revenue for 2006.



Compensation for each of Our Named Executive
Officers in 2006



General. In connection with our
initial public offering in May 2005, each of our named executive officers signed a retention agreement that established a guaranteed minimum level of compensation. The compensation amounts, including base salary, were negotiated at the time of the
IPO and were meant to ensure that Lazard would have the services of each of the named executive officers during a critical time as we transitioned from being a private company to a public company. See Retention Agreements with Named Executive
Officers. The base salary paid in 2006 to each of our named executive officers was the minimum required under each of their retention agreements: $4.8 million to Mr. Wasserstein; $500,000 to Mr. Castellano; $1.5 million to
Mr. Golub; $600,000 to Mr. Hoffman; and $1.5 million to Mr. Ward.



The annual incentive compensation for our chief executive officer for 2006 was determined by the Lazard Ltd Compensation Committee. Annual incentive compensation for each of our other named executive officers was
established based on the recommendation of our chief executive officer and approval by the Lazard Ltd Compensation Committee. While the retention agreements with each of our named executive officers establish an overall minimum level of
compensation, annual cash bonuses and equity-based awards above this level were decided on a discretionary basis. Our chief executive officer reviewed with the Lazard Ltd Compensation Committee the performance of each of the named executive officers
individually and their overall contribution to the Company in 2006, which was not based on any numerical targets.



Mr. Wasserstein. In determining the amount of incentive compensation to be paid to our chief executive officer, Mr. Wasserstein, the
Lazard Ltd Compensation Committee considered Mr. Wassersteins individual performance and the Companys overall performance in 2006, against the goals and objectives previously established for him by the Lazard Ltd Compensation
Committee . These goals and objectives (which did not include numerical targets) consisted principally of:



Company Performance:



| |  |  | a review of operating revenue;
| | - |  | ------------------------------



| |  |  | earnings; and
| | - |  | -------------



| |  |  | total shareholder return in 2006.
| | - |  | ---------------------------------



Individual Performance:



| |  |  | evaluating his leadership and effectiveness in establishing and communicating the strategic vision necessary to position Lazard for future growth and profitability;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | motivating key employees and attracting and retaining new talent;
| | - |  | -----------------------------------------------------------------



| |  |  | improving results at Lazard Asset Management (LAM);
| | - |  | -----------------------------------------------------



| |  |  | facilitating European integration by improved collaboration;
| | - |  | ------------------------------------------------------------



| |  |  | setting financial targets and presenting a plan to achieve goals to the Board; and
| | - |  | ----------------------------------------------------------------------------------



| |  |  | keeping the Board informed and up-to-date regarding ongoing issues and initiatives within Lazard.
| | - |  | -------------------------------------------------------------------------------------------------



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In evaluating the Companys and Mr. Wassersteins performance, the Lazard Ltd Compensation
Committee noted the following:



| |  |  | operating revenue for the full year 2006 increased 16% to a record $1.57 billion compared to $1.36 billion for 2005;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | operating income for the full year 2006 increased 31% to $327.2 million, compared to pro forma $248.9 million for 2005; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | total shareholder return of 50% for fiscal 2006 and 90% since our IPO in May of 2005.
| | - |  | -------------------------------------------------------------------------------------



The Lazard Ltd Compensation Committee also considered:



| |  |  | the turn around in performance in our asset management business segment, which posted a revenue increase of 18% to $548.5 million for the full year 2006 compared
with $463.7 million for full year 2005;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Management fees for our asset management business segment increased 16% to a record $450.3 million for full year 2006 compared with $389.4 million for full year
2005;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Assets under management totaled $110.4 billion at the end of 2006, a record level, representing a 25% increase from the end of 2005; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Committee noted the strategic vision that Mr. Wasserstein has enunciated for Lazard and his consistent performance in guiding the Company in its transition
from a privately held financial services firm to a publicly traded company, all the while continuing to improve operating performance.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Committee also reviewed the competitive compensation practices at the other firms included in our comparator group and the unique value that
Mr. Wasserstein brings to the Lazard franchise. Based on this review the Lazard Ltd Compensation Committee decided to increase Mr. Wassersteins total compensation by 61% by awarding him $18 million in incentive compensation payable
entirely in RSUs valued at the closing price per share of Lazard Class A common stock on the NYSE on January 23, 2007 ($50.08). The Lazard Ltd Compensation Committee believed that it was important for Mr. Wasserstein to remain focused
on (and that his 2006 compensation continue to be dependent on) Lazards long-term performance. The Committee believed that this RSU award, together with Mr. Wassersteins other equity interests in Lazard, achieved that objective.



The following table shows the base salary and incentive
compensation paid to Mr. Wasserstein for his performance in 2006 in the manner it was considered by the Lazard Ltd Compensation Committee. This presentation differs from that contained in the Summary Compensation Table primarily through showing
the full grant date value of the RSUs awarded on January 23, 2007, which related to 2006 performance but are not reflected in the Summary Compensation Table because they were granted after the end of our 2006 fiscal year.



|                  |  |      |                      |            |                                 |                        |  |                       |  |            
|----------------- |  | ---- | -------------------- | ---------- | ------------------------------- | ---------------------- |  | --------------------- |  | -----------
|                  |  | Year |                      | Salary ($) |                                 | Incentive Compensation |  | TotalCompensation ($)
|                  |  |      | Annual CashBonus ($) |            | Restricted StockUnit Awards ($) |                       
|Bruce Wasserstein |  | 2006 |                      | $4,800,000 |                                 |                       |  | $18,000,000           |  | $22,800,000



Other Named
Executive Officers. In determining annual incentive compensation for Mr. Golub, as vice chairman of Lazard and chairman of the financial advisory group, and Mr. Ward, as president of Lazard and chairman of the asset management group,
Mr. Wasserstein noted the role that each individual plays in the Lazard organization, maintaining a balance between their leadership and administrative responsibilities within the firm, while continuing to cultivate important client
relationships. These client relationships have lead to specific engagements that have contributed to the Companys overall revenue growth in 2006. Mr. Wasserstein singled out for mention to the Lazard Ltd Compensation Committee
Mr. Golubs role in the retention of a significant client that had undergone a change in its senior management team. In making a recommendation on incentive compensation for each of Messrs. Golub and Ward, Mr. Wasserstein reviewed
total revenue generated



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from each of their particular client relationships, each executives positioning on an internal pay equity scale vis-à-vis other managing
directors within Lazard, and the competitive compensation practices at the other firms included in our comparator group. The tracking of revenue back to particular client relationships was an important factor considered in differentiating incentive
compensation among Lazards managing director group. Based on Mr. Wassersteins recommendation, the Lazard Ltd Compensation Committee approved the following incentive compensation for each of Mr. Golub and Mr. Ward for their
performance in 2006: Mr. Golub was paid a cash bonus of $4.9 million and received an RSU award valued at $7.1 million; Mr. Ward was paid a cash bonus of $1.5 million and received an RSU award valued at $1 million. The RSUs awarded to
Mr. Golub and Mr. Ward constituted approximately 53% and 25% of their total compensation (salary, bonus and equity award), respectively. This was a 78% increase in total compensation for Mr. Golub and a 14% increase in total
compensation for Mr. Ward compared to 2005.



In
determining incentive compensation for Mr. Castellano and Mr. Hoffman, Mr. Wasserstein noted that each provides significant leadership to Lazard in their roles as chief financial officer and general counsel, respectively.
Mr. Castellano has overall responsibility for corporate finance and accounting at Lazard on a worldwide basis, and Mr. Hoffman oversees legal and compliance, human resources, and public relations and communications. Mr. Wasserstein
noted that both executives have played a key role in transitioning Lazard, on a worldwide basis, from a private financial services firm to a public company. They have been tasked with primary responsibility for establishing and implementing uniform
internal policies within Lazard, so that other members of senior management can focus on building the Lazard franchise and cultivating client relationships. In making a recommendation on incentive compensation for Mr. Castellano,
Mr. Wasserstein cited his performance in overseeing, and implementing improvements to, Lazards internal control environment for financial reporting across geographies and business units and bringing the firm into compliance with the
financial reporting requirements of the Sarbanes-Oxley Act of 2002. With respect to Mr. Hoffman, Mr. Wasserstein noted his wide-ranging roles in overseeing legal operations worldwide, human resources and public relations; his leadership in
spearheading an internal cost cutting initiative; and the intangible benefit to the firm of having an attorney of Mr. Hoffmans caliber providing counsel to the firm on both legal and business matters. Based on Mr. Wassersteins
recommendation, the Lazard Ltd Compensation Committee approved the following incentive compensation for each of Mr. Castellano and Mr. Hoffman for their performance in 2006: Mr. Castellano was paid a cash bonus of $1.55 million and
received an RSU award valued at $450,000; Mr. Hoffman was paid a cash bonus of $1.775 million and received an RSU award valued at $625,000. The RSUs awarded to Mr. Castellano and Mr. Hoffman constituted approximately 18% and 21% of
their total compensation (salary, bonus and equity award), respectively. This was a 19% increase in total compensation for Mr. Castellano and a 25% increase in total compensation for Mr. Hoffman compared to 2005.



The following table shows the base salary and incentive compensation paid to
Messrs. Castellano, Golub, Hoffman and Ward for their performance in 2006 in the manner it was considered by the Lazard Ltd Compensation Committee. This presentation differs from that contained in the Summary Compensation Table primarily through
showing the full grant date value of the RSUs awarded on January 23, 2007, which related to 2006 performance but are not reflected in the Summary Compensation Table because they were granted after the end of our 2006 fiscal year.



|                      |  |      |                      |            |                                 |                        |   |                       |  |   |           |  |   |           
|--------------------- |  | ---- | -------------------- | ---------- | ------------------------------- | ---------------------- | - | --------------------- |  | - | --------- |  | - | ----------
|                      |  | Year |                      | Salary ($) |                                 | Incentive Compensation |   | TotalCompensation ($)
|                      |  |      | Annual CashBonus ($) |            | Restricted StockUnit Awards ($) |                       
|Michael J. Castellano |  | 2006 |                      | $          | 500,000                         |                        | $ | 1,550,000             |  | $ | 450,000   |  | $ | 2,500,000 
|Steven J. Golub       |  | 2006 |                      | $          | 1,500,000                       |                        | $ | 4,900,000             |  | $ | 7,100,000 |  | $ | 13,500,000
|Scott D. Hoffman      |  | 2006 |                      | $          | 600,000                         |                        | $ | 1,775,000             |  | $ | 625,000   |  | $ | 3,000,000 
|Charles G. Ward, III  |  | 2006 |                      | $          | 1,500,000                       |                        | $ | 1,500,000             |  | $ | 1,000,000 |  | $ | 4,000,000 



Pursuant to the
applicable disclosure rules, the value of the RSUs reported in the Summary Compensation Table for each of our named executive officers is based on the dollar amount of compensation expense that is



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recognized in our consolidated financial statements under FAS 123R for fiscal 2006. Consequently, the Summary Compensation Table only reflects the
amortization relating to the RSU awards that were granted on January 24, 2006, based on the executives performance in fiscal 2005.



Perquisites. In 2006, the Company provided a limited number of perquisites, with each of our named executive officers receiving less than $13,750
in perquisite compensation. Each of our managing directors, including the named executive officers, are responsible for paying the full premiums for any health insurance provided through the firm and do not receive any matching contributions from
the Company on their personal contributions to Lazards 401(k) plan. Our managing directors, including the named executive officers, are the beneficiaries of a Company provided life insurance and excess liability insurance policy.
Mr. Wasserstein reimburses the Company for personal use of a car and driver provided by Lazard based on the incremental cost of such use to the Company. Lazard also holds a fractional interest in a private aircraft. From time to time
Mr. Wasserstein uses this aircraft for personal reasons and reimburses the Company at the incremental cost of such use. When members of Mr. Wassersteins immediate family, without Mr. Wasserstein present, use this aircraft,
Mr. Wasserstein reimburses the Company for the full cost (fixed charges plus incremental cost) of such use. Each of our managing directors, including the named executive officers, are entitled to have their year-end personal tax returns
prepared by our tax department. Messrs. Castellano, Golub and Hoffman have availed themselves of this benefit, while Mr. Wasserstein and Mr. Ward have chosen to use and pay for their own tax advisors. This perquisite has been an historical
practice of the firm, and is provided due to the complexity involved in preparing such tax returns as the Company continues to be viewed as a partnership for U.S. tax purposes.



Post-Employment Benefits.Each of Mr. Golub and Mr. Hoffman has an accrued benefit under the Lazard
Frères & Co. LLC Employees Pension Plan, a qualified defined-benefit pension plan, and Mr. Hoffman has accrued additional benefits under a related supplemental defined-benefit pension plan. In each case, these benefits
accrued prior to the applicable officers becoming a managing director of Lazard. The annual benefit under such plans, payable as a single life annuity commencing at age 65, would be $4,332 for Mr. Golub and $18,852 for Mr. Hoffman.
Benefit accruals under both of these plans were frozen for all participants effective January 31, 2005 and no additional benefits will be paid to any of our named executive officers. Messrs. Wasserstein, Castellano and Ward do not participate
in any of these plans. See Retirement Plan Benefits.



Each retention agreement with a named executive officer provides for certain severance benefits in the event of a termination of employment prior to May 10, 2008 by us other than for cause or by the named executive officer for good
reason (we refer to these as a qualifying terminations). We provide for such severance payments on the condition that the departed executive not compete with us, solicit our customers and employees, or take other actions that harm our
business for specified periods. The level of the severance benefits depends on whether the qualifying termination occurs prior to or following a change in control of Lazard Ltd. A qualifying termination following a change of control will trigger an
enhanced benefit. In addition, each retention agreement with a named executive officer provides that in the event that the named executive officers receipt of any payment made by us under the retention agreement or otherwise are subject to the
excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended, or the Code, an additional payment will be made to restore the executive to the after-tax position that he would have been in if the excise tax had
not been imposed. The events giving rise to a severance payment as well as the amount of the payments under the retention agreements were negotiated terms and based on common industry practice for agreements of this kind at the time of our initial
public offering. See Retention Agreements with Named Executive Officers  Payments and Benefits Upon Certain Terminations of Service and see Potential Payments Upon Termination or Change-in-Control for an
estimate of potential payouts under each scenario.



In general,
non-vested RSUs are forfeited by our named executive officers upon termination of employment, except in limited cases such as disability or a termination by the Company other than for cause. In the event of a change of control of Lazard
Ltd, any unvested RSUs automatically vest, without regard to whether the executive officer is terminated. See Outstanding Equity Awards at Fiscal Year-End. In this way, our named



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executive officers can realize value from their equity awards in the same way as shareholders in connection with the change of control transaction, and thus
encourage our named executive officers to consider and support transactions that might benefit shareholders.



Accounting and Tax Considerations



Section 162(m) of the Code limits deductions by corporations for non-performance-based annual compensation in excess of $1.0 million paid to certain executive officers. At the present time, Lazard is eligible for
an exemption from the provisions of Section 162(m). As a result, Section 162(m) of the Code has had no financial impact on Lazard and was not considered by the Lazard Ltd Compensation Committee in its year-end decision making process.



Conclusion



Our compensation program is designed to permit the Company to provide our
executive officers, managing directors and other senior professionals with total compensation that is linked to our performance and reinforces the alignment of employee and shareholder interests. At the same time it is intended to provide us with
sufficient flexibility to assure that such compensation is appropriate to attract and retain these employees who are vital to the continued success of Lazard and to drive outstanding individual and institutional performance. We believe the program
met these objectives in 2006, as well as our goal of keeping compensation and benefits expense at or below 57.5% of our annual operating revenue.



COMPENSATION COMMITTEE REPORT



The following is the report of the Lazard Ltd Compensation Committee, which oversees the compensation of the Lazard Group executive officers.



The Compensation Committee of Lazard Ltd has reviewed and discussed the
Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Lazard Ltd Compensation Committee recommended to the Board that the Compensation Discussion and
Analysis be included in this Annual Report on form 10-K.



Compensation
Committee



Steven J. Heyer (Chair),
Sylvia Jay and Michael J. Turner



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Compensation of Executive Officers



The following table contains information with respect to the chief executive
officer, chief financial officer, and the three other most highly compensated executive officers of Lazard Group, collectively referred to as the named executive officers.



