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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)



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



For the quarterly period ended March 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 or Organization) |  | (I.R.S. Employer Identification No.)



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30 Rockefeller Plaza

New York, New York 10020

(Address of principal executive offices)



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



---



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 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.



Large Accelerated Filer ̈Accelerated Filer ̈Non-Accelerated Filer  x



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 April 28, 2006, in addition to profit participation interests, there
were 99,621,808 units of common membership interests and two managing member interests outstanding.



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TABLE OF CONTENTS



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 of approximately 37.6% 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.



|                                                                                              |  |     
|--------------------------------------------------------------------------------------------- |  | ----
|                                                                                              |  | Page
|Part I. Financial Information                                                                 |  |     
|                                                                                              | 
|Item 1. Financial Statements                                                                  |  | 1   
|                                                                                              | 
|Item 1A. Pro Forma Financial Information (Unaudited)                                          |  | 29  
|                                                                                              | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 32  
|                                                                                              | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 58  
|                                                                                              | 
|Item 4. Controls and Procedures                                                               |  | 58  
|                                                                                              | 
|Part II. Other Information                                                                    |  |     
|                                                                                              | 
|Item 1. Legal Proceedings                                                                     |  | 59  
|                                                                                              | 
|Item 1A. Risk Factors                                                                         |  | 60  
|                                                                                              | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 60  
|                                                                                              | 
|Item 3. Defaults Upon Senior Securities                                                       |  | 60  
|                                                                                              | 
|Item 4. Submission of Matters to a Vote of Security Holders                                   |  | 60  
|                                                                                              | 
|Item 5. Other Information                                                                     |  | 60  
|                                                                                              | 
|Item 6. Exhibits                                                                              |  | 60  
|                                                                                              | 
|Signatures                                                                                    |  | 65  



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------



Condensed Consolidated Financial Statements (Unaudited)*



|                                                                                                                   |  |     
|------------------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                                   |  | Page
|Condensed Consolidated Statements of Financial Condition as of March 31, 2006 and December 31, 2005                |  | 2   
|Condensed Consolidated Statements of Income for the three month periods ended March 31, 2006 and 2005              |  | 4   
|Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2006 and 2005          |  | 5   
|Condensed Consolidated Statement of Changes in Members Deficiency for the three month period ended March 31, 2006 |  | 6   
|Notes to Condensed Consolidated Financial Statements                                                               |  | 7   

---

|* | These unaudited condensed consolidated financial statements reflect the historical 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 historical unaudited condensed consolidated financial statements for the three month period ended March 31, 2005 do not reflect what the results of operations would have been had these companies been stand-alone, public
companies for such period. 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 historical 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 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, prior to May 10, 2005, Lazard Groups operating income included within the accompanying
unaudited condensed 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 and financing transactions as described in Note
2 of the accompanying Notes to Unaudited Condensed Consolidated Financial Statements, the Company now includes all payments for services rendered by its managing directors and distributions to holders of profit participation interests in Lazard
Group (profit participation members) in compensation and benefits expense.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



1



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LAZARD GROUP LLC



CONDENSED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

MARCH 31, 2006 AND DECEMBER 31, 2005

(UNAUDITED)

(dollars in thousands)



|                                                                                                                                           |  |                |           |                  |   |          
|------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | --------- | ---------------- | - | ---------
|                                                                                                                                           |  | March 31, 2006 |           | December 31,2005
|                                                                                                                                           |  |               
|ASSETS                                                                                                                                     |  |                |           |                  |   |          
|Cash and cash equivalents                                                                                                                  |  | $              | 398,066   |                  | $ | 490,446  
|Cash and securities segregated for regulatory purposes                                                                                     |  |                | 20,460    |                  |   | 20,596   
|Securities purchased under agreements to resell                                                                                            |  |                |           |                  |   | 23,358   
|Securities ownedat fair value:                                                                                                            |  |                |           |                  |   |          
|BondsCorporate                                                                                                                            |  |                | 327,100   |                  |   | 228,927  
|Non-U.S. Government and agency securities                                                                                                  |  |                | 17,793    |                  |   | 40,285   
|Equities                                                                                                                                   |  |                | 4,336     |                  |   | 2,964    
|                                                                                                                                           |  |                |           |                  |   |          
|                                                                                                                                           |  |                | 349,229   |                  |   | 272,176  
|Swaps and other contractual agreements                                                                                                     |  |                | 166       |                  |   | 186      
|                                                                                                                                           |  |               
|Receivablesnet:                                                                                                                           |  |                |           |                  |   |          
|Banks                                                                                                                                      |  |                | 204,201   |                  |   | 347,912  
|Fees                                                                                                                                       |  |                | 280,968   |                  |   | 280,923  
|Customers                                                                                                                                  |  |                | 101,996   |                  |   | 65,253   
|Related parties                                                                                                                            |  |                | 52,626    |                  |   | 54,549   
|                                                                                                                                           |  |                |           |                  |   |          
|                                                                                                                                           |  |                | 639,791   |                  |   | 748,637  
|                                                                                                                                           |  |               
|Long-term investments                                                                                                                      |  |                | 83,944    |                  |   | 80,843   
|Other investments                                                                                                                          |  |                | 4,352     |                  |   | 4,473    
|                                                                                                                                           |  |               
|Property (net of accumulated amortization and depreciation of $162,022 and $156,935 at March 31, 2006 and December 31, 2005,
respectively) |  |                | 157,887   |                  |   | 156,630  
|Goodwill                                                                                                                                   |  |                | 16,145    |                  |   | 15,996   
|Other assets                                                                                                                               |  |                | 99,479    |                  |   | 93,792   
|                                                                                                                                           |  |                |           |                  |   |          
|Total assets                                                                                                                               |  | $              | 1,769,519 |                  | $ | 1,907,133
|                                                                                                                                           |  |                |           |                  |   |          