Summary Compensation Table



|                                                                                          |  |      |  |            |           |     |           |   |           |                                   |  |                                                                       |           |  |                              |       |     |           |   |        |     |  |   |          
|----------------------------------------------------------------------------------------- |  | ---- |  | ---------- | --------- | --- | --------- | - | --------- | --------------------------------- |  | --------------------------------------------------------------------- | --------- |  | ---------------------------- | ----- | --- | --------- | - | ------ | --- |  | - | ---------
|Name and Principal Position                                                               |  | Year |  | Salary ($) |           |     | Bonus ($) |   |           | RestrictedStock UnitAwards (a)($) |  | Change inPension ValueandNonqualifiedDeferredCompensationEarnings ($) |           |  | All OtherCompensation($) (b) |       |     | Total ($)
|Bruce Wasserstein Chairman and Chief Executive Officer                                    |  | 2006 |  | $          | 4,800,000 |     |           |   |          |                                   |  | $                                                                     | 2,238,222 |  |                              |      |     |           | $ | 1,745  |     |  | $ | 7,039,967
|Michael J. Castellano Chief Financial Officer                                             |  | 2006 |  | $          | 500,000   |     |           | $ | 1,550,000 |                                   |  | $                                                                     | 60,434    |  |                              |      |     |           | $ | 11,703 | (c) |  | $ | 2,122,137
|Steven J. Golub Vice Chairman Lazard Group, Chairman of Financial Advisory Group          |  | 2006 |  | $          | 1,500,000 |     |           | $ | 4,900,000 |                                   |  | $                                                                     | 984,819   |  | $                            | 1,968 | (d) |           | $ | 11,134 | (c) |  | $ | 7,397,921
|Scott D. Hoffman General Counsel                                                          |  | 2006 |  | $          | 600,000   |     |           | $ | 1,775,000 |                                   |  | $                                                                     | 73,858    |  | $                            | 3,597 | (d) |           | $ | 10,280 | (c) |  | $ | 2,462,735
|Charles G. Ward, III President  Lazard Group, and Chairman of the Asset Management Group |  | 2006 |  | $          | 1,500,000 | (e) |           | $ | 1,500,000 | (e)                               |  | $                                                                     | 111,907   |  |                              |      |     |           | $ | 1,745  |     |  | $ | 3,113,652

---

|(a) | The value of the RSUs reported in the Summary Compensation Table is based on the dollar amount that is recognized in our consolidated financial statements for fiscal 2006 under FAS
123R, as required under SEC rules for compensation disclosure. See Note 13 of notes to Lazard Groups consolidated financial statements for a discussion of the assumptions used in the valuation of the RSUs. For information on the grant date
fair value of RSU awards made during fiscal 2007 that relate to 2006 performance, see Compensation Discussion and Analysis  Compensation for each of Our Named Executive Officers in 2006.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Each of our named executive officers is the beneficiary of a Company provided life insurance and excess liability insurance policy.
|--- | -----------------------------------------------------------------------------------------------------------------------------------



We make available to Mr. Wasserstein a car and driver, as well as a
private aircraft in which Lazard holds a fractional interest. Mr. Wasserstein reimburses the firm for personal use of both the car and driver and the private aircraft at the incremental cost of such use to the Company. When members of Mr.
Wassersteins immediate family, without Mr. Wasserstein present, use this aircraft, Mr. Wasserstein reimburses the Company for the full cost (fixed charges plus incremental cost) of such use.

|(c) | Perquisite compensation for Messrs. Castellano, Golub and Hoffman include the incremental cost to the Company of providing U.S. tax advice and preparation of year-end personal tax
returns.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Represents the aggregate change in actuarial present value of the listed officers accumulated benefit under the Lazard Frères & Co. LLC Employees Pension
Plan, and in the case of Mr. Hoffman, a related supplemental defined-benefit pension plan.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | $500,000 of Mr. Wards salary and bonus, in the aggregate, for 2006 was reimbursed by LFCM Holdings for services that Mr. Ward rendered to LFCM Holdings as its
chairman.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Grants of Plan Based Awards



The following table provides information about RSUs granted to each of the Named Executive Officers during fiscal 2006,
which relate to 2005 performance. For information on the grant date fair value of RSU awards made during fiscal 2007 that relate to 2006 performance, see Compensation Discussion and Analysis  Compensation for each of Our Named
Executive Officers in 2006.



|                        |  |                  |  |                                      |  |                                                    |           
|----------------------- |  | ---------------- |  | ------------------------------------ |  | -------------------------------------------------- | ----------
|Named Executive Officer |  | Grant Date       |  | Number of Restricted Stock Units (#) |  | Grant Date Fair Valueof Restricted Stock Units ($)
|Bruce Wasserstein       |  | January 24, 2006 |  | 287,770                              |  | $                                                  | 10,000,000
|Michael J. Castellano   |  | January 24, 2006 |  | 7,770                                |  | $                                                  | 270,000   
|Steven J. Golub         |  | January 24, 2006 |  | 126,619                              |  | $                                                  | 4,400,000 
|Scott D. Hoffman        |  | January 24, 2006 |  | 9,496                                |  | $                                                  | 330,000   
|Charles G. Ward, III    |  | January 24, 2006 |  | 14,388                               |  | $                                                  | 500,000   



The RSUs
represent a contingent right to receive an equivalent number of shares of Class A common stock of Lazard Ltd. The RSUs shown in the table were valued as of the grant date, January 24, 2006, by multiplying the number of RSUs awarded to each
named executive officer by the closing price-per-share of the Lazard Ltd Class A Common Stock on the NYSE on that date ($34.75). The RSUs relate to 2005 performance and will vest on March 31, 2010. Each of our named executive officers
signed an RSU agreement in connection with their award. In general, these agreements provide that non-vested RSUs are forfeited on termination of employment, except in limited cases such as disability or a termination by the Company other than for
cause. In the event of a Change in Control (as defined in the 2005 Equity Incentive Plan), any unvested but outstanding RSU automatically will vest. All RSUs receive dividend equivalents at the same rate that dividends are
paid on shares of Class A common stock of Lazard Ltd. These dividends are credited in the form of additional RSUs with the same restrictions as the underlying RSUs to which they relate. In addition, the RSU agreements contain standard
covenants, including among others, noncompetition and nonsolicitation of clients.



Bonus Plan



To
align employee and stockholder interests, we adopted the 2005 Bonus Plan for purposes of determining annual bonuses for our senior executives. The Lazard Ltd Compensation Committee has full direct responsibility and authority for determining our
Chief Executive Officers compensation under the plan. The Lazard Ltd Compensation Committee reviews and approves the recommendations of our Chief Executive Officer with regard to the compensation of our other named executive officers under the
plan. Subject to overall compensation limits as determined from time to time and, with respect to plan participants, the terms of the plan, our Chief Executive Officer has responsibility for determining the compensation of all employees except as
provided above.



Participants in the plan are designated during
the first three months of each fiscal year, although participants may be added or removed at any time prior to payment of bonuses for the fiscal year. The actual size of the bonus pool is determined at the end of each fiscal year, taking into
account our results of operations, stockholder return and/or other measures of our financial performance or of the financial performance of one or more of our subsidiaries or divisions. A target maximum ratio of aggregate compensation and benefits
expense for the year (including annual incentive payments under the plan) to annual revenue or income (or to similar measures of corporate profitability) may also be taken into account, and it is currently based on our target ratio of compensation
and benefits expense to operating revenue of 57.5%. The bonus pool is allocated among the participants in the plan with respect to each fiscal year. This allocation may be made at any time prior to payment of bonuses for such year, and may take into
account any factors deemed appropriate, including, without limitation, assessments of individual, subsidiary or division performance and input of management.



Amounts payable under the bonus plan are satisfied in cash and through equity awards granted under the 2005 Equity Incentive Plan.



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The 2005 Equity Incentive Plan



The following is a description of the material terms of the 2005 Equity
Incentive Plan (which we refer to in this section as the plan). The following description is qualified in its entirety by reference the full text of the plan, which has been filed as an exhibit to our SEC filings.



Purpose.The purposes of the plan are to attract, retain and motivate
key employees and directors of, and consultants and advisors to, Lazard and to align the interests of key employees, directors, consultants and advisors with those of stockholders through equity-based compensation and enhanced opportunities for
ownership of shares of Lazard Ltds common stock. We currently pay a portion of our incentive compensation in the form of RSUs that are subject to vesting and other terms.



Administration.The plan is administered by the Compensation Committee of Lazard Ltd. Among other things, the Lazard
Ltd Compensation Committee has the authority to select individuals to whom awards may be granted, to determine the type of award as well as the number of shares of common stock to be covered by each award, and to determine the terms and conditions
of any such awards. All determinations by the Lazard Ltd Compensation Committee or its designee under the plan are final, binding and conclusive.



Eligibility.Persons who serve or agree to serve as our officers, employees, directors, consultants or advisors who are responsible for, or
contribute to, our management, growth and profitability are eligible to be granted awards under the plan. Holders of equity-based awards issued by a company acquired by us or with which we combine will be eligible to receive substitute awards under
the plan.



Shares Available.Subject to adjustment, the
plan authorizes the issuance of up to 25,000,000 shares of Lazard Ltd common stock pursuant to the grant or exercise of stock options, stock appreciation rights (SARs), restricted stock, stock units and other equity-based awards. If any
award is forfeited or if any stock option or SAR terminates without being exercised, or if any SAR is exercised for cash, shares of Lazard Ltd common stock subject to such awards will be available for distribution in connection with awards under the
plan. If the option price of any stock option granted under the plan is satisfied by delivering shares of Lazard Ltd common stock to us (by actual delivery or attestation), only the number of shares of common stock of Lazard Ltd issued net of the
shares of such common stock delivered or attested to will be deemed delivered for purposes of determining the maximum number of shares of Lazard Ltd common stock available for delivery under the plan. To the extent any shares are not delivered to a
participant because such shares are used to satisfy any applicable tax-withholding obligation, such shares will not be deemed to have been delivered for purposes of determining the maximum number of shares of Lazard Ltd common stock available for
delivery under the plan. The shares subject to grant under the plan may be made available from authorized but unissued shares or from shares held by our subsidiaries, as determined from time to time by our board of directors.



Change in Capitalization or Change in Control. The plan provides that,
in the event of any change in corporate capitalization, such as a stock split, or any fundamental corporate transaction, such as any merger, amalgamation, consolidation, separation, spinoff or other distribution of property (including any
extraordinary cash or stock dividend), or any reorganization or partial or complete liquidation of us, the Compensation Committee or the board of directors may make such substitution or adjustment as it deems appropriate in its discretion in the
aggregate number and kind of shares reserved for issuance under the plan, in the exercise price of shares subject to outstanding stock options and SARs, and in the number and kind of shares subject to other outstanding awards granted under the plan.
Any adjustments described in the immediately preceding sentence that are considered deferred compensation subject to Section 409A of the Code will be made in such manner as to ensure that after such adjustment, the awards either
continue not to be subject to, or comply with the requirements of, Section 409A of the Code. The plan also provides that in the event of a change in control of us, unless otherwise provided for in the individual award agreement:
(i) SARs and stock options outstanding as of the date of the change in control, which are not then exercisable and vested will become fully exercisable and vested, (ii) the restrictions and deferral limitations applicable to restricted
stock will lapse and such restricted stock will become free of all restrictions and fully vested, and (iii) all stock units will vest in full and be immediately settled.



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Types of Awards. As indicated above, several types of awards can be made under the plan. A summary
of these grants is set forth below.



Stock Options



Eligible individuals can be granted non-qualified stock
options under the plan. The exercise price of such options cannot be less than 100% of the fair market value of the stock underlying the options on the date of grant. The term of the options will be determined by the Lazard Ltd Compensation
Committee. Optionees may pay the exercise price in cash or, if approved by the Lazard Ltd Compensation Committee, in common stock of Lazard Ltd (valued at its fair market value on the date of exercise) or a combination thereof, or, to the extent
permitted by applicable law, by cashless exercise through a broker or by withholding shares otherwise receivable on exercise. The Lazard Ltd Compensation Committee will determine the vesting and exercise schedule of options. Unless
determined otherwise by the Lazard Ltd Compensation Committee in its discretion, unvested options terminate upon termination of service, and vested options will generally remain exercisable for one year after the optionees death, three years
after the optionees termination for disability, five years after the optionees retirement and 90 days after the optionees termination for any other reason (other than for cause, in which case all options will terminate). Unless
determined otherwise by the Lazard Ltd Compensation Committee, if an optionees service terminates during the two-year period following a change in control (other than for cause), options held by the optionee will remain exercisable until the
third anniversary of the change in control. Notwithstanding the foregoing rules, in no event will an option remain exercisable following the expiration of its original term.



SARs



SARs may be granted as stand-alone awards or in conjunction with an option. An SAR entitles the holder to receive, upon exercise, the excess of the fair
market value of a share of common stock of Lazard Ltd at the time of exercise over the exercise price of the applicable SAR multiplied by the specified number of shares of Lazard Ltd common stock in respect of which the SAR has been exercised. Such
amount will be paid to the holder in stock (valued at its fair market value on the date of exercise), cash or a combination thereof, as the Compensation Committee may determine. An SAR granted in conjunction with an option is exercisable only when
and to the extent the related option is exercisable. An option will be cancelled to the extent that its related SAR is exercised or cancelled, and an SAR will be cancelled to the extent the related option is exercised or cancelled. Unless determined
otherwise by the Lazard Ltd Compensation Committee, unvested SARs terminate upon termination of service, and vested SARs generally will remain exercisable for one year after the holders death, three years after the holders termination
for disability, five years after the holders termination due to retirement and 90 days after the holders termination for any other reason (other than for cause, in which case all SARs will terminate). Unless determined otherwise by the
Lazard Ltd Compensation Committee, if a holders service terminates during the two-year period following a change in control (other than for cause), SARs held by the holder will remain exercisable until the third anniversary of the change in
control. Notwithstanding the foregoing rules, in no event will an SAR remain exercisable following the expiration of its original term. Generally, stand-alone SARS are subject to the same terms and conditions as stock options as described above.



Restricted Stock



Restricted stock may be granted with such restrictions and restricted
periods as the Lazard Ltd Compensation Committee may determine. The Lazard Ltd Compensation Committee may provide that a grant of restricted stock will vest upon the continued service of the participant or the satisfaction of applicable performance
goals. Restricted stock is generally forfeited upon termination of service, unless otherwise provided by the Lazard Ltd Compensation Committee. Other than such restrictions on transfer and any other restrictions the Lazard Ltd Compensation Committee
may impose, the participant will have all the rights of a stockholder with respect to the restricted stock award, although the Lazard Ltd Compensation Committee may provide for the automatic deferral or reinvestment of dividends or impose vesting
requirements on dividends.



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Stock Units



The Lazard Ltd Compensation Committee may grant stock unit awards, which represent a right to receive shares of Lazard Ltd
common stock or cash based on the fair market value of a share of Lazard Ltd common stock. The Lazard Ltd Compensation Committee may provide that a grant of stock units will vest upon the continued service of the participant or the satisfaction of
applicable performance goals. Stock units that are not vested are generally forfeited upon termination of service, unless otherwise provided by the Lazard Ltd Compensation Committee. Holders of stock units do not have the rights of a stockholder
with respect to the award unless and until the award is settled in shares of Lazard Ltd common stock, although the Lazard Ltd Compensation Committee may provide for dividend equivalent rights.



Other Equity-Based Awards



The Lazard Ltd Compensation Committee may grant other types of equity-based
awards based upon Lazard Ltd common stock, including unrestricted stock and dividend equivalent rights.



Transferability. Awards generally are not to be transferable, except by will and the laws of descent and distribution or to the extent otherwise
permitted by the Lazard Ltd Compensation Committee.



Duration of the Plan. The plan has a term of ten years.



Amendment and Discontinuance. The plan may be amended, altered or discontinued by the board of directors, but, except as required by applicable law, stock exchange rules, tax rules or accounting rules, no amendment, alteration or
discontinuance may materially impair the rights of an optionee under an option or a recipient of an SAR, restricted stock award, stock unit award or other equity-based award previously granted without the optionees or recipients consent.
The plan may not be amended without stockholder approval to the extent such approval is required by applicable law or stock exchange rules. Notwithstanding the foregoing, the Lazard Ltd Compensation Committee may grant awards to eligible
participants who are subject to legal or regulatory provisions of countries or jurisdictions outside the U.S., on terms and conditions different from those specified in the plan, as it determines to be necessary, and may make such modifications,
amendments, procedures, or subplans as are necessary to comply with such legal or regulatory provisions.



Retention Agreements with Named Executive Officers



Each of the our named executive officers have entered into a retention agreement with Lazard. Generally, the provision of services under the retention
agreements is terminable by either party upon three months notice, and the agreements also contain the following terms and conditions:



Compensation and Employee Benefits. The retention agreement with each of Messrs. Wasserstein and Golub provides for a guaranteed level of
compensation during the term of each such agreement, which term continues until May 10, 2008, and the retention agreement with each of Messrs. Castellano, Hoffman and Ward provides for a guaranteed level of compensation through the 2007
calendar year, in each case, so long as the applicable named executive officer continues to provide services to us. Mr. Wasserstein will be eligible to receive an annual base salary of no less than $4.8 million during the three-year period
following our IPO, and each of Messrs. Castellano, Golub, Hoffman and Ward will be eligible to receive a guaranteed total compensation amount for each of 2005, 2006 and 2007 (until May 10, 2008 for Mr. Golub) of no less than $2 million, $3
million, $2.25 million and $3 million, respectively, with at least $500,000, $1.5 million, $600,000 and $1.5 million, respectively, of such guaranteed total compensation amount payable as annual base salary, except that the guaranteed compensation
amount for Mr. Ward can be reduced in connection with reductions applicable to the majority of our deputy chairmen.



In addition, Mr. Wassersteins agreement provides that until May 10, 2008, he will participate in the employee benefit plans and programs
generally applicable to our most senior executives on terms no less favorable than those provided to such senior executives, except that his participation in equity-related, bonus, incentive, profit sharing or deferred compensation plans will
require the consent of our Board of Directors, and



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provides in addition that he will be entitled to perquisites and fringe benefits no less favorable than those provided to him by Lazard Group LLC immediately
prior to May 10, 2005, to the extent not inconsistent with our policies as in effect from time to time, which perquisites and fringe benefits are similar to those customarily provided to chief executive officers. The retention agreements with
each of Messrs. Castellano, Golub, Hoffman and Ward provide that they will be entitled to participate in employee retirement and welfare benefit plans and programs of the type made available to our most senior executives.



Payments and Benefits Upon Certain Terminations of Service.Each
retention agreement with a named executive officer provides for certain severance benefits in the event of a termination prior to May 10, 2008 by us other than for cause or by the named executive officer for good reason (which we refer to below
as a qualifying termination). The level of the severance benefits depends on whether the applicable termination occurs prior to or following a change in control of Lazard Ltd.



In the event of a qualifying termination of a named executive officer prior to a change in control, the named executive
officer would be entitled to receive in a lump sum (1) any unpaid base salary accrued through the date of termination, (2) any earned but unpaid bonuses for years completed prior to the date of termination, (3) a prorated bonus for
the year of termination and (4) a severance payment in the following amounts: Mr. Wasserstein, two times base salary; Messrs. Castellano, Golub, Hoffman and Ward, one-and-a-half times (two times in the case of Mr. Golub) the greater
of such named executive officers guaranteed compensation amount or such named executive officers base salary plus average bonus for the two calendar years preceding the year of termination. Upon such a qualifying termination, the named
executive officer and his eligible dependents would generally continue to be eligible to participate in our medical and dental benefit plans, on the same basis as in effect immediately prior to the executives date of termination (which
currently requires the named executive officer to pay the full cost of the premiums), for the following periods: for Mr. Wasserstein, for the remainder of his life and the life of his current spouse; for Mr. Golub, until the later to occur
of the second anniversary of termination of service and February 29, 2008; for each of Messrs. Castellano, Hoffman and Ward, for a period of 18 months following the date of termination of service. The period of such medical and dental benefits
continuation would generally be credited towards the named executive officers credited age and service for purpose of our retiree medical program.



In the event of a qualifying termination of a named executive officer on or following a change in control, the named executive officer would receive the
severance payments and benefits described in the preceding paragraph, except that the severance payments would be in the following amounts: Mr. Wasserstein, three times base salary; Messrs. Castellano, Golub, Hoffman and Ward, three times the
greater of such named executive officers guaranteed compensation amount or such named executive officers base salary plus average bonus for the two calendar years preceding the year of termination. In addition, each of the named
executive officers and his eligible dependents would be eligible for continued participation in our medical and dental benefit plans and receive age and service credit, as described above, except the applicable period for each of Messrs. Castellano,
Golub, Hoffman and Ward would be 36 months following the date of termination of service.



The retention agreement with Mr. Wasserstein provides that in the event his service is terminated due to his death or disability, he and/or his current spouse, as applicable, would continue to be eligible for the
medical and dental benefits described above.



The retention
agreement with Mr. Golub provides that if his service terminates due to his death or disability prior to May 10, 2008 or upon the expiration of his agreement on May 10, 2008, he would be entitled to a prorated bonus for the year of
termination.



Change in Control Excise Tax Gross-up.Each retention agreement with a named executive officer provides that in the event that the named executive officers receipt of any payment made by us under the retention agreement or otherwise are subject to the excise tax imposed under
Section 4999 of the Code, an additional payment will be made to restore the executive to the after-tax position that he would have been in if the excise tax had not been imposed.



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Noncompetition and Nonsolicitation of Clients. While providing services to us and during the
three-month period following termination of the named executive officers services to us (one-month period in the event of such a termination by us without cause), the named executive officer may not:



| |  |  | perform services in a line of business that is similar to any line of business in which the named executive officer provided services to us in a capacity that is
similar to the capacity in which the named executive officer acted for us while providing services to us (competing services) for any business enterprise that engages in any activity, or owns a significant interest in any entity that
engages in any activity, that competes with any activity in which we are engaged up to and including the date of termination of employment (a competitive enterprise),
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | acquire an ownership or voting interest of 5% or more in any competitive enterprise, or
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | solicit any of our clients on behalf of a competitive enterprise in connection with the performance of services that would be competing services or otherwise
interfere with or disrupt any clients relationship with us.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Nonsolicitation of Employees. While providing services to us and during the six-month period following termination of the named executive officers services, the named executive officer may not,
directly or indirectly, in any manner, solicit or hire any of our employees at the associate level or above to apply for, or accept employment with, any competitive enterprise or otherwise interfere with any such employees relationship with
us.



Transfer of Client Relationships, Nondisparagement and
Notice Period Restrictions. The named executive officer is required, upon termination of his or her services to us and during the 90-day period following termination, to take all actions and do all things reasonably requested by us to
maintain for us the business, goodwill and business relationships with our clients with which he worked, provided that such actions and things do not materially interfere with other employment or professional activities of the named executive
officer. In addition, while providing services to us and thereafter, the named executive officer generally may not disparage us, and before and during the three-month notice period prior to termination, the named executive officer is prohibited from
entering into a written agreement to perform services for a competitive enterprise.



Provisions Relating to the Reorganization and Restrictive Covenants.Generally, the retention agreements with the named executive officers contain restrictive covenants and provisions that are substantially
similar. However, the scope of the covenants applicable to Mr. Wasserstein limiting his ability to compete with us and to solicit our clients are generally more restrictive than those applicable to our other named executive officers, although
Mr. Wasserstein may continue his relationship with and ownership interest in Wasserstein & Co., LP on terms consistent with past practice without violating these covenants, so long as such activities do not significantly interfere with
his performance of his duties as our chairman and chief executive officer. In addition, the nondisparagement provision between Mr. Wasserstein and us generally prohibits us from disparaging Mr. Wasserstein.



Under each retention agreement with a named executive officer, a termination
by the named executive officer for good reason would be treated as a termination by us without cause for purposes of the duration of the restrictive covenants and the provisions governing the timing of exchangeability of LAZ-MD Holdings exchangeable
interests into shares of Lazard Ltd common stock.



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Outstanding Equity Awards at 2006 Fiscal Year-End



The following table provides information about number and value of RSUs held by the Named Executive Officers as of
December 31, 2006. The market value of the RSUs was calculated based on the closing price of Lazard Ltd Class A common stock on the NYSE on December 29, 2006 ($47.34).



|                        |  |                                                          |  |                                                                |           
|----------------------- |  | -------------------------------------------------------- |  | -------------------------------------------------------------- | ----------
|Named Executive Officer |  | Number of Restricted StockUnits That Have Not Vested (1) |  | Market Value of Restricted StockUnits That Have Not Vested ($)
|Bruce Wasserstein       |  | 290,363                                                  |  | $                                                              | 13,745,784
|Michael J. Castellano   |  | 7,840                                                    |  | $                                                              | 371,146   
|Steven J. Golub         |  | 127,760                                                  |  | $                                                              | 6,048,158 
|Scott D. Hoffman        |  | 9,582                                                    |  | $                                                              | 453,612   
|Charles G. Ward, III    |  | 14,518                                                   |  | $                                                              | 687,282   

---

|(1) | RSUs are typically granted under Lazards 2005 Equity Incentive Plan in January of each year and relate to the prior years performance. In fiscal 2006, RSU awards were
granted to each of the named executive officers on January 24, 2006 and will vest on March 31, 2010.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Pension Benefits



The following table provides information with respect to Lazard Frères & Co. LLC Employees Pension Plan, a qualified defined-benefit
pension plan, and a related supplemental defined-benefit pension plan. Each of Mr. Golub and Mr. Hoffman has an accrued benefit under the Lazard Frères & Co. LLC Employees Pension Plan, and Mr. Hoffman has
accrued additional benefits under the related supplemental defined-benefit pension plan. The annual benefit under such plans, payable as a single life annuity commencing at age 65, would be $4,332 for Mr. Golub and $18,852 for Mr. Hoffman.
These benefits accrued in each case prior to the applicable officers becoming a managing director of Lazard. Benefit accruals under both of these plans were frozen for all participants effective January 31, 2005. For a discussion of the
valuation method and all material assumptions applied in quantifying the present value of the current accrued benefit, see Note 14 of notes to consolidated financial statements of Lazard Group. Messrs. Wasserstein, Castellano and Ward do not
participate in any of these plans.



|                       |  |                                                 |  |                                    |  |                                            |  |                                   
|---------------------- |  | ----------------------------------------------- |  | ---------------------------------- |  | ------------------------------------------ |  | ----------------------------------
|Name Executive Officer |  | Plan Name                                       |  | Number of YearsCredited Service(1) |  | Present Value ofAccumulatedBenefit ($) (2) |  | PaymentsDuring LastFiscal Year ($)
|Steven J. Golub        |  | Lazard Frères & Co. LLC Employees Pension Plan |  | 2                                  |  | $37,754                                    |  | $0                                
|Scott D. Hoffman       |  | Lazard Frères & Co. LLC Employees Pension Plan |  | 5                                  |  | $38,857                                    |  | $0                                
|                       |  | Supplemental Defined-Benefit Pension Plan       |  | 5                                  |  | $30,141                                    |  | $0                                

---

|(1) | Messrs. Golub and Hoffman have been employed by Lazard for 22 and 13 years, respectively, and became managing directors in 1986 and 1999, respectively, at which point they ceased
accruing benefits under these plans.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | In calculating the present value of accumulated benefits outlined above, Mr. Hoffman and Mr. Golub are assumed to live to age 65 and subsequently retire. They are also
assumed to choose the single life annuity form of benefit under the Lazard Frères & Co. LLC Employees Pension Plan and the lump sum form of benefit under the Supplemental Defined-Benefit Pension Plan (for Mr. Hoffman
only). The interest and mortality used to determine the Employees Pension Plan present value is 5.50% for all years and the 1994 Group Annuity Mortality Table (with 5 years improvement) after retirement only. The Supplemental Defined-Benefit
Pension Plan assumes that the age 65 annuity benefit will be converted to a lump sum at age 65 using a 5.00% interest rate and the mortality outlined in IRS Revenue Ruling 2001-62. A 5.50% discount rate is used to determine the present value of this
single payment at age 65 at December 31, 2006.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Potential Payments Upon Termination or Change-in-Control



As described above, each of the our named executive officers have entered
into retention agreements with Lazard and received RSU awards pursuant to Lazards 2005 Equity Incentive Plan.Each retention agreement with a named executive officer provides for certain severance benefits in the event of a termination
prior to May 10, 2008 by us other than for cause or by the named executive officer for good reason. The level of the severance benefits depends on whether the applicable termination occurs prior to or following a change in control of Lazard
Ltd. For a discussion of the severance benefits provided pursuant to the retention agreements, see Retention Agreements with Named Executive Officers. In the event of a change in control of Lazard Ltd all RSUs granted under the 2005
Equity Incentive Plan will automatically vest. The following table shows the potential payments that would be made by Lazard to each of the named executive officers assuming that such officers employment with Lazard terminated on December 31,
2006 under the circumstances outlined in the table. For purposes of this table, the price of Lazard Ltd Class A common stock is assumed to be $47.34, which was the closing price on December 29, 2006.



|                                      |  |                              |            |                                      |   |                             |  |                           |            |                    |   |                                                                    |  |   |            |  |   |           
|------------------------------------- |  | ---------------------------- | ---------- | ------------------------------------ | - | --------------------------- |  | ------------------------- | ---------- | ------------------ | - | ------------------------------------------------------------------ |  | - | ---------- |  | - | ----------
|                                      |  | Prior to a Change in Control |            | On or After a Change in Control     
|Named Executive Officer               |  | Death orDisability           |            | InvoluntaryTerminationwithoutCause |   | Resignationfor GoodReason |  | NoTerminationofEmployment |            | Death orDisability |   | InvoluntaryTerminationwithoutCause" orResignationfor GoodReason
|Bruce Wasserstein                     |  |                              |            |                                      |   |                             |  |                           |            |                    |   |                                                                    |  |   |            |  |   |           
|Severance Payment                     |  |                              |           |                                      | $ | 9,600,000                   |  | $                         | 9,600,000  |                    |   |                                                                   |  |   |           |  | $ | 14,400,000
|RSU Vesting (1) (2)                   |  | $                            | 13,745,784 |                                      | $ | 13,745,784                  |  |                           |           |                    | $ | 13,745,784                                                         |  | $ | 13,745,784 |  | $ | 13,745,784
|Pro-rata Annual Incentive Payment (3) |  | $                            | 18,000,000 |                                      |   |                            |  |                           |           |                    |   |                                                                   |  | $ | 18,000,000 |  |   |          
|Excise Tax Gross-up Payment (4)       |  |                              |           |                                      |   |                            |  |                           |           |                    |   |                                                                   |  |   |           |  | $ | 10,583,522
|Michael J. Castellano                 |  |                              |            |                                      |   |                             |  |                           |            |                    |   |                                                                    |  |   |            |  |   |           
|Severance Payment                     |  |                              |           |                                      | $ | 3,112,500                   |  | $                         | 3,112,500  |                    |   |                                                                   |  |   |           |  | $ | 6,225,000 
|RSU Vesting (1) (2)                   |  | $                            | 371,146    |                                      | $ | 371,146                     |  |                           |           |                    | $ | 371,146                                                            |  | $ | 371,146    |  | $ | 371,146   
|Pro-rata Annual Incentive Payment (3) |  | $                            | 2,000,000  |                                      | $ | 1,500,000                   |  | $                         | 1,500,000  |                    |   |                                                                   |  | $ | 2,000,000  |  | $ | 1,500,000 
|Excise Tax Gross-up Payment (4)       |  |                              |           |                                      |   |                            |  |                           |           |                    |   |                                                                   |  |   |           |  | $ | 2,610,923 
|Steven J. Golub                       |  |                              |            |                                      |   |                             |  |                           |            |                    |   |                                                                    |  |   |            |  |   |           
|Severance Payment                     |  |                              |           |                                      | $ | 11,100,000                  |  | $                         | 11,100,000 |                    |   |                                                                   |  |   |           |  | $ | 16,650,000
|RSU Vesting (1) (2)                   |  | $                            | 6,048,158  |                                      | $ | 6,048,158                   |  |                           |           |                    | $ | 6,048,158                                                          |  | $ | 6,048,158  |  | $ | 6,048,158 
|Pro-rata Annual Incentive Payment (3) |  | $                            | 12,000,000 |                                      | $ | 1,500,000                   |  | $                         | 1,500,000  |                    |   |                                                                   |  | $ | 12,000,000 |  | $ | 1,500,000 
|Excise Tax Gross-up Payment (4)       |  |                              |           |                                      |   |                            |  |                           |           |                    |   |                                                                   |  |   |           |  | $ | 9,564,080 
|Scott D. Hoffman                      |  |                              |            |                                      |   |                             |  |                           |            |                    |   |                                                                    |  |   |            |  |   |           
|Severance Payment                     |  |                              |           |                                      | $ | 3,375,000                   |  | $                         | 3,375,000  |                    |   |                                                                   |  |   |           |  | $ | 6,750,000 
|RSU Vesting (1) (2)                   |  | $                            | 453,612    |                                      | $ | 453,612                     |  |                           |           |                    | $ | 453,612                                                            |  | $ | 453,612    |  | $ | 453,612   
|Pro-rata Annual Incentive Payment (3) |  | $                            | 2,400,000  |                                      | $ | 1,650,000                   |  | $                         | 1,650,000  |                    |   |                                                                   |  | $ | 2,400,000  |  | $ | 1,650,000 
|Excise Tax Gross-up Payment (4)       |  |                              |           |                                      |   |                            |  |                           |           |                    |   |                                                                   |  |   |           |  | $ | 3,049,324 
|Charles G. Ward, III                  |  |                              |            |                                      |   |                             |  |                           |            |                    |   |                                                                    |  |   |            |  |   |           
|Severance Payment                     |  |                              |           |                                      | $ | 4,875,000                   |  | $                         | 4,875,000  |                    |   |                                                                   |  |   |           |  | $ | 9,750,000 
|RSU Vesting (1) (2)                   |  | $                            | 687,282    |                                      | $ | 687,282                     |  |                           |           |                    | $ | 687,282                                                            |  | $ | 687,282    |  | $ | 687,282   
|Pro-rata Annual Incentive Payment (3) |  | $                            | 2,500,000  |                                      | $ | 1,500,000                   |  | $                         | 1,500,000  |                    |   |                                                                   |  | $ | 2,500,000  |  | $ | 1,500,000 
|Excise Tax Gross-up Payment (4)       |  |                              |           |                                      |   |                            |  |                           |           |                    |   |                                                                   |  |   |           |  |   |          



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---

|(1) | Valuation of all RSUs awards is based upon the full value of the underlying Lazard Ltd Class A common stock at the close of business on December 31, 2006, without taking
into account any discount on the present value of such awards. Upon a Change in Control, all RSUs awards immediately vest in full.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Upon death, all RSU awards vest upon the earlier of 30 days or the scheduled vesting date. Upon disability, or a termination without cause, RSUs will continue to vest on
their scheduled vesting date, which for 2006 awards is March 31, 2010. See Footnote (1) to the Outstanding Equity Awards at 2006 Fiscal Year-End table.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Under the terms of the 2005 Bonus Plan, upon death or disability, each named executive officer may receive a pro rated portion of the annual incentive compensation that he would
have received in the absence of such termination. Assuming a December 31, 2006 death or disability, all named executive officers were assumed to have received their full incentive compensation award for 2006 (annual cash bonus plus value of RSU
award).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Pursuant to their retention agreements,
Messrs. Castellano, Golub, Hoffman and Ward are entitled to a pro rata bonus payment in the event of their involuntary termination without Cause or resignation for Good Reason. Under such circumstances we have assumed that each would receive the
minimum payment required under their retention agreements.



|(4) | Amounts represent the amount needed to pay each named executive officer in order to satisfy their excise tax obligations under Section 280G of the Internal Revenue Code, which
imposes an excise tax on certain payments made in connection with a change in control of the Company, and any additional tax cost related to the gross-up payment, assuming that a change in control of the Company and a qualifying termination of
employment occurred on December 31, 2006. Amounts were determined in accordance with Section 280G and the regulations issued thereunder, assuming a regular income tax rate ranging from 43.7% to 44.5% based on each named executive
officers work location and personal residence, each named executive officers Lazard Group compensation for the period from 2001-2005 and an interest rate equal to 5.62%.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If a named executive officer voluntarily resigns or retires from Lazard
without good reason or is terminated by Lazard for cause, he will not be entitled to receive any severance payments from Lazard and any unvested RSUs will be forfeited.