See notes to unaudited
condensed consolidated financial statements.



2



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LAZARD GROUP LLC



CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(Continued)

MARCH 31, 2006 AND DECEMBER 31, 2005

(UNAUDITED)

(dollars in thousands)



|                                                             |  |                |           |   |                  |   |           |  
|------------------------------------------------------------ |  | -------------- | --------- | - | ---------------- | - | --------- | -
|                                                             |  | March 31, 2006 |           |   | December 31,2005 |  
|LIABILITIES, MINORITY INTEREST AND MEMBERS DEFICIENCY       |  |                |           |   |                  |   |           |  
|Liabilities:                                                 |  |                |           |   |                  |   |           |  
|Securities sold under agreements to repurchase               |  | $              | 10,410    |   |                  | $ | 31,853    |  
|Swaps and other contractual agreements                       |  |                | 744       |   |                  |   | 3,028     |  
|Payables:                                                    |  |                |           |   |                  |   |           |  
|Banks                                                        |  |                | 372,612   |   |                  |   | 367,565   |  
|Customers                                                    |  |                | 171,731   |   |                  |   | 153,868   |  
|Related parties                                              |  |                | 8,600     |   |                  |   | 9,514     |  
|                                                             |  |                |           |   |                  |   |           |  
|                                                             |  |                | 552,943   |   |                  |   | 530,947   |  
|Accrued compensation and benefits                            |  |                | 179,727   |   |                  |   | 346,090   |  
|Senior borrowings                                            |  |                | 1,015,517 |   |                  |   | 1,022,082 |  
|Capital lease obligations                                    |  |                | 24,178    |   |                  |   | 23,844    |  
|Other liabilities                                            |  |                | 502,766   |   |                  |   | 507,899   |  
|Subordinated borrowings                                      |  |                | 200,000   |   |                  |   | 200,000   |  
|                                                             |  |                |           |   |                  |   |           |  
|Total liabilities                                            |  |                | 2,486,285 |   |                  |   | 2,665,743 |  
|Commitments and contingencies                                |  |                |           |   |                  |   |           |  
|Minority interest                                            |  |                | 107,018   |   |                  |   | 111,729   |  
|                                                             |  |               
|MEMBERS DEFICIENCY                                          |  |                |           |   |                  |   |           |  
|Members deficiency                                          |  |                | (795,999  | ) |                  |   | (835,997  | )
|Accumulated other comprehensive income (loss), net of tax    |  |                | (27,785   | ) |                  |   | (34,342   | )
|                                                             |  |                |           |   |                  |   |           |  
|Total members deficiency                                    |  |                | (823,784  | ) |                  |   | (870,339  | )
|                                                             |  |                |           |   |                  |   |           |  
|Total liabilities, minority interest and members deficiency |  | $              | 1,769,519 |   |                  | $ | 1,907,133 |  
|                                                             |  |                |           |   |                  |   |           |  



See notes to unaudited
condensed consolidated financial statements.