With respect to a termination for cause of a named executive officer, other than Mr. Wasserstein, the term
cause shall mean: (A) conviction of, or a guilty plea to, a felony, or of any other crime that legally prohibits the named executive officer from working for Lazard; (B) a breach of a regulatory rule that materially adversely
affects the named executive officers ability to perform his duties for Lazard; (C) willful and deliberate failure on the part of the named executive officer (i) to perform his employment duties in any material respect or (ii) to
follow specific reasonable directions received from Lazard; or (D) a breach of the covenants contained in the retention agreements that is (individually or combined with other such breaches) demonstrably and materially injurious to Lazard or
any of its affiliates. Notwithstanding the foregoing, with respect to the events described in clauses (B) and (C)(i) hereof, the named executive officers acts or failure to act shall not constitute cause to the extent taken (or not taken)
based upon the direct instructions of the chief executive officer of Lazard or the Board of Directors of Lazard or a more senior executive officer of Lazard.



With respect to a termination for cause under Mr. Wassersteins retention agreement, the term cause shall mean: (i) that he is
convicted of, or pleads guilty to, a felony; (ii) that he has engaged in gross neglect or willful misconduct in carrying out his duties, which results in material economic harm to Lazard; or (iii) an act or failure to act which, under the
provisions of applicable law, disqualifies Mr. Wasserstein from acting as the chief executive officer of the Company or as a director of the Company.



With respect to a termination by a named executive officer for good reason, the term good reason shall mean: (i) the assignment of the
named executive officer to any duties inconsistent in any material respect with his position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as in effect as of May 10, 2005, or any other
action by Lazard which results in a material diminution in such position,



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authority, duties or responsibilities from the level in effect as of May 10, 2005, (ii) a material breach by Lazard of the terms of the retention
agreements, or (iii) except with respect to Mr. Wasserstein, any requirement that the named executive officers principal place of employment be relocated to a location that is more than 30 miles from the named executive
officers principal place of employment as of the date hereof.



The term change in control as used in the retention agreements and the 2005 Equity Incentive Plan shall mean any of the following events: (i) an acquisition (other than directly from the Company) by an individual, entity or
a group (excluding the Company or an employee benefit plan of the Company or a corporation controlled by the Companys shareholders) of 20% or more of either (A) the then-outstanding shares of Lazard Ltd Common Stock (treating, for this
purpose, the then-outstanding Class II interests of LAZ-MD Holdings LLC (Class II interests) as shares of Lazard Ltd Common Stock on an as-if fully exchanged basis in accordance with the Master Separation Agreement) (the
Outstanding Company Common Stock), assuming the full exchange of all of the then-outstanding Class II interests for shares of Lazard Ltd Common Stock in accordance with the Master Separation Agreement or (B) the combined voting
power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the Outstanding Company Voting Securities); (ii) a change in a majority of the current Board of Directors (the
Incumbent Board) (excluding any persons approved by a vote of at least a majority of the Incumbent Board other than in connection with an actual or threatened proxy contest); (iii) consummation of a merger, consolidation or sale of
all or substantially all of the Companys assets (collectively, a Business Combination) other than a Business Combination in which all or substantially all of the individuals and entities who are the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination (assuming in each case the full exchange of the Class II Interests for shares of Company Common Stock in accordance with
the Master Separation Agreement) will beneficially own, directly or indirectly, more than 50% of, respectively, the outstanding shares of Lazard Ltd common stock, and the combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination, at least a majority of the board of directors of the resulting corporation were members of the Incumbent Board, and after
which no Person owns 20% or more of the stock of the resulting corporation, who did not own such stock immediately before the Business Combination or (iv) shareholder approval of a complete liquidation or dissolution of the Company.



Director Compensation for 2006



Directors who are
officers of Lazard do not receive any fees for their service as directors. In 2006 our directors compensation program provided that each of our non-executive directors would receive an annual cash retainer of $50,000 and an annual award of
deferred stock units (DSUs) with a grant date value of $50,000. The chair of the Audit Committee of Lazard Ltd is paid an additional annual retainer of $30,000 and the chairs of each of the Nominating & Governance Committee and
the Compensation Committee of Lazard Ltd are paid an additional annual retainer of $20,000, in each case 50% is paid in cash and 50% in DSUs. The other members of the Audit Committee of Lazard Ltd are paid an additional annual retainer of $20,000
and the other members of the Nominating & Governance Committee and the Compensation Committee of Lazard Ltd are paid an additional annual retainer of $15,000, in each case 50% is paid in cash and 50% in DSUs. Cash compensation is paid out
on a quarterly basis and DSU awards as described above, are granted on an annual basis on June 1stof each
year, except for initial pro-rated grants made to new directors upon their joining the Board of Lazard Ltd. The number of DSUs granted is based on the closing price of Lazard Ltds common stock on the NYSE on the date of grant.



Non-executive directors may elect to receive additional DSUs in lieu of some
or all of their cash fees pursuant to the Lazard Ltd Directors Fee Deferral Unit Plan. DSUs awarded under this plan are granted on the same quarterly payment date as cash fees would have been received and the number of DSUs is calculated based on
the closing price of the Lazard Ltd common stock on the payment date.



All DSUs awarded under these arrangements (1) are issued under the Lazard Ltd 2005 Equity Incentive Plan (or any successor plan), and (2) are converted to Class A common stock of Lazard Ltd on a one-for-one basis and
distributed to the director after he or she resigns or otherwise ceases to be a member of our Board.



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|                       |  |                               |        |                      |   |                               |  |           |       |  |   |        
|---------------------- |  | ----------------------------- | ------ | -------------------- | - | ----------------------------- |  | --------- | ----- |  | - | -------
|Directors              |  | Fees Earned orPaid in Cash($) |        | Stock Awards ($) (1) |   | All OtherCompensation ($) (2) |  | Total ($)
|Ronald J. Doerfler (3) |  | $                             | 24,500 |                      | $ | 57,000                        |  | $         | 275   |  | $ | 81,775 
|Steven J. Heyer (4)    |  | $                             | 66,896 |                      | $ | 70,958                        |  | $         | 1,210 |  | $ | 139,064
|Sylvia Jay (3)         |  | $                             | 42,250 |                      | $ | 77,645                        |  | $         | 334   |  | $ | 120,229
|Ellis Jones (4)        |  | $                             | 50,000 |                      | $ | 50,000                        |  | $         | 926   |  | $ | 100,926
|Anthony Orsatelli      |  | $                             | 65,000 |                      | $ | 65,000                        |  | $         | 1,204 |  | $ | 131,204
|Hal S. Scott (3)       |  | $                             | 45,500 |                      | $ | 83,617                        |  | $         | 359   |  | $ | 129,476
|John Shank (5)         |  | $                             | 11,333 |                      | $ | 21,167                        |  | $         | 110   |  | $ | 32,610 
|Michael J. Turner (3)  |  | $                             | 42,250 |                      | $ | 77,645                        |  | $         | 334   |  | $ | 120,229

---

|(1) | The value of the DSUs is based on the amount that is recognized in our financial statements under FAS 123R. See Note 13 of notes to consolidated financial statements of Lazard
Group for a discussion of the assumptions used in the valuation of the DSUs. The total number of DSUs held by each of our non-executive directors at December 31, 2006 was as follows: Mr. Doerfler, 1,530; Mr. Heyer, 4,884; Lady Jay,
1,853; Mr. Jones, 3,451; Mr. Orsatelli, 4,124; Mr. Scott, 1,995; and Mr. Turner, 1,853.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents cash dividends paid on the DSUs to each of the directors listed in the table.
|--- | ----------------------------------------------------------------------------------------

|(3) | Messrs. Scott, Turner and Lady Jay joined the Board on March 23, 2006. Mr. Doerfler joined the Board on June 19, 2006.
|--- | ----------------------------------------------------------------------------------------------------------------------

|(4) | Mr. Heyer and Mr. Jones elected to defer their quarterly cash compensation into additional DSUs beginning in August 2006 and November 2006, respectively, pursuant to the
terms of the Lazard Ltd Directors Fee Deferral Unit Plan, which was approved by our board of directors on May 9, 2006. For 2006 the amount of the deferral for each of Mr. Heyer and Mr. Jones was $33,750, and $12,500, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Dr. Shank passed away on March 30, 2006.
|--- | ----------------------------------------



Mr. Vernon E. Jordan, Jr. is a member of our board of directors and is a senior managing director of Lazard. Mr. Jordan is not an executive officer of
Lazard as that term is defined in the rules and regulations promulgated under the Exchange Act, and was therefore not included in the Summary Compensation Table. Mr. Jordan does not receive any fees for his service as director of Lazard.
Mr. Jordans compensation as a senior managing director for 2006 was as follows:



|           |  |                       |  |                                 |  |                           |  |           
|---------- |  | --------------------- |  | ------------------------------- |  | ------------------------- |  | ----------
|Salary ($) |  | Annual Cash Bonus ($) |  | Restricted StockUnit Awards ($) |  | All OtherCompensation ($) |  | Total ($) 
|$500,000   |  | $2,850,000            |  | $100,723(1)                     |  | $539,745(2)               |  | $3,990,468

---

| | (1) | The value of the RSUs is based on the amount that is recognized in our consolidated financial statements under FAS 123R and relates to the compensation recorded in 2006 in
connection with 12,950 RSUs awarded to Mr. Jordan on January 24, 2006. See the narrative discussion under the heading Grants of Plan Based Awards for a description the terms and conditions of the January 2006 restricted stock
unit grants. On January 23, 2007, Mr. Jordan received an RSU award with a grant date value of $650,000, which related to 2006 performance. See the narrative discussion under the heading Compensation Discussion and Analysis 
Design of Our Compensation Programs  Incentive Compensation for a description the terms and conditions of the January 2007 RSU grants.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Pursuant to a letter agreement entered into with Mr. Jordan in 1999 and subsequently amended on January 1, 2004, Mr. Jordan is entitled to benefits on the same basis
as other managing directors and to use, on a priority basis, a corporate apartment in New York. The incremental cost to Lazard of providing Mr. Jordan with use of this apartment was $288,000 in 2006. Mr. Jordan also received a tax gross-up
payment of $250,000 as reimbursement for taxes paid on the imputed income from the use of the apartment. In connection with our recapitalization in May 2005, Mr. Jordan entered into a retention agreement in the form applicable to our named
executive officers generally. See The Retention Agreements with Named Executive Officers.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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On February 27, 2007, based on the recommendation of the Nominating & Governance Committee of Lazard
Ltd, the Board of Directors approved an increase in non-executive director compensation payable in 2007. Pursuant thereto, non-executive directors will receive an annual cash retainer of $67,500 and an annual award of DSUs with a grant date value of
$82,500 (subject to any individual directors election to defer cash compensation into additional DSUs). Board committee fees remained unchanged.



Compensation Committee Interlocks and Insider Participation



The members of Lazard Ltds Compensation Committee are Steven J. Heyer, Lady Sylvia Jay, and Michael J. Turner. Mr. Wasserstein, our Chairman
and Chief Executive Officer, serves as the Chairman and is the majority owner of Wasserstein Holdings, LLC, the ultimate general partner of Wasserstein & Co., LP, a separate merchant banking firm in which Lazard does not hold any economic
interest and at which Ellis Jones, who serves on our Board of Directors, serves as Chief Executive Officer. See Certain Relationships with our Directors, Executive Officers and Employees above.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------



As of December 31, 2006, approximately 47.9% and 52.1% of our common membership interests are held by wholly-owned
subsidiaries of Lazard Ltd and by LAZ-MD Holdings, respectively. Our managing member interests are held by two indirect wholly-owned subsidiaries of Lazard Ltd and our profit participation interests are held by various managing directors.



|Item 13. | Certain Relationships and Related Transactions, and Director Independence
|-------- | -------------------------------------------------------------------------



Director Independence



Pursuant to the corporate governance listing standards of the NYSE, the Board of Directors has adopted standards for determining whether directors have
material relationships with Lazard. The standards are set forth on Annex A to Lazard Ltds proxy statement. Under these standards, a director employed by Lazard cannot be deemed to be an independent director, and consequently
Mr. Wasserstein and Mr. Jordan are not independent directors of Lazard. In addition, the Board has determined that Mr. Ellis Jones, the chief executive officer of Wasserstein & Co., LP, a private equity investment firm that
is majority owned by Wasserstein Family Trusts and Mr. Wasserstein, also has been determined not to be independent at this time.



The Board has determined that Messrs. Doerfler, Heyer, Scott, Turner, and Lady Jay do not have a material relationship with Lazard under the Boards
standards for independence and accordingly each is independent under the NYSE corporate governance listing standards. In making its independence determinations the Board considered the engagement of Lazard in 2006 by The Hearst Corporation and
LOreal USA, Inc., a sister company of LOreal UK. Mr. Doerfler is the chief financial officer of The Hearst Corporation and Lady Jay is vice chairman of LOreal UK. In both instances Lazard provided M&A advisory services in
the ordinary course of business and the engagements were deemed per se immaterial pursuant to Lazards Standards of Director Independence.



The Board also determined that Mr. Orsatelli was independent, after giving careful consideration to the relationship between Lazard and IXIS
Corporate & Investment Bank, of which Mr. Orsatelli is a member of the executive board. IXIS participated as an investor in our recapitalization transactions in May 2005, purchasing $150 million of Lazard Ltds equity security
units and 2,000,000 shares of Class A common stock of Lazard Ltd at the IPO price of $25 per share. In connection with this investment, Lazard agreed to nominate one person designated by IXIS to our Board of Directors, currently
Mr. Orsatelli. Lazard also has a cooperation arrangement with IXIS in France. The cooperation arrangement provides that Lazard Group and IXIS will (1) place and underwrite securities on the French equity primary capital markets under a
common brand, Lazard-Ixis, and cooperate in their respective origination, syndication and placement activities, (2) form an alliance in real estate



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advisory work with the objective of establishing a common brand for advisory and financing operations within France, and (3) create an exclusive mutual
referral cooperation arrangement, subject to the fiduciary duties of each firm, with the goal of referring clients from Lazard Group to IXIS for services relating to corporate banking, lending, securitizations and derivatives within France and from
IXIS to Lazard Group for mergers and acquisitions advisory services within France. In addition to activities conducted under the cooperation arrangement, in 2006 we advised on a major internal reorganization of Caisse Nationale des Caisses
dEpargne (CNCE), the former parent holding company of IXIS, involving both its shareholders and its subsidiaries. The CNCE reorganization involved (i) restructuring the shareholders of CNCE, involving the exit of Caisse des
Depots, (ii) the formation of a new investment banking entity, Natixis, owned jointly by CNCE, the Banque Federale des Banques Populaires and the public, and (iii) the concomitant secondary offering of Natixis shares. Pursuant to this
reorganization IXIS Corporate & Investment Bank became a wholly-owned subsidiary of Natixis, and the common brand for Lazards cooperation arrangement became Lazard-Natixis. In addition, in November of 2006 Mr Orsatelli
relinquished all his previous responsibilities in CNCE. In 2006, the cooperation arrangement generated approximately $55.4 million of gross revenue for IXIS and $27.9 million of gross revenue for Lazard (including underwriting fees from the Natixis
secondary offering). We also received advisory fees of $17.7 million with respect to the CNCE reorganization and $0.5 million for advisory services on an unrelated transaction for CNCE in 2006. In 2005, Lazard advised IXIS on one transaction in
Germany and received a fee of $1.8 million and advised CNCE on several transactions in Paris in 2004 and 2005 and received fees of $5.7 million, and $2.2 million, respectively. The Board determined, in its business judgment, that these relationships
were not material, noting that (a) 2006 gross revenue generated pursuant to the cooperation arrangement and other transactions referenced above were less than 3% of Lazards gross revenues for 2006 and less than 1% of the annual gross
revenue for each of CNCE and IXIS for 2006 and (b) at December 31, 2006, Lazards consolidated indebtedness to IXIS was less than 5% of Lazards total consolidated assets. See Agreement with IXIS Corporate and
Investment Bank  and Certain Relationships with Our Directors, Executive Officers and Employees.



The Board also determined that Dr. John K. Shank, a director and member of Lazard Ltds Audit Committee who passed away on March 30,
2006, was independent.



CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



Policy on Related Party Transactions



Our Board of Directors has adopted a written policy requiring that all
Interested Transactions (as defined below) be approved or ratified by either the Nominating & Governance Committee of Lazard Ltd or, under certain circumstances, the Nominating & Governance Committee Chair of Lazard
Ltd. The Nominating & Governance Committee of Lazard Ltd shall review the material facts of all Interested Transactions that require the Committees approval or ratification and either approve or disapprove of the entry into the
Interested Transaction. In determining whether to approve or ratify an Interested Transaction, the Nominating & Governance Committee of Lazard Ltd takes into account, among other factors it deems appropriate, whether the Interested
Transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the interest of the Related Party (as defined below) in the transaction. In
addition, the Board of Directors has delegated to the Chair of the Nominating & Governance Committee of Lazard Ltd the authority to pre-approve or ratify (as applicable) any Interested Transaction with a Related Party in which the aggregate
amount involved is expected to be less than $1 million. A report is then made to the Nominating & Governance Committee of Lazard Ltd at its next regularly scheduled meeting of each new Interested Transaction pre-approved by the
Nominating & Governance Committee Chair of Lazard Ltd. Any director who is a Related Party with respect to an Interested Transaction may not participate in any discussion or approval of such Interested Transaction. An Interested
Transaction is one in which (i) we are a participant, (ii) the aggregate amount involved will or may be expected to exceed $120,000, (iii) one of our executive officers, directors, director nominees, 5% shareholders, or their
family members (each a Related Party) has a direct or indirect material interest in the transaction, and (iv) the transaction is required to be disclosed in our Annual Report on Form 10-K pursuant to the rules and regulations
promulgated by the SEC.



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Related Party Transactions



On May 10, 2005, we completed a series of financing transactions the net proceeds of which were primarily used to
redeem the outstanding Lazard Group membership interests of its historical partners. In the discussions below, we refer to these financing transactions and the IPO, collectively, as the recapitalization. Concurrently, on May 10,
2005, Lazard Group transferred its capital markets business, which consisted of equity, fixed income and convertibles sales and trading, broking, research and underwriting services, its merchant banking fund management activities other than its
existing merchant banking business in France and specified non-operating assets and liabilities, to LFCM Holdings. In the discussions below, we refer to these businesses, assets and liabilities as the separated businesses and these
transfers collectively as the separation.



Relationship with
LAZ-MD Holdings and LFCM Holdings



LAZ-MD Holdings
controls Lazard Ltd. As of February 15, 2007, LAZ-MD Holdings owned approximately 52.1% of the voting power of all shares of Lazard Ltds voting stock through its ownership of the Class B common stock and is thereby able to control the
election of Lazard Ltds directors. Through its control of Lazard Ltd, LAZ-MD Holdings controls Lazard Group. LAZ-MD Holdings voting power in Lazard Ltd is intended to mirror its economic interest in Lazard Group, and its voting power
will decrease over time in connection with the exchange of the LAZ-MD Holdings exchangeable interests by the current and former working members of Lazard Group for shares of Lazard Ltds Class A common stock. The current and former working
members of Lazard Group, including our managing directors who held working member interests at the time of the separation, own LAZ-MD Holdings exchangeable interests and, through the LAZ-MD Holdings stockholders agreement, have the right to
cause LAZ-MD Holdings to vote its Class B common stock on an as-if-exchanged basis.



In addition, LFCM Holdings, which is the entity that owns and operates the separated businesses, ceased to be a subsidiary of Lazard Group and LAZ-MD Holdings at the time of the separation. It is owned by current and
former working members of Lazard Group, including our managing directors and named executive officers, who are members of LAZ-MD Holdings. Our president, Charles G. Ward, III, was the chairman of LFCM Holdings until he resigned from that position on
November 8, 2006. LFCM Holdings has reimbursed us $500,000 for a portion of Mr. Wards salary and bonus in 2006 for services that Mr. Ward rendered to LFCM Holdings as its chairman through November 8, 2006. Another managing
director of Lazard Freres & Co LLC replaced Mr. Ward as chairman of LFCM Holdings and we continue to be reimbursed for a portion of his salary and bonus for services rendered in such capacity.



We entered into several agreements with Lazard Group, LAZ-MD Holdings and
LFCM Holdings to effect the separation and recapitalization transactions and to define and regulate the relationships of the parties. On November 6, 2006, Lazard Ltd, Lazard Group and LAZ-MD Holdings entered into certain modifications to those
arrangements as requested by LAZ-MD Holdings on behalf of its members primarily related to the terms of exchangeability of the LAZ-MD Holdings exchangeable interests and the registration rights associated with the shares of our common stock issuable
upon exchange of those interests. The modifications, which have been approved by the boards of directors of Lazard Ltd, Lazard Group and LAZ-MD Holdings, and, in accordance with the terms of the LAZ-MD Holdings stockholders agreement, the
requisite vote of the holders of LAZ-MD Holdings exchangeable interests party thereto, involve changes to the stockholders agreement, the master separation agreement, and the retention agreements entered into with each managing director of
Lazard in connection with the IPO, including the named executive officers. Except as described in this section, we do not have any material arrangements with LAZ-MD Holdings and LFCM Holdings other than ordinary course business relationships on
arms length terms.



On May 24, 2006 Lazard Group
entered into a letter agreement with Lazard Capital Markets LLC, a subsidiary of LFCM Holdings. The letter agreement provided that Lazard Capital Markets, as a registered broker-dealer, on behalf of Lazard Group, would make certain open market
purchases of Lazard Ltds Class A common stock from time to time as directed by Lazard Group. All such purchases were to be made accordance with the



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safe-harbor provisions of Rule 10b-18 promulgated under the Exchange Act, and Lazard Capital Markets would receive a customary commission. On
June 13 and June 14, 2006, Lazard Group repurchased an aggregate of 115,000 shares of Lazard Ltds Class A common stock at a total cost of $4,178,841 (average cost per share $36.34) and paid Lazard Capital Markets a brokerage
commission of $1,438. The Nominating & Governance Committee of Lazard Ltd approved this arrangement pursuant to our policy on related party transactions.



On November 30, 2006, pursuant to a public offering that was registered with the SEC, Lazard Ltd, together with certain
selling stockholders, sold 14,050,400 shares of Lazard Ltd Class A common stock to the general public at a price of $45.42 per share. The offering was underwritten by Goldman, Sachs & Co. and Lazard Capital Markets LLC. Goldman, Sachs acted
as sole book-running manager and the representative of the underwriters. The underwriting discounts and commissions paid to the underwriters by Lazard and the selling shareholders were negotiated with Goldman, Sachs on an arms-length basis. Goldman,
Sachs purchased 80% of the shares being offered by Lazard Ltd and the selling shareholders, and Lazard Capital Markets purchased the remaining 20%, at an underwriting discount of $1.70325 per share. Lazard Capital Markets earned revenue, net of
estimated underwriting expenses, of approximately $4.1 million from the sale of shares of Lazard Ltd Class A common stock in the offering. This public offering, including the selection of Lazard Capital Markets as an underwriter, was approved
by Lazard Ltds board of directors. Pursuant to the Business Alliance Agreement with LFCM Holdings (described below), we received approximately half of the underwriting discount proceeds obtained by Lazard Capital Markets, a subsidiary of LFCM
Holdings, in connection with this offering. See Business Alliance Agreement.



Agreements with LAZ-MD Holdings and LFCM Holdings



We have provided below summary descriptions of the master separation agreement and the other key related agreements we entered into with Lazard Ltd,
LAZ-MD Holdings and LFCM Holdings in connection with the separation and recapitalization transactions, as well as any amendments thereto. These agreements effected the separation and recapitalization transactions and also provide a framework for our
ongoing relationship with LAZ-MD Holdings and LFCM Holdings. These agreements include:



| |  |  | the master separation agreement,
| | - |  | --------------------------------



| |  |  | the license agreement,
| | - |  | ----------------------



| |  |  | the administrative services agreement, and
| | - |  | ------------------------------------------



| |  |  | the business alliance agreement.
| | - |  | --------------------------------



The descriptions set forth below, which summarize selected terms of these agreements, are not complete. Copies of these agreements have been filed as
exhibits to our Annual Report on Form 10-K and are available to the public from the SECs internet site at http://www.sec.gov.



Master Separation Agreement



On May 10, 2005, Lazard Group entered into the master separation agreement with Lazard Group, LAZ-MD Holdings and LFCM Holdings. The master
separation agreement contains key provisions relating to the separation and recapitalization transactions and the relationship among the parties after completion of the separation and recapitalization. The master separation agreement identified the
assets, liabilities and businesses of Lazard Ltd that were transferred to LFCM Holdings in connection with the separation and recapitalization and described when and how the separation and recapitalization occurred. In addition, the master
separation agreement continues to regulate aspects of the relationship among the parties, including the exchange mechanics of the LAZ-MD Holdings exchangeable interests.



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Relationship Among Lazard Ltd, Lazard Group, LAZ-MD Holdings and LFCM Holdings.The master
separation agreement contains various provisions governing the relationship among Lazard Ltd, Lazard Group, LAZ-MD Holdings and LFCM Holdings after the separation and recapitalization, including with respect to the following matters.



Limitation on Scope of LAZ-MD Holdings
Operations. The master separation agreement provides that LAZ-MD Holdings will not engage in any business other than to act as the holding company for the working members interests in Lazard Group and Lazard Ltds Class B common stock
and actions incidental thereto, except as otherwise agreed by Lazard Ltd.



Parity of Lazard Group Common Membership Interests and Lazard Ltds common stock. The master separation agreement sets forth the intention of Lazard Group and Lazard Ltd that the number of Lazard Group
common membership interests held by Lazard Ltd (or its subsidiaries) will at all times be equal in number to the number of outstanding shares of Lazard Ltds common stock, subject to customary anti-dilution adjustments.



Expenses. The master separation agreement sets forth the intention of
Lazard Group to reimburse Lazard Ltd for its costs and expenses incurred in the ordinary course of business.



LAZ-MD Holdings Exchangeable Interests.The master separation agreement sets forth the terms and arrangements with respect to the LAZ-MD Holdings
exchangeable interests, including the exchange rate and timing of exchangeability of those interests.



Indemnification.In general, under the master separation agreement, Lazard Group indemnifies LFCM Holdings, LAZ-MD Holdings and their respective
representatives and affiliates for any and all losses (including tax losses) that such persons incur to the extent arising out of or relating to our business (both historically and in the future) and any and all losses that LFCM Holdings, LAZ-MD
Holdings and their respective representatives and affiliates incur arising out of or relating to any breach of the master separation agreement by Lazard Group or Lazard Ltd.



In general, LFCM Holdings indemnifies Lazard Ltd, Lazard Group, LAZ-MD Holdings and their respective representatives and
affiliates for any and all losses (including tax losses) that such persons incur arising out of or relating to the separated businesses and the businesses conducted by LFCM Holdings (both historically and in the future) and any and all losses that
Lazard Ltd, Lazard Group, LAZ-MD Holdings and their respective representatives or affiliates incur arising out of or relating to any breach of the master separation agreement by LFCM Holdings.



In general, under the master separation agreement, LAZ-MD Holdings
indemnifies Lazard Ltd, Lazard Group, LFCM Holdings and their respective representatives and affiliates for any and all losses that such persons incur to the extent arising out of or relating to any breach of the master separation agreement by
LAZ-MD Holdings.



Any indemnification amounts are reduced by
any insurance proceeds and other offsetting amounts recovered by the indemnitee. The master separation agreement specifies procedures with respect to claims subject to indemnification and related matters.



Other Provisions.The master separation agreement also contains
provisions governing the sharing of information between Lazard Ltd and Lazard Group, on the one hand, and LAZ-MD Holdings and LFCM Holdings, on the other hand.



On November 6, 2006, Lazard Ltd, Lazard Group and LAZ-MD Holdings entered into Amendment No. 1 to the master separation agreement (the
amendment). The amendment modified the provisions of the master separation agreement relating to the exchange terms of the LAZ-MD Holdings exchangeable interests. The modifications included the following:



| |  |  | An exchange of LAZ-MD Holdings exchangeable interests may be conditioned upon the actual sale of all or any portion (such amount designated by the holder) of the
LAZ-MD Holdings exchangeable interests in connection with a registered offering.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Holders of LAZ-MD Holdings exchangeable interests that are then exchangeable may exchange these interests not only at annual registration periods but also in
connection with demand and piggy-back registration opportunities and during window periods after the filing of selected Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K by Lazard Ltd.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In addition to requiring the consent of Lazard Ltd, Lazard Group and LAZ-MD Holdings to amend the exchangeability provisions, any amendment that materially and
adversely impacts the rights of any holder thereunder requires the consent of such holder or it will not apply to such person unless such amendment applies to and affects the rights of all holders equally, regardless of whether or not such person is
providing services to Lazard Ltd.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Lazard License Agreement



The logo,
trademarks, trade names and service marks of Lazard are currently property of various wholly-owned subsidiaries of Lazard Group. Pursuant to the master separation agreement, Lazard Group and those subsidiaries entered into a license agreement with
LFCM Holdings that governs the use of the Lazard and LF names by LFCM Holdings in connection with the separated businesses.



In general, LFCM Holdings is permitted to use the Lazard and LF names to the extent that the Lazard name was being used at the time of the separation and
recapitalization by the separated businesses and is permitted to use the LF name solely for the use of the name LFCM Holdings LLC in its capacity as a holding company for the separated businesses. Under the agreement, LFCM Holdings pays $100,000 per
year for the right to license the Lazard name. The license survives with respect to capital markets activities until the expiration or termination of the business alliance provided for in the business alliance agreement that LFCM Holdings entered
into with Lazard Group. With respect to merchant banking activities, LFCM Holdings license survives until the earlier of the expiration, termination or closing of the options to purchase the North American and European merchant banking
businesses, granted in the business alliance agreement, as described in Business Alliance Agreement, or until the business alliance agreement is terminated. The license for the LF name in LFCM Holdings LLC may be terminated by
either party for any reason after the license with respect to the capital markets business and the license for the merchant banking activities have both expired or been terminated. Upon termination of either the license with respect to the capital
markets business or the license for the merchant banking activities, the license fee for the calendar year following the termination and each year thereafter will be $75,000 per year. If both of those licenses are terminated, the license fee for the
calendar year following the termination and each year thereafter will be $25,000 per year.



Administrative Services Agreement



We entered into an administrative services agreement with LAZ-MD Holdings and LFCM Holdings regarding the provision of administrative and support services after the separation and recapitalization.



Pursuant to the administrative services agreement, Lazard Group provides
selected administrative and support services to LAZ-MD Holdings and LFCM Holdings, such as:



| |  |  | cash management and debt service administration,
| | - |  | ------------------------------------------------



| |  |  | accounting and financing activities,
| | - |  | ------------------------------------



| |  |  | tax,
| | - |  | ----



| |  |  | payroll,
| | - |  | --------



| |  |  | human resources administration,
| | - |  | -------------------------------



| |  |  | financial transaction support,
| | - |  | ------------------------------



| |  |  | information technology,
| | - |  | -----------------------



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| |  |  | public communications,
| | - |  | ----------------------



| |  |  | data processing,
| | - |  | ----------------



| |  |  | procurement,
| | - |  | ------------



| |  |  | real estate management, and
| | - |  | ---------------------------



| |  |  | other general administrative functions.
| | - |  | ---------------------------------------



Lazard Group charges LFCM Holdings for the above services based on Lazard Groups cost allocation methodology. Notwithstanding Lazard Groups
providing data processing services, Lazard Group does not provide any security administration services, as such services were transferred to LFCM Holdings.



Pursuant to the administrative services agreement, Lazard Group also provides tax services to LAZ-MD Holdings and LFCM Holdings provides security
administrative services to Lazard Group.



The services provided
by Lazard Group to LFCM Holdings, and by LFCM Holdings to Lazard Group, under the administrative services agreement generally will be provided until December 31, 2008. LFCM Holdings and Lazard Group have a right to terminate the services
earlier if there is a change of control of either party or the business alliance provided in the business alliance agreement expires or is terminated. The party receiving a service may also terminate a service earlier upon 180 days notice as
long as such receiving party pays the service provider an additional 3 months of service fee for the terminated service. The services provided by Lazard Group to LAZ-MD Holdings will generally be provided until December 31, 2014, unless
terminated earlier because of a change of control of either party.



In the absence of gross negligence or willful misconduct, the party receiving services under the administrative services agreement waives any rights and claims it may have against the service provider in respect of any services provided
under the administrative services agreement.



Business
Alliance Agreement



Lazard Group and LFCM Holdings
entered into a business alliance agreement that provides for the continuation of Lazard Groups and LFCM Holdings business relationships in the areas and on the terms summarized below.



The business alliance agreement provides that Lazard Group will refer to LFCM
Holdings selected opportunities for underwriting and distribution of securities. In addition, Lazard Group will provide assistance in the execution of any such referred business. In exchange for this referral obligation and assistance, Lazard Group
is entitled to a referral fee from LFCM Holdings equal to approximately half of the revenue obtained by LFCM Holdings in respect of any underwriting or distribution opportunity. In addition, LFCM Holdings will refer opportunities in the Financial
Advisory and Asset Management businesses to Lazard Group. In exchange for this referral, LFCM Holdings is entitled to a customary finders fee from Lazard Group. In addition, the business alliance agreement further provides that, during the
term of the business alliance, Lazard Frères & Co. LLC and LAM Securities will introduce execution and settlement transactions to newly-formed broker-dealer entities affiliated with LFCM Holdings. The term of the business alliance
expires on May 10, 2010, subject to periodic automatic renewal, unless either party elects to terminate in connection with any such renewal or elects to terminate on account of a change of control of either party.



In addition, the business alliance agreement granted Lazard Group options to
acquire the North American and European merchant banking activities of Lazard Alternative Investments Holdings LLC, or LAI, the subsidiary of LFCM Holdings that owns and operates all of LFCM Holdings merchant banking activities,
exercisable at any time prior to the ninth anniversary of the equity public offering for a total price of $10 million. The option may be exercised by Lazard Group in two parts, consisting of an $8 million option to purchase the North American
merchant banking activities and a $2 million option to purchase the European merchant banking



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activities. LAIs merchant banking activities initially consist of the merchant banking management and general partner entities that were transferred to
LFCM Holdings in connection with the separation. The business alliance agreement provides that, prior to the expiration, termination or exercise of the options, Lazard Group has certain governance rights with respect to LAI, and LFCM Holdings is
required to support the business of LAI. In addition, Lazard Group is obligated to abide by obligations that existed as of the date of the separation and recapitalization with respect to funds existing as of such date and, other than with respect to
the merchant banking operations retained by Lazard Group in the separation, Lazard Group will not compete with the merchant banking business of LAI until the expiration, termination or exercise of the options. Lazard Group may agree to new capital
commitments and other obligations with respect to newly formed funds in its sole discretion. Lazard Group may be entitled to receive from LFCM Holdings all or a portion of payments from the incentive fees attributable to newly established LAI funds,
such as Corporate Partners II Limited, less compensation payable to investment professionals who manage these funds.



From time to time we have considered exercising the option to acquire the merchant banking business and have had preliminary conversations with LFCM
Holdings in that regard.



Pursuant to the business alliance
agreement, LFCM Holdings agreed not to compete with any existing Lazard Group businesses until the latest to occur of the termination of the license agreement, the expiration, termination or exercise of the options to purchase the North American
merchant banking activities and the European merchant banking activities or the expiration or termination of the business alliance.



LAZ-MD Holdings Stockholders Agreement



Members of LAZ-MD Holdings, consisting of the current and former working members of Lazard Group, including our managing directors, have entered into a
stockholders agreement with LAZ-MD Holdings and Lazard Ltd that addresses, among other things, LAZ-MD Holdings voting of its share of Class B common stock and registration rights in favor of the shareholders who are party to the
agreement. Every working member at the time of the separation and recapitalization was offered the opportunity to become a party to the LAZ-MD Holdings stockholders agreement.