3



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LAZARD GROUP LLC



CONDENSED
CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2006 AND 2005

(UNAUDITED)

(dollars in thousands)



|                                                                                                           |  |                              |         |      |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | ---- | - | ------- | -
|                                                                                                           |  | Three Months Ended March 31, |        
|                                                                                                           |  | 2006                         |         | 2005 |  
|REVENUE                                                                                                    |  |                              |         |      |   |         |  
|Investment banking and other advisory fees                                                                 |  | $                            | 219,583 |      | $ | 155,035 |  
|Money management fees                                                                                      |  |                              | 110,569 |      |   | 100,877 |  
|Commissions                                                                                                |  |                              | 4,423   |      |   | 3,844   |  
|Underwriting                                                                                               |  |                              | 1,679   |      |   | 2,754   |  
|Investment gains and lossesnet                                                                            |  |                              | 10,448  |      |   | (1,810  | )
|Interest income                                                                                            |  |                              | 7,998   |      |   | 6,548   |  
|Other                                                                                                      |  |                              | 5,543   |      |   | 2,759   |  
|                                                                                                           |  |                              |         |      |   |         |  
|Total revenue                                                                                              |  |                              | 360,243 |      |   | 270,007 |  
|Interest expense                                                                                           |  |                              | 24,027  |      |   | 9,908   |  
|                                                                                                           |  |                              |         |      |   |         |  
|Net revenue                                                                                                |  |                              | 336,216 |      |   | 260,099 |  
|                                                                                                           |  |                              |         |      |   |         |  
|OPERATING EXPENSES                                                                                         |  |                              |         |      |   |         |  
|Compensation and benefits (and, commencing May 10, 2005, distributions to profit participation members)(*) |  |                              | 200,139 |      |   | 105,881 |  
|Premises and occupancy costs                                                                               |  |                              | 16,591  |      |   | 16,383  |  
|Professional fees                                                                                          |  |                              | 14,738  |      |   | 8,858   |  
|Travel and entertainment                                                                                   |  |                              | 8,886   |      |   | 8,975   |  
|Communications and information services                                                                    |  |                              | 7,472   |      |   | 8,042   |  
|Equipment costs                                                                                            |  |                              | 5,129   |      |   | 4,832   |  
|Other                                                                                                      |  |                              | 5,011   |      |   | 8,859   |  
|                                                                                                           |  |                              |         |      |   |         |  
|Total operating expenses                                                                                   |  |                              | 257,966 |      |   | 161,830 |  
|                                                                                                           |  |                              |         |      |   |         |  
|OPERATING INCOME FROM CONTINUING OPERATIONS(*)                                                             |  |                              | 78,250  |      |   | 98,269  |  
|                                                                                                           |  |                             
|Provision for income taxes                                                                                 |  |                              | 13,284  |      |   | 7,803   |  
|                                                                                                           |  |                              |         |      |   |         |  
|INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST IN NET INCOME(*)                                |  |                              | 64,966  |      |   | 90,466  |  
|Minority interest in net income                                                                            |  |                              | 5,263   |      |   | 10,260  |  
|                                                                                                           |  |                              |         |      |   |         |  
|INCOME FROM CONTINUING OPERATIONS(*)                                                                       |  |                              | 59,703  |      |   | 80,206  |  
|LOSS FROM DISCONTINUED OPERATIONS (net of income tax provision of $253)(*)                                 |  |                              |         |      |   | (6,850  | )
|                                                                                                           |  |                              |         |      |   |         |  
|NET INCOME ALLOCABLE TO MEMBERS(*)                                                                         |  | $                            | 59,703  |      | $ | 73,356  |  
|                                                                                                           |  |                              |         |      |   |         |  

---

(*) 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 unaudited condensed consolidated financial statements.



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LAZARD GROUP LLC



CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2006 AND 2005

(UNAUDITED)

(dollars in thousands)