The LAZ-MD Holdings stockholders agreement will continue in effect until all LAZ-MD Holdings exchangeable interests
have been exchanged for shares of Lazard Ltds common stock, and individual members of LAZ-MD Holdings will cease being party to the LAZ-MD Holdings stockholders agreement upon full exchange of his or her LAZ-MD Holdings exchangeable
interests and underlying Lazard Group interests for Lazard Ltds common stock and such common stock is capable of resale generally under Rule 144 of the Securities Act of 1933, as amended (the Securities Act). The LAZ-MD Holdings
stockholders agreement may be terminated on an earlier date by LAZ-MD Holdings members entitled to vote at least 66 2/3% of the aggregate voting power represented by the LAZ-MD Holdings members who are party to the LAZ-MD Holdings
stockholders agreement. The LAZ-MD Holdings stockholders agreement generally may be amended at any time by a majority of the aggregate voting power represented by LAZ-MD Holdings members who are party to the LAZ-MD Holdings
stockholders agreement.



On November 6, 2006, Lazard
Group delivered to LAZ-MD Holdings an acknowledgement letter (the acknowledgement letter) modifying the terms of the retention agreements of persons party to the amended and restated LAZ-MD stockholders agreement who are currently
managing directors. The modifications include Lazard Groups agreement that, in the event that any such person shall become entitled to exchangeability immediately following the third anniversary of the initial equity public offering, or
May 10, 2008, of his or her LAZ-MD Holdings exchangeable interests, that person will not forfeit the right to early exchangeability with respect to the first tranche of his or her LAZ-MD Holdings exchangeable interests if he or she breaches the
restrictive covenants (i.e., non-compete and non-solicitation provisions) in the retention agreement of such individual (although shares in the second and third tranches that would otherwise become exchangeable would not be exchangeable until
the eighth anniversary of our initial equity public offering (May 10, 2013) in such an instance). The terms of the acknowledgement letter were approved by our board of directors.



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Certain Relationships with Our Directors, Executive Officers and Employees



Mr. Anthony Orsatelli, a member of our Board of Directors, is a member
of the executive board of IXIS Corporate & Investment Bank In April 2004, Lazard Group and IXIS entered into a cooperation arrangement to place and underwrite securities on the French equity primary capital markets under a common brand,
Lazard-Ixis, and cooperate in their respective origination, syndication and placement activities. This cooperation covers French listed companies exceeding a market capitalization of 500 million. On March 15, 2005, Lazard
Group and IXIS expanded this arrangement into an exclusive arrangement within France. The cooperation arrangement also provides for an alliance in real estate advisory work with the objective of establishing a common brand for advisory and financing
operations within France. It also added an exclusive mutual referral cooperation arrangement, subject to the fiduciary duties of each firm, with the goal of referring clients from Lazard Group to IXIS for services relating to corporate banking,
lending, securitizations and derivatives within France and from IXIS to Lazard Group for mergers and acquisitions advisory services within France. This expanded cooperation arrangement has a term of three years through May 10, 2008. In 2006,
the cooperation arrangement generated $27.9 million of gross revenue for Lazard.



In connection with the cooperation arrangement, Lazard Group and IXIS have developed a business plan to promote mutual revenue production and sharing relating to the cooperation activities. As part of that plan,
revenue from the various activities subject to the cooperation arrangement is credited towards a target weighted revenue number (the Notional Reserve) of 20 million (which the parties may agree to reduce if aspects of the
cooperation do not take place), calculated by applying varying percentages depending on the source of the revenue plus the underwriting commissions received by IXIS for the ESUs. If at the end of the initial term of the cooperation arrangement
(a) the sum of that calculation is less than the Notional Reserve, (b) the cooperation arrangement is not renewed and (c) Lazard Ltds common stock price fails to exceed $25 per share for a specified period, Lazard Group or its
affiliate will pay IXIS or one of its affiliates the difference between the Notional Reserve and the sum of (1) the weighted revenue credits and (2) any gain IXIS has realized on a sale of its investment in our securities prior to the end
of the initial term of the arrangement. The level of this potential payment would depend, among other things, on the level of revenue generated by the cooperation activities. The potential payment is limited, as of December 31, 2006, to a
maximum of approximately 8 million (subject to further reduction in certain circumstances) which would only occur if the cooperation activities generate no revenue over the remaining initial period of such activities and the other
conditions noted above have not been met.



In 2006, we advised
on a major internal reorganization of CNCE, the former parent holding company of IXIS, involving both its shareholders and its subsidiaries. Pursuant to this reorganization IXIS Corporate & Investment Bank became a wholly-owned subsidiary
of Natixis, and the common brand for Lazards cooperation arrangement became Lazard-Natixis. In addition, Mr Orsatelli relinquished all his previous responsibilities in CNCE. We received advisory fees of $17.7 million with respect
to the CNCE reorganization and $0.5 million for advisory services on an unrelated transaction for CNCE in 2006.



Mr. Wasserstein, our Chairman and Chief Executive Officer, serves as the Chairman and is the majority owner of Wasserstein Holdings, LLC, the
ultimate general partner of Wasserstein & Co., LP, a separate merchant banking firm in which Lazard does not hold any economic interest and at which Ellis Jones, who serves on our Board of Directors, serves as Chief Executive Officer.
Wasserstein & Co., LP focuses primarily on leveraged buyout investments, venture capital investments and related investment activities, and manages capital on behalf of its institutional and individual investors, including public and
corporate pension funds, foreign governmental entities, endowments and foundations and high-net worth individuals. Wasserstein & Co., LP also manages capital from its partners and officers. In addition, Wasserstein Holdings, LLC has various
other business interests.



The Wasserstein funds may engage in
activities that are similar to those in which we and our affiliates are engaged. If Mr. Wasserstein desires to make available any corporate opportunity of ours or our affiliates that arises from a relationship of ours or any of our affiliates
(other than any relationship of Mr. Wasserstein existing on November 15, 2001), those opportunities can only be referred to the Wasserstein funds if Mr. Wasserstein first obtains the written consent of our Nominating &
Governance Committee.



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In 2006, Aggregate Industries acquired Meyer Material Company from U.S. Equity Partners II, L.P. and Park
Avenue Equity Partners, L.P. for $231 million. Lazard was engaged by Meyer Material Company to advise it on this transaction and received a customary fee of $2.5 million. U.S. Equity Partners II, L.P is private equity fund whose general partner is
an affiliate of Wasserstein & Co., LP. The Nominating & Governance Committee of Lazard Ltd approved this arrangement pursuant to our policy on related party transactions.



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------



Fees of Independent Registered Public Accounting Firm



Deloitte & Touche LLP acted as Lazards independent registered public accounting firm for the years ended December 31, 2006 and 2005.
Fees for services provided by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu and their respective affiliates were as follows (in thousands of dollars):



|                                                                                                                                                                                                                                                                                                                                  |  |      |       |      |   |      
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- | - | -----
|Fees                                                                                                                                                                                                                                                                                                                              |  | 2006 |       | 2005
|Audit Fees for the audit of Lazards annual financial statements, the audit of the effectiveness of Lazards controls over
financial reporting and reviews of the financial statements included in Lazards quarterly reports on Form 10-Q, including services in connection with statutory and regulatory filings or engagements |  | $    | 5,251 |      | $ | 2,702
|Audit-Related Fees, including fees for audits of employee benefit plans, computer and control related audit services, agreed-upon
procedures, merger and acquisition assistance and other accounting research services                                                                                                            |  | $    | 983   |      | $ | 411  
|Tax Fees for tax consulting and compliance services not related to the audit                                                                                                                                                                                                                                                      |  | $    | 1,013 |      | $ | 700  
|All Other Fees (including IPO-related fees ($1,319) and services related to public company requirements in 2005)                                                                                                                                                                                                                  |  | $    |      |      | $ | 1,899



The Audit Committee of
Lazard Ltd has adopted a policy regarding pre-approval of audit and non-audit services provided by Deloitte & Touche LLP to Lazard Ltd and its subsidiaries, including Lazard Group. All references to the Audit Committee contained herein
refer to the Audit Committee of Lazard Ltd. The policy provides the guidelines necessary to adhere to Lazards commitment to auditor independence and compliance with relevant laws, regulations and guidelines relating to auditor independence.
The policy contains a list of prohibited non-audit services, and sets forth four categories of permitted services (Audit, Audit-Related, Tax and Other), listing the types of permitted services in each category. All of the permitted services require
pre-approval by the Audit Committee. In lieu of Audit Committee pre-approval on an engagement-by-engagement basis, each category of permitted services, with reasonable detail as to the types of services contemplated, is pre-approved as part of the
annual budget approval by the Audit Committee. Permitted services not contemplated during the budget process must be presented to the Audit Committee for approval prior to the commencement of the relevant engagement. The Audit Committee chair, or,
if he is not available, any other member of the Committee, may grant approval for any such engagement if approval is required prior to the next scheduled meeting of the Committee. At least twice a year, the Audit Committee is presented with a report
showing amounts billed by the independent auditor compared to the budget approvals for each of the categories of permitted services. The Audit Committee reviews the suitability of the pre-approval policy at least annually.



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PART IV



|Item 15. | Exhibits and Financial Statement Schedules
|-------- | ------------------------------------------



|(a) | Documents filed as part of this Report:
|--- | ---------------------------------------



| | 1. | Consolidated Financial Statements
| | -- | ---------------------------------



| |  | The consolidated financial statements required to be filed in the annual report on Form 10-K are listed on page F-1 hereof and in Part II, Item 8 hereof.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Financial Statement Schedule
| | -- | ----------------------------



| |  | The financial statement schedule required in the annual report on Form 10-K is listed on page F-1 hereof. The required schedule appears on pages F-1 through F-7 hereof.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Exhibits
| | -- | --------



|    |  |                                                                                                                                                                                                                                                                                                                                                         
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1 |  | Lazard Group LLCs Certificate of Formation (incorporated by reference to Exhibit 3.1 to Lazard Group LLCs Registration Statement (File No. 333-126751) on Form S-4 filed on
July 21, 2005).                                                                                                                                                           
|    | 
|3.2 |  | Lazard Group LLCs Certificate of Amendment of Certificate of Formation of Lazard Group LLC, changing name to Lazard Group LLC (incorporated by reference to Exhibit 3.2 to the Lazard
Group LLCs Registration Statement (File No. 333-126751) on Form S-4 filed on July 21, 2005).                                                                    
|    | 
|3.3 |  | Operating Agreement of Lazard Group LLC, dated as of May 10, 2005 (incorporated by reference to Exhibit 10.2 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on
June 16, 2005).                                                                                                                                                
|    | 
|3.4 |  | Amendment No. 1 to the Operating Agreement of Lazard Group LLC, dated as of December 19, 2005 (incorporated by reference to Exhibit 3.01 to the Lazard Group LLCs Current Report on Form
8-K (File No. 333-126751) filed on December 19, 2005).                                                                                                        
|    | 
|4.1 |  | Indenture, dated as of May 10, 2005, by and between Lazard Group LLC and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to Lazard Group LLCs
Registration Statement (File No. 333-126751) on Form S-4 filed on July 21, 2005).                                                                                             
|    | 
|4.2 |  | First Supplemental Indenture, dated as of May 10, 2005, by and between Lazard Group LLC and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.2 to the Lazard Group
LLCs Registration Statement (File No. 333-126751) on Form S-4 filed on July 21, 2005).                                                                      
|    | 
|4.3 |  | Registration Rights Agreement, dated as of May 10, 2005, by and between Lazard Group LLC, Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., as representatives for the Initial
Purchasers (incorporated by reference to Exhibit 4.3 to Lazard Group LLCs Registration Statement (File No. 333-126751) on Form S-4 filed on July 21, 2005).
|    | 
|4.4 |  | Second Supplemental Indenture, dated as of May 10, 2005, by and between Lazard Group LLC and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.37 to Lazard Group
LLCs Registration Statement (File No. 333-126751) on Form S-4 filed on July 21, 2005).                                                                       
|    | 
|4.5 |  | Third Supplemental Indenture, dated as of December 19, 2005, by and among Lazard Group LLC, The Bank of New York, as trustee, and for purposes of consent, Lazard Group Finance LLC
(incorporated by reference to Exhibit 4.02 to the Lazard Group LLCs Current Report on Form 8-K (Commission File No. 333-126751) filed on December 19, 2005).       



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|     |  |                                                                                                                                                                                                                                                                                                                                                       
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.6  |  | Purchase Contract Agreement, dated as of May 10, 2005, by and between Lazard Ltd and The Bank of New York, as Purchase Contract Agent (incorporated by reference to Exhibit 4.4 to Lazard
Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                           
|     | 
|4.7  |  | Pledge Agreement, dated as of May 10, 2005, by and among Lazard Ltd, The Bank of New York, as Collateral Agent, Custodial Agent and Securities Intermediary and The Bank of New York, as
Purchase Contract Agent (incorporated by reference to Exhibit 4.5 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).
|     | 
|4.8  |  | Pledge Agreement, dated as of May 10, 2005, by and among Lazard Group Finance LLC, The Bank of New York, as Collateral Agent, Custodial Agent and Securities Intermediary and The Bank of New
York, as Trustee (incorporated by reference to Exhibit 4.6 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).  
|     | 
|4.9  |  | Form of Normal Equity Security Units Certificate (included in Exhibit 4.6).                                                                                                                                                                                                                                                                           
|     | 
|4.10 |  | Form of Stripped Equity Security Units Certificate (included in Exhibit 4.6).                                                                                                                                                                                                                                                                         
|     | 
|4.11 |  | Form of Senior Note (included in Exhibit 4.5).                                                                                                                                                                                                                                                                                                        
|     | 
|4.12 |  | $546 million 7.125% Senior Notes Due 2015, issued by Lazard Group LLC (incorporated by reference to Exhibit 4.5 to Lazard Group LLCs Quarterly Report (File No. 333-126751) on Form 10-Q
filed on November 10, 2005).                                                                                                                                
|     | 
|10.1 |  | Master Separation Agreement, dated as of May 10, 2005, by and among Lazard Ltd, Lazard Group LLC, LAZ-MD Holdings LLC and LFCM Holdings LLC (incorporated by reference to Exhibit 2.1 to Lazard
Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                     
|     | 
|10.2 |  | Amendment No. 1, dated as of November 6, 2006, to the Master Separation Agreement, dated as of May 10, 2005, by and among the Lazard Ltd, Lazard Group LLC and LAZ-MD Holdings LLC
(incorporated by reference to Exhibit 10.2 to the Registrants Quarterly Report (File No. 333-126751) on Form 10-Q filed on November 7, 2006).                     
|     | 
|10.3 |  | Class B-1 and Class C Members Transaction Agreement (incorporated by reference to Exhibit 2.2 to Lazard Ltds Registration Statement (File No. 333-121407) on Form S-1 filed on December
17, 2004).                                                                                                                                                   
|     | 
|10.4 |  | Amended and Restated Stockholders Agreement, dated as of November 6, 2006, by and among LAZ-MD Holdings LLC, Lazard Ltd and certain members of LAZ-MD Holdings LLC (incorporated by
reference to Exhibit 10.4 to the Registrants Quarterly Report (File No. 333-126751) on Form 10-Q filed on November 7, 2006).                                    
|     | 
|10.5 |  | Employee Benefits Agreement, dated as of May 10, 2005, by and among Lazard Ltd, Lazard Group LLC, LAZ-MD Holdings LLC and LFCM Holdings LLC (incorporated by reference to Exhibit 10.4 to
Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                    
|     | 
|10.6 |  | Insurance Matters Agreement, dated as of May 10, 2005, by and between Lazard Group LLC and LFCM Holdings LLC (incorporated by reference to Exhibit 10.5 to Lazard Ltds Quarterly Report
(File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                                                   
|     | 
|10.7 |  | License Agreement, dated as of May 10, 2005, by and among Lazard Strategic Coordination Company, LLC, Lazard Frères & Co. LLC, Lazard Frères S.A.S., Lazard & Co.
Holdings Limited and LFCM Holdings LLC (incorporated by reference to Exhibit 10.6 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).       
|     | 
|10.8 |  | Administrative Services Agreement, dated as of May 10, 2005, by and among LAZ-MD Holdings LLC, LFCM Holdings LLC and Lazard Group LLC (incorporated by reference to Exhibit 10.7 to Lazard
Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                          



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|      |   |  |                                                                                                                                                                                                                                                                                                                                                                    
|----- | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9  |   |  | Business Alliance Agreement, dated as of May 10, 2005, by and between Lazard Group LLC and LFCM Holdings LLC (incorporated by reference to Exhibit 10.8 to Lazard Ltds Quarterly Report
(File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                                                                
|      |  
|10.10 |   |  | First Amended and Restated Limited Liability Company Agreement of Lazard Asset Management LLC, dated as of January 10, 2003 (incorporated by reference to Exhibit 10.10 to Lazard Ltds
Registration Statement (File No. 333-121407) on Form S-1/A filed on February 11, 2005).                                                                                    
|      |  
|10.11 |   |  | Amended and Restated Operating Agreement of Lazard Strategic Coordination Company LLC, dated as of January 1, 2002 (incorporated by reference to Exhibit 10.16 to Lazard Ltds
Registration Statement (File No. 333-121407) on Form S-1/A filed on February 11, 2005).                                                                                             
|      |  
|10.12 |   |  | Lease, dated as of January 27, 1994, by and between Rockefeller Center Properties and Lazard Frères & Co. LLC (incorporated by reference to Exhibit 10.19 to Lazard Ltds
Registration Statement (File No. 333-121407) on Form S-1/A filed on February 11, 2005).                                                                                                  
|      |  
|10.13 |   |  | Lease with an Option to Purchase, dated as of July 11, 1990, by and between Sicomibail and Finabail and SCI du 121 Boulevard Hausmann (English translation) (incorporated by reference to
Exhibit 10.20 to Lazard Ltds Registration Statement (File No. 333-121407) on Form S-1/A filed on February 11, 2005).                                                    
|      |  
|10.14 |   |  | Occupational Lease, dated as of August 9, 2002, Burford (Stratton) Nominee 1 Limited, Burford (Stratton) Nominee 2 Limited, Burford (Stratton) Limited, Lazard & Co., Limited and Lazard
LLC (incorporated by reference to Exhibit 10.21 to Lazard Ltds Registration Statement (File No. 333-121407) on Form S-1/A filed on February 11, 2005).                   
|      |  
|10.15 | * |  | Lazard Ltds 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.21 to Lazard Ltds Registration Statement (File No. 333-121407) on Form S-1/A filed on May 2,
2005).                                                                                                                                                                              
|      |  
|10.16 | * |  | Lazard Ltds 2005 Bonus Plan (incorporated by reference to Exhibit 10.23 to Lazard Ltds Registration Statement (File No. 333-121407) on Form S-1/A filed on March 21,
2005).                                                                                                                                                                                      
|      |  
|10.17 | * |  | Agreement Relating to Retention and Noncompetition and Other Covenants, dated as of May 4, 2005, by and among Lazard Ltd, Lazard Group LLC and Bruce Wasserstein (incorporated by
reference to Exhibit 10.23 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                           
|      |  
|10.18 | * |  | Agreement Relating to Reorganization of Lazard, dated as of May 10, 2005, by and among Lazard LLC and Bruce Wasserstein (incorporated by reference to Exhibit 10.24 to Lazard Ltds
Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                                                    
|      |  
|10.19 | * |  | Agreement Relating to Retention and Noncompetition and Other Covenants, dated as of May 4, 2005, by and among Lazard Ltd, Lazard Group LLC and Steven J. Golub (incorporated by reference
to Exhibit 10.25 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                             
|      |  
|10.20 | * |  | Form of Agreement Relating to Retention and Noncompetition and Other Covenants, dated as of May 4, 2005, applicable to, and related Schedule I for, each of Michael J. Castellano, Scott D.
Hoffman and Charles G. Ward III (incorporated by reference to Exhibit 10.26 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).
|      |  
|10.21 | * |  | Agreements Relating to Retention and Noncompetition and Other Covenants (incorporated by reference to Exhibit 10.27 to Lazard Ltds Registration Statement (File No. 333-121407) on
Form S-1/A filed on April 11, 2005).                                                                                                                                           



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|      |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----- | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.22 | * |  | Amended and Restated Letter Agreement, effective as of January 1, 2004, between Vernon E. Jordan, Jr. and Lazard Frères & Co. LLC (incorporated by reference to Exhibit 10.28 to
Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                                                                                                                                                  
|      |  
|10.23 | * |  | Acknowledgement Letter, dated as of November 6, 2006, from Lazard Group LLC to certain managing directors of Lazard Group LLC modifying the terms of the retention agreements of persons party
to the Amended and Restated Stockholders Agreement, dated as of November 6, 2006 (incorporated by reference to Exhibit 10.23 to the Registrants Quarterly Report (File No. 333-126751) on Form 10-Q filed on November 7,
2006).                                           
|      |  
|10.24 |   |  | Letter Agreement, dated as of March 15, 2005, from IXIS Corporate and Investment Bank to Lazard LLC and Lazard Ltd (incorporated by reference to Exhibit 10.27 to Lazard Ltds
Registration Statement (File No. 333-121407) on Form S-1/A filed on March 21, 2005).                                                                                                                                                                                                        
|      |  
|10.25 |   |  | Registration Rights Agreement, dated as of May 10, 2005 by and among Lazard Group Finance LLC, the Registrant, Lazard Group LLC and IXIS Corporate and Investment Bank (incorporated by
reference to Exhibit 10.30 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                                                                                                             
|      |  
|10.26 |   |  | Letter Agreement, dated as of May 10, 2005, with Bruce Wasserstein family trusts (incorporated by reference to Exhibit 10.31 to Lazard Ltds Quarterly Report
(File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                                                                                                                                                                                                   
|      |  
|10.27 |   |  | Senior Revolving Credit Agreement, dated as of May 10, 2005, among Lazard Group LLC, the Banks from time to time parties thereto, Citibank, N.A., The Bank of New York, New York
Branch, JP Morgan Chase Bank, N.A. and JP Morgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.32 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16,
2005).                                                        
|      |  
|10.28 |   |  | First Amendment, dated as of March 28, 2006, to the Senior Revolving Credit Agreement, dated as of May 10, 2005, among Lazard Group LLC, the Banks from time to time parties thereto, Citibank,
N.A., The Bank of New York, New York Branch, JP Morgan Chase Bank, N.A. and JP Morgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.38 to the Registrants Quarterly Report on Form 10-Q (File No. 333-126751)
filed on May 11, 2006).
|      |  
|10.29 |   |  | Second Amendment, dated as of May 17, 2006, to the Senior Revolving Credit Agreement, dated as of May 10, 2005, among Lazard Group LLC, the Banks from time to time parties thereto, Citibank,
N.A., The Bank of New York, New York Branch, JP Morgan Chase Bank, N.A. and JP Morgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K (File No. 333-126751)
filed on May 17, 2006).     
|      |  
|10.30 | * |  | Description of Non-Executive Director Compensation (incorporated by reference to Exhibit 10.33 to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q for the quarter
ended June 30, 2005).                                                                                                                                                                                                                                                                    
|      |  
|10.31 | * |  | Form of Award Letter for Annual Grant of Deferred Stock Units to Non-Executive Directors (incorporated by reference to Exhibit 99.1 to Lazard Ltds Current Report on Form 8-K (File No.
001-32492) filed on September 8, 2005).                                                                                                                                                                                                                                           
|      |  
|10.32 | * |  | Form of Agreement evidencing a grant of Restricted Stock Units to Executive Officers under the Lazard Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to Lazard Ltds
Current Report on Form 8-K (File No. 001-32492) filed on January 26, 2006).                                                                                                                                                                                                         
|      |  
|10.33 |   |  | Termination Agreement, dated as of March 31, 2006, by and among Banca Intesa S.p.A., Lazard Group LLC, and Lazard & Co. S.r.l. (incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K (File No. 333-126751) filed on April 4, 2006).                                                                                                                                                                                                    



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|      |   |  |                                                                                                                                                                                                                                                                                                                                                    
|----- | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.34 |   |  | Amended and Restated $150 Million Subordinated Convertible Promissory Note due 2018, issued by Lazard Funding LLC to Banca Intesa S.p.A. (incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K (File No. 333-126751) filed on May 17, 2006).                                                                   
|      |  
|10.35 |   |  | Amended and Restated Guaranty of Lazard Group LLC to Banca Intesa S.p.A., dated as of May 15, 2006 (incorporated by reference to Exhibit 10.4 to the Registrants Current Report on Form
8-K (File No. 333-126751) filed on May 17, 2006).                                                                                                         
|      |  
|10.36 |   |  | $96 Million Senior Promissory Note due 2008, issued by Lazard Group LLC to Banca Intesa S.p.A. (incorporated by reference to Exhibit 10.5 to the Registrants Current Report on Form 8-K
(File No. 333-126751) filed on May 17, 2006).                                                                                                             
|      |  
|10.37 |   |  | $50 Million Subordinated Promissory Note due 2008, issued by Lazard Group LLC to Banca Intesa S.p.A. (incorporated by reference to Exhibit 10.6 to the Registrants Current Report on Form
8-K (File No. 333-126751) filed on May 17, 2006).                                                                                                       
|      |  
|10.38 |   |  | Certificate of Transfer and Assignment with Amendments, dated as of May 15, 2006, by and between Banca Intesa S.p.A. and Citibank, N.A., acknowledged and accepted for certain purposes by
Lazard Group LLC (incorporated by reference to Exhibit 10.7 to the Registrants Current Report on Form 8-K (File No. 333-126751) filed on May 17, 2006).
|      |  
|10.39 | * |  | Directors Fee Deferral Unit Plan. (incorporated by reference to Exhibit 10.37 to the Registrants Quarterly Report on Form 10-Q (File No. 333-126751) filed on May 11,
2006).                                                                                                                                                                     
|      |  
|10.40 | * |  | First amended Form of Agreement evidencing a grant of Restricted Stock Units to Executive Officers under the Lazard 2005 Equity Incentive Plan.                                                                                                                                                                                                    
|      |  
|12.1  |   |  | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                                                                                 
|      |  
|21.1  |   |  | Subsidiaries of Registrant.                                                                                                                                                                                                                                                                                                                        
|      |  
|31.1  |   |  | Rule 13a-14(a) Certification of Bruce Wasserstein.                                                                                                                                                                                                                                                                                                 
|      |  
|31.2  |   |  | Rule 13a-14(a) Certification of Michael J. Castellano.                                                                                                                                                                                                                                                                                             
|      |  
|32.1  |   |  | Section 1350 Certification for Bruce Wasserstein.                                                                                                                                                                                                                                                                                                  
|      |  
|32.2  |   |  | Section 1350 Certification for Michael J. Castellano.                                                                                                                                                                                                                                                                                              



| | 
| | 

* Management contract or compensatory plan or arrangement



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LAZARD GROUP LLC



INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE



ITEMS 15 (a)(1) AND 15 (a)(2)



|                                                                                                                        |  |        
|----------------------------------------------------------------------------------------------------------------------- |  | -------
|                                                                                                                        |  | PageNo.
|Managements Report on Internal Control over Financial Reporting                                                        |  | 68     
|                                                                                                                        | 
|Reports of Independent Registered Public Accounting Firm                                                                |  | 69-70  
|                                                                                                                        | 
|Consolidated Financial Statements                                                                                       |  |        
|                                                                                                                        | 
|Consolidated Statements of Financial Condition as of December 31, 2006 and 2005                                         |  | 71     
|                                                                                                                        | 
|Consolidated Statements of Income for the years ended December 31, 2006, 2005 and 2004                                  |  | 73     
|                                                                                                                        | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004                              |  | 74     
|                                                                                                                        | 
|Consolidated Statements of Changes in Members Equity (Deficiency) for the years ended December 31, 2006, 2005 and 2004 |  | 75     
|                                                                                                                        | 
|Notes to Consolidated Financial Statements                                                                              |  | 76     
|                                                                                                                        | 
|Supplemental Financial Information                                                                                      |  |        
|                                                                                                                        | 
|Quarterly Results                                                                                                       |  | 116    
|                                                                                                                        | 
|Financial Statement Schedule                                                                                            |  |        
|                                                                                                                        | 
|Schedule ICondensed Financial Information of Registrant (Parent Company Only)                                          |  |        
|                                                                                                                        | 
|Condensed Statements of Financial Condition as of December 31, 2006 and 2005                                            |  | F-2    
|                                                                                                                        | 
|Condensed Statements of Income for the years ended December 31, 2006, 2005 and 2004                                     |  | F-3    
|                                                                                                                        | 
|Condensed Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004                                 |  | F-4    
|                                                                                                                        | 
|Condensed Statements of Changes in Members Equity (Deficiency) for the years ended December 31, 2006, 2005 and 2004    |  | F-5    
|                                                                                                                        | 
|Notes to Condensed Financial Statements                                                                                 |  | F-6    



Schedules not listed
above have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or notes thereto.



F-1



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##### Table of Contents

LAZARD GROUP LLC

(parent company only)



CONDENSED STATEMENTS OF FINANCIAL CONDITION

DECEMBER 31, 2006 AND 2005

(dollars in thousands)



|                                                          |  |              |           |   |      |   |           |  
|--------------------------------------------------------- |  | ------------ | --------- | - | ---- | - | --------- | -
|                                                          |  | December 31, |          
|                                                          |  | 2006         |           |   | 2005 |  
|ASSETS:                                                   |  |              |           |   |      |   |           |  
|Cash and cash equivalents                                 |  | $            | 319,896   |   |      | $ | 3,624     |  
|Investments in subsidiaries, equity basis                 |  |              | 849,009   |   |      |   | 477,422   |  
|Due from subsidiaries                                     |  |              | 28,123    |   |      |   | 4,422     |  
|Related party receivables                                 |  |              | 1,021     |   |      |   | 27,550    |  
|Other receivables                                         |  |              |           |   |      |   | 50        |  
|Long-term investments                                     |  |              | 16,994    |   |      |   | 1,777     |  
|Other assets                                              |  |              | 11,856    |   |      |   | 10,424    |  
|                                                          |  |              |           |   |      |   |           |  
|Total Assets                                              |  | $            | 1,226,899 |   |      | $ | 525,269   |  
|                                                          |  |              |           |   |      |   |           |  
|                                                          |  |             
|LIABILITIES AND MEMBERS DEFICIENCY:                      |  |              |           |   |      |   |           |  
|Liabilities:                                              |  |              |           |   |      |   |           |  
|Accrued compensation and benefits                         |  | $            | 116,834   |   |      | $ | 96,113    |  
|Due to subsidiaries                                       |  |              | 203,364   |   |      |   | 264,645   |  
|Other liabilities                                         |  |              | 17,689    |   |      |   | 17,350    |  
|Senior borrowings                                         |  |              | 1,083,500 |   |      |   | 1,017,500 |  
|Subordinated borrowings                                   |  |              | 50,000    |   |      |   |           |  
|                                                          |  |              |           |   |      |   |           |  
|Total Liabilities                                         |  |              | 1,471,387 |   |      |   | 1,395,608 |  
|                                                          |  |             
|Commitments and contingencies                             |  |              |           |   |      |   |           |  
|Members Deficiency:                                      |  |              |           |   |      |   |           |  
|Members deficiency                                       |  |              | (277,751  | ) |      |   | (835,997  | )
|Accumulated other comprehensive income (loss), net of tax |  |              | 33,263    |   |      |   | (34,342   | )
|                                                          |  |              |           |   |      |   |           |  
|Total Members Deficiency                                 |  |              | (244,488  | ) |      |   | (870,339  | )
|                                                          |  |              |           |   |      |   |           |  
|Total Liabilities and Members Deficiency                 |  | $            | 1,226,899 |   |      | $ | 525,269   |  
|                                                          |  |              |           |   |      |   |           |  









See notes to condensed financial statements.



F-2



---

##### Table of Contents

LAZARD GROUP LLC

(parent company only)



CONDENSED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(dollars in thousands)



|                                               |  |                          |         |      |   |         |      |  |   |        
|---------------------------------------------- |  | ------------------------ | ------- | ---- | - | ------- | ---- |  | - | -------
|                                               |  | Years Ended December 31,
|                                               |  | 2006                     |         | 2005 |   |         | 2004
|REVENUE:                                       |  |                          |         |      |   |         |      |  |   |        
|Equity in earnings of subsidiaries(*)          |  | $                        | 500,013 |      | $ | 386,525 |      |  | $ | 260,288
|Interest income                                |  |                          | 2,586   |      |   | 145     |      |  |   | 80     
|Other                                          |  |                          | 12,749  |      |   | 1,577   |      |  |   | 2,756  
|                                               |  |                          |         |      |   |         |      |  |   |        
|Total revenue                                  |  |                          | 515,348 |      |   | 388,247 |      |  |   | 263,124
|Interest expense                               |  |                          | 75,565  |      |   | 40,230  |      |  |   | 8,097  
|                                               |  |                          |         |      |   |         |      |  |   |        
|Net revenue                                    |  |                          | 439,783 |      |   | 348,017 |      |  |   | 255,027
|                                               |  |                          |         |      |   |         |      |  |   |        
|OPERATING EXPENSES(*):                         |  |                          |         |      |   |         |      |  |   |        
|Compensation and benefits (*)                  |  |                          | 168,250 |      |   | 88,576  |      |  |   |        
|Professional fees                              |  |                          | 5,623   |      |   | 2,532   |      |  |   | 1,052  
|Other                                          |  |                          | (632)   |      |   | (536    | )    |  |   | 7,001  
|                                               |  |                          |         |      |   |         |      |  |   |        
|Total operating expenses                       |  |                          | 173,241 |      |   | 90,572  |      |  |   | 8,053  
|                                               |  |                          |         |      |   |         |      |  |   |        
|OPERATING INCOME FROM CONTINUING OPERATIONS(*) |  |                          | 266,542 |      |   | 257,445 |      |  |   | 246,974
|Provision for income taxes                     |  |                          | 2,549   |      |   | 1,562   |      |  |   |        
|                                               |  |                          |         |      |   |         |      |  |   |        
|INCOME FROM CONTINUING OPERATIONS(*)           |  |                          | 263,993 |      |   | 255,883 |      |  |   | 246,974
|LOSS FROM DISCONTINUED OPERATIONS(*)           |  |                          |         |      |   | (659    | )    |  |   |        
|                                               |  |                          |         |      |   |         |      |  |   |        
|NET INCOME ALLOCABLE TO MEMBERS(*)             |  | $                        | 263,993 |      | $ | 255,224 |      |  | $ | 246,974
|                                               |  |                          |         |      |   |         |      |  |   |        

---

(*) Excludes, as applicable, with respect to periods
ended prior to May 10, 2005, payments for services rendered by Lazard Groups managing directors, which, as a result of Lazard Group operating as a limited liability company, historically had been accounted for as distributions from
members capital, or in some cases as minority interest, rather than as compensation and benefits expense.







See notes to condensed financial statements.



F-3



---

##### Table of Contents

LAZARD GROUP LLC

(parent company only)



CONDENSED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(dollars in thousands)



|                                                                                                                                                                     |  |                          |          |   |      |   |            |      |  |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | ---------- | ---- |  | - | -------- | -
|                                                                                                                                                                     |  | Years Ended December 31, |         
|                                                                                                                                                                     |  | 2006                     |          |   | 2005 |   |            | 2004 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                                                                |  |                          |          |   |      |   |            |      |  |   |          |  
|Net income allocable to members                                                                                                                                      |  | $                        | 263,993  |   |      | $ | 255,224    |      |  | $ | 246,974  |  
|Adjustments to reconcile net income amounts to net cash provided by operating activities                                                                            |  |                          |          |   |      |   |            |      |  |   |          |  
|Noncash transactions in net income allocable to members:                                                                                                             |  |                          |          |   |      |   |            |      |  |   |          |  
|Equity in earnings of subsidiaries                                                                                                                                   |  |                          | (500,013 | ) |      |   | (386,525   | )    |  |   | (260,288 | )
|Dividends received from subsidiaries                                                                                                                                 |  |                          | 328,926  |   |      |   | 335,419    |      |  |   | 281,225  |  
|Gain on termination of strategic alliance                                                                                                                            |  |                          | (13,695  | ) |      |   |            |      |  |   |          |  
|Amortization of deferred expenses, stock units and interest rate hedge                                                                                               |  |                          | 26,792   |   |      |   | 1,618      |      |  |   |          |  
|(Increase) decrease in due to/from subsidiaries                                                                                                                      |  |                          | (34,982  | ) |      |   | 117,340    |      |  |   | 87,175   |  
|Changes in other operating assets and liabilities                                                                                                                    |  |                          | 32,340   |   |      |   | 76,268     |      |  |   | 4,856    |  
|                                                                                                                                                                     |  |                          |          |   |      |   |            |      |  |   |          |  
|Net cash provided by operating activities                                                                                                                            |  |                          | 103,361  |   |      |   | 399,344    |      |  |   | 359,942  |  
|                                                                                                                                                                     |  |                          |          |   |      |   |            |      |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES: Capital contributed to subsidiaries                                                                                            |  |                          | (21,160  | ) |      |   | (13,846    | )    |  |   |          |  
|                                                                                                                                                                     |  |                          |          |   |      |   |            |      |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                                                                |  |                          |          |   |      |   |            |      |  |   |          |  
|Equity in capital transactions of subsidiaries                                                                                                                       |  |                          |          |   |      |   | 179,544    |      |  |   |          |  
|Proceeds from sale of common membership interests relating to Lazard Ltds Primary Offering and Equity Public Offering in
December, 2006 and May, 2005, respectively |  |                          | 349,137  |   |      |   | 871,656    |      |  |   |          |  
|Proceeds from issuance of equity security units, net of expenses of $15,941                                                                                          |  |                          |          |   |      |   | 421,559    |      |  |   |          |  
|Proceeds from issuance of Lazard Group senior notes, net of original discount and other expenses of $5,276                                                           |  |                          |          |   |      |   | 544,724    |      |  |   |          |  
|Proceeds from (repayment of) other senior borrowings                                                                                                                 |  |                          | (30,000  | ) |      |   | 30,000     |      |  |   |          |  
|Distributions and withdrawals to members for the periods through May 9, 2005                                                                                         |  |                          |          |   |      |   | (419,115   | )    |  |   | (366,182 | )
|Distributions to members for the periods subsequent to May 9, 2005                                                                                                   |  |                          | (79,090  | ) |      |   | (32,310    | )    |  |   |          |  
|Purchase contracts relating to equity security units                                                                                                                 |  |                          |          |   |      |   | (6,013     | )    |  |   |          |  
|Settlement of interest rate hedge                                                                                                                                    |  |                          |          |   |      |   | (11,003    | )    |  |   |          |  
|Redemption of historical partner interests (including mandatorily redeemable preferred stock of $100,000)                                                            |  |                          |          |   |      |   | (1,617,032 | )    |  |   |          |  
|Distribution of separated business                                                                                                                                   |  |                          |          |   |      |   | (243,178   | )    |  |   |          |  
|Distributions to LAZ-MD Holdings and LFCM Holdings                                                                                                                   |  |                          |          |   |      |   | (150,000   | )    |  |   |          |  
|Indemnity from LFCM Holdings relating to U.K. pension                                                                                                                |  |                          |          |   |      |   | 53,600     |      |  |   |          |  
|Repurchase of common membership interest from LAZ-MD Holdings                                                                                                        |  |                          |          |   |      |   | (4,507     | )    |  |   |          |  
|Purchase of Lazard Ltd Class A common stock                                                                                                                          |  |                          | (4,179   | ) |      |   |            |      |  |   |          |  
|Other financing transactions                                                                                                                                         |  |                          | (1,797   | ) |      |   |            |      |  |   |          |  
|                                                                                                                                                                     |  |                          |          |   |      |   |            |      |  |   |          |  
|Net cash provided by (used in) financing activities                                                                                                                  |  |                          | 234,071  |   |      |   | (382,075   | )    |  |   | (366,182 | )
|                                                                                                                                                                     |  |                          |          |   |      |   |            |      |  |   |          |  
|Net increase (decrease) in cash and cash equivalents                                                                                                                 |  |                          | 316,272  |   |      |   | 3,423      |      |  |   | (6,240   | )
|Cash and cash equivalents, January 1                                                                                                                                 |  |                          | 3,624    |   |      |   | 201        |      |  |   | 6,441    |  
|                                                                                                                                                                     |  |                          |          |   |      |   |            |      |  |   |          |  
|Cash and cash equivalents, December 31                                                                                                                               |  | $                        | 319,896  |   |      | $ | 3,624      |      |  | $ | 201      |  
|                                                                                                                                                                     |  |                          |          |   |      |   |            |      |  |   |          |  
|Supplemental financing non-cash transactions in 2006:                                                                                                                |  |                          |          |   |      |   |            |      |  |   |          |  
|Issuance of senior promissory note for the acquisition of equity interest in Lazard Italy                                                                            |  | $                        | 96,000   |   |      |   |            |      |  |   |          |  
|Issuance of subordinated borrowings in exchange for receivable from subsidiary                                                                                       |  | $                        | 50,000   |   |      |   |            |      |  |   |          |  



See notes to condensed
financial statements.



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##### Table of Contents

LAZARD GROUP LLC

(parent company only)



CONDENSED STATEMENTS OF CHANGES IN MEMBERS EQUITY (DEFICIENCY)

YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(dollars in thousands)



|                                                                                                                   |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|------------------------------------------------------------------------------------------------------------------ |  | -------------------------- | ---------- | - | ----------------------------------------------------- | - | ------- | ------------------------------- |  | - | ---------- | -
|                                                                                                                   |  | MembersEquity(Deficiency) |            |   | AccumulatedOtherComprehensiveIncome (Loss),Net of Tax |   |         | TotalMembersEquity(Deficiency) | 
|                                                                                                                   |  |                            |           
|BalanceJanuary 1, 2004                                                                                            |  | $                          | 485,948    |   |                                                       | $ | 49,777  |                                 |  | $ | 535,725    |  
|                                                                                                                   |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|Comprehensive income (loss):                                                                                       |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|Net income allocable to members                                                                                    |  |                            | 246,974    |   |                                                       |   |         |                                 |  |   | 246,974    |  
|Other comprehensive income (loss)net of tax:                                                                      |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|Currency translation adjustment                                                                                    |  |                            |            |   |                                                       |   | 29,890  |                                 |  |   | 29,890     |  
|Minimum pension liability adjustments                                                                              |  |                            |            |   |                                                       |   | (61,609 | )                               |  |   | (61,609    | )
|                                                                                                                   |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|Comprehensive income                                                                                               |  |                            |            |   |                                                       |   |         |                                 |  |   | 215,255    |  
|Distributions and withdrawals to members                                                                           |  |                            | (366,182   | ) |                                                       |   |         |                                 |  |   | (366,182   | )
|                                                                                                                   |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|BalanceDecember 31, 2004                                                                                          |  |                            | 366,740    |   |                                                       |   | 18,058  |                                 |  |   | 384,798    |  
|                                                                                                                   |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|Comprehensive income (loss):                                                                                       |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|Net income allocable to members                                                                                    |  |                            | 255,224    |   |                                                       |   |         |                                 |  |   | 255,224    |  
|Other comprehensive income (loss)net of tax:                                                                      |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|Currency translation adjustment                                                                                    |  |                            |            |   |                                                       |   | (46,552 | )                               |  |   | (46,552    | )
|Minimum pension liability adjustments                                                                              |  |                            |            |   |                                                       |   | 4,449   |                                 |  |   | 4,449      |  
|Interest rate hedge                                                                                                |  |                            |            |   |                                                       |   | (10,297 | )                               |  |   | (10,297    | )
|                                                                                                                   |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|Comprehensive income                                                                                               |  |                            |            |   |                                                       |   |         |                                 |  |   | 202,824    |  
|                                                                                                                   |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|Distribution of net assets of separated businesses                                                                 |  |                            | (243,178   | ) |                                                       |   |         |                                 |  |   | (243,178   | )
|Indemnity from LFCM Holdings relating to U.K. pension                                                              |  |                            | 53,600     |   |                                                       |   |         |                                 |  |   | 53,600     |  
|Net proceeds from sale of common membership interests to Lazard Ltd, including $32,921 issued in cashless exchange |  |                            | 871,656    |   |                                                       |   |         |                                 |  |   | 871,656    |  
|Distributions and withdrawals to members for the period through May 9, 2005                                        |  |                            | (419,115   | ) |                                                       |   |         |                                 |  |   | (419,115   | )
|Distribution to members for the period subsequent to May 9, 2005                                                   |  |                            | (32,310    | ) |                                                       |   |         |                                 |  |   | (32,310    | )
|Redemption of historical partner interests                                                                         |  |                            | (1,517,032 | ) |                                                       |   |         |                                 |  |   | (1,517,032 | )
|Costs related to issuance of purchase contracts associated with equity security units                              |  |                            | (12,086    | ) |                                                       |   |         |                                 |  |   | (12,086    | )
|Purchase contracts associated with equity security units                                                           |  |                            | (6,013     | ) |                                                       |   |         |                                 |  |   | (6,013     | )
|Repurchase of common membership interest from LAZ-MD Holdings                                                      |  |                            | (4,507     | ) |                                                       |   |         |                                 |  |   | (4,507     | )
|Amortization of stock units                                                                                        |  |                            | 1,024      |   |                                                       |   |         |                                 |  |   | 1,024      |  
|Distribution to LAZ-MD Holdings and LFCM Holdings                                                                  |  |                            | (150,000   | ) |                                                       |   |         |                                 |  |   | (150,000   | )
|                                                                                                                   |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|BalanceDecember 31, 2005                                                                                          |  |                            | (835,997   | ) |                                                       |   | (34,342 | )                               |  |   | (870,339)  |  
|                                                                                                                   |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|Comprehensive income:                                                                                              |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|Net income allocable to members                                                                                    |  |                            | 263,993    |   |                                                       |   |         |                                 |  |   | 263,993    |  
|Other comprehensive incomenet of tax:                                                                             |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|Currency translation adjustment                                                                                    |  |                            |            |   |                                                       |   | 51,068  |                                 |  |   | 51,068     |  
|Minimum pension liability adjustments                                                                              |  |                            |            |   |                                                       |   | 13,683  |                                 |  |   | 13,683     |  
|Amortization of interest rate hedge                                                                                |  |                            |            |   |                                                       |   | 1,100   |                                 |  |   | 1,100      |  
|                                                                                                                   |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|Comprehensive income                                                                                               |  |                            |            |   |                                                       |   |         |                                 |  |   | 329,844    |  
|                                                                                                                   |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|Adoption of FASB Statement No. 158                                                                                 |  |                            |            |   |                                                       |   | 1,754   |                                 |  |   | 1,754      |  
|Distributions to members                                                                                           |  |                            | (79,090    | ) |                                                       |   |         |                                 |  |   | (79,090    | )
|Purchase of 115,000 shares of Lazard Ltd Class A common stock                                                      |  |                            | (4,179     | ) |                                                       |   |         |                                 |  |   | (4,179     | )
|Amortization of stock units                                                                                        |  |                            | 22,995     |   |                                                       |   |         |                                 |  |   | 22,995     |  
|Net proceeds from sale of common membership interests relating to Lazard Ltds Primary Offering in December, 2006  |  |                            | 349,137    |   |                                                       |   |         |                                 |  |   | 349,137    |  
|Other capital transactions                                                                                         |  |                            | 5,390      |   |                                                       |   |         |                                 |  |   | 5,390      |  
|                                                                                                                   |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  
|BalanceDecember 31, 2006*                                                                                         |  | $                          | (277,751   | ) |                                                       | $ | 33,263  |                                 |  | $ | (244,488   | )
|                                                                                                                   |  |                            |            |   |                                                       |   |         |                                 |  |   |            |  

---

|* | Includes 107,652,516 common membership interests and two managing member interests outstanding.
|- | -----------------------------------------------------------------------------------------------



See notes to condensed financial statements.



F-5



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##### Table of Contents

LAZARD GROUP LLC

(parent company only)



NOTES TO CONDENSED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(dollars in thousands, unless otherwise noted)



1.    BASIS OF PRESENTATION



The accompanying Lazard Group LLC condensed financial statements (the
Parent Company Financial Statements), including the notes thereto, should be read in conjunction with the consolidated financial statements of Lazard Group LLC and its subsidiaries (the Company) and the notes thereto.



The Parent Company Financial Statements for the years ended
December 31, 2006, 2005 and 2004 are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP), which require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, revenue and expenses, and the disclosures in the condensed financial statements. Management believes that the estimates utilized in the preparation of the condensed financial statements are reasonable.
Actual results could differ materially from these estimates.



The Parent Company Financial Statements include investments in subsidiaries, accounted for under the equity method.



The accompanying condensed financial statements do not reflect what the results of operations and financial position of Lazard Group would have been had
it been a stand-alone, public company prior to May 10, 2005. In addition, the Parent Companys equity in earnings of subsidiaries and its results of operations for periods until the equity public offering on May 10, 2005 are not comparable to
results of operations for subsequent periods as described below.



| |  |  | Payments for services rendered by the Companys managing directors, which, as a result of Lazard Group operating as a limited liability company, historically
had been accounted for as distributions from members capital, or in some cases as minority interest, rather than as compensation and benefits expense. As a result, prior to May 10, 2005, Lazard Groups operating income included within the
accompanying Parent Company Financial Statements did not reflect payments for services rendered by its managing directors. For periods subsequent to the consummation of the equity public offering as described in Note 2 of Notes to Consolidated
Financial Statements, the Parent Company Financial Statements include all payments for services rendered by our managing directors and distributions to profit participation members within compensation and benefits expense and
equity in earnings of subsidiaries in the accompanying condensed statements of income.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The use of proceeds from the financing transactions.
| | - |  | ----------------------------------------------------



| |  |  | The net incremental interest expense related to the financing transactions.
| | - |  | ---------------------------------------------------------------------------



2.    MANDATORILY REDEEMABLE PREFERRED STOCK



In 2001, Lazard Group issued mandatorily redeemable preferred stock
(Class C Preferred Interests) for an aggregate amount of $100,000. The Class C Preferred Interests were subject to mandatory redemption by Lazard Group in March 2011 and, prior to such date, were redeemable in whole or in part, at the
Lazard Groups option. The Class C Preferred Interests were entitled to receive distributions out of the profits of the Company at a rate of 8% per annum, which distributions were required to be paid prior to any distributions of profits to
holders of any other existing class of interests in Lazard Group. The Class C Preferred Interests were redeemed in May 2005 as part of the recapitalization transactions. Interest on mandatorily redeemable preferred stock for the years ended December
31, 2005 and 2004 of ($8,000) and $8,000, respectively, is included in interest expense in the accompanying condensed statements of income. The credit in 2005 represents accrued dividends which were cancelled in connection with the
redemption of membership interests of historical partners.



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##### Table of Contents

SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.



Dated: February 28, 2007



LAZARD GROUP LLCBy:

/S/    BRUCE
WASSERSTEINBruce WassersteinChairman and Chief Executive Officer




Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.



|                                                  |  |                                                                              |  |                  
|------------------------------------------------- |  | ---------------------------------------------------------------------------- |  | -----------------
|Signature                                         |  | Capacity                                                                     |  | Date             
|                                                  |  |                                                                             
|/S/    BRUCE
WASSERSTEINBruce
Wasserstein         |  | Chairman, Chief Executive Officer and Director (Principal Executive Officer) |  | February 28, 2007
|                                                  |  |                                                                             
|/S/    MICHAEL J.
CASTELLANOMichael J.
Castellano |  | Chief Financial Officer (Principal Financial and Accounting Officer)         |  | February 28, 2007
|                                                  |  |                                                                             
|/S/    RONALD J.
DOERFLERRonald J.
Doerfler       |  | Director                                                                     |  | February 28, 2007
|                                                  |  |                                                                             
|/S/    STEVEN J.
HEYERSteven J.
Heyer             |  | Director                                                                     |  | February 28, 2007
|                                                  |  |                                                                             
|/S/    SYLVIA
JAYSylvia Jay                       |  | Director                                                                     |  | February 28, 2007
|                                                  |  |                                                                             
|/S/    ELLIS
JONESEllis Jones                     |  | Director                                                                     |  | February 28, 2007
|                                                  |  |                                                                             
|/S/    VERNON E. JORDAN,
JR.Vernon E. Jordan,
Jr. |  | Director                                                                     |  | February 28, 2007
|                                                  |  |                                                                             
|/S/    ANTHONY
ORSATELLIAnthony
Orsatelli         |  | Director                                                                     |  | February 28, 2007
|                                                  |  |                                                                             
|/S/    HAL S.
SCOTTHal S. Scott                   |  | Director                                                                     |  | February 28, 2007
|                                                  |  |                                                                             
|/S/    MICHAEL J.
TURNERMichael J.
Turner         |  | Director                                                                     |  | February 28, 2007



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