|                                                                                             |  |                              |          |   |      |   |          |  
|-------------------------------------------------------------------------------------------- |  | ---------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                             |  | Three Months Ended March 31, |         
|                                                                                             |  | 2006                         |          |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                        |  |                              |          |   |      |   |          |  
|Net income allocable to members                                                              |  | $                            | 59,703   |   |      | $ | 73,356   |  
|Adjustments to reconcile net income to net cash provided by operating activities:            |  |                              |          |   |      |   |          |  
|Noncash charges included in net income:                                                      |  |                              |          |   |      |   |          |  
|Depreciation and amortization of property                                                    |  |                              | 3,426    |   |      |   | 3,934    |  
|Amortization of deferred expenses, restricted stock units and interest rate hedge            |  |                              | 4,834    |   |      |   |          |  
|Minority interest in net income                                                              |  |                              | 5,263    |   |      |   | 10,260   |  
|(Increase) decrease in operating assets:                                                     |  |                              |          |   |      |   |          |  
|Cash and securities segregated for regulatory purposes                                       |  |                              | 642      |   |      |   | (4,890   | )
|Securities purchased under agreements to resell                                              |  |                              | 23,806   |   |      |   | (2,452   | )
|Securities owned, at fair value and swaps and other contractual agreements                   |  |                              | (69,500  | ) |      |   | 9,185    |  
|Receivables                                                                                  |  |                              | 119,233  |   |      |   | 10,745   |  
|Marketable and long-term investments                                                         |  |                              | (1,292   | ) |      |   | 20,828   |  
|Other assets                                                                                 |  |                              | (4,990   | ) |      |   | (8,003   | )
|Assets of discontinued operations                                                            |  |                              |          |   |      |   | (551,097 | )
|Increase (decrease) in operating liabilities:                                                |  |                              |          |   |      |   |          |  
|Securities sold under agreements to repurchase                                               |  |                              | (22,124  | ) |      |   | (11,694  | )
|Securities sold, not yet purchased, at fair value and swaps and other contractual agreements |  |                              | (2,347   | ) |      |   | (1,043   | )
|Payables                                                                                     |  |                              | 10,097   |   |      |   | 125,562  |  
|Accrued compensation and other liabilities                                                   |  |                              | (176,980 | ) |      |   | (147,896 | )
|Liabilities of discontinued operations                                                       |  |                              |          |   |      |   | 583,117  |  
|                                                                                             |  |                              |          |   |      |   |          |  
|Net cash provided by (used in) operating activities                                          |  |                              | (50,229  | ) |      |   | 109,912  |  
|                                                                                             |  |                              |          |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                        |  |                              |          |   |      |   |          |  
|Additions to property                                                                        |  |                              | (1,672   | ) |      |   | (849     | )
|Disposals and retirements of property                                                        |  |                              | 233      |   |      |   | 1,315    |  
|                                                                                             |  |                              |          |   |      |   |          |  
|Net cash provided by (used in) investing activities                                          |  |                              | (1,439   | ) |      |   | 466      |  
|                                                                                             |  |                              |          |   |      |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                        |  |                              |          |   |      |   |          |  
|Distributions to members and, in 2005, capital withdrawals                                   |  |                              | (21,205  | ) |      |   | (157,919 | )
|Repayment of senior borrowings                                                               |  |                              | (6,565   | ) |      |   | (15,281  | )
|Repayment of capital lease obligations                                                       |  |                              | (285     | ) |      |   | (4,005   | )
|Distributions relating to minority interest                                                  |  |                              | (12,209  | ) |      |   | (44,502  | )
|Additional costs relating to the financing transactions                                      |  |                              | (2,677   | ) |      |   |          |  
|                                                                                             |  |                              |          |   |      |   |          |  
|Net cash used in financing activities                                                        |  |                              | (42,941  | ) |      |   | (221,707 | )
|                                                                                             |  |                              |          |   |      |   |          |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                      |  |                              | 2,229    |   |      |   | (4,157   | )
|                                                                                             |  |                              |          |   |      |   |          |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                                    |  |                              | (92,380  | ) |      |   | (115,486 | )
|CASH AND CASH EQUIVALENTSJanuary 1                                                          |  |                              | 490,446  |   |      |   | 305,753  |  
|                                                                                             |  |                              |          |   |      |   |          |  
|CASH AND CASH EQUIVALENTSMarch 31                                                           |  | $                            | 398,066  |   |      | $ | 190,267  |  
|                                                                                             |  |                              |          |   |      |   |          |  



See notes to unaudited
condensed consolidated financial statements.



5



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##### Table of Contents

LAZARD GROUP LLC



CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS DEFICIENCY

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2006

(UNAUDITED)

(dollars in thousands)



|                                                        |  |                    |          |   |                                                       |   |         |                         |  |   |           |  
|------------------------------------------------------- |  | ------------------ | -------- | - | ----------------------------------------------------- | - | ------- | ----------------------- |  | - | --------- | -
|                                                        |  | MembersDeficiency |          |   | AccumulatedOtherComprehensiveIncome (Loss),Net of Tax |   |         | TotalMembersDeficiency | 
|                                                        |  |                    |         
|BalanceJanuary 1, 2006                                 |  | $                  | (835,997 | ) |                                                       | $ | (34,342 | )                       |  | $ | (870,339) |  
|                                                        |  |                    |          |   |                                                       |   |         |                         |  |   |           |  
|Comprehensive income:                                   |  |                    |          |   |                                                       |   |         |                         |  |   |           |  
|Net income allocable to members                         |  |                    | 59,703   |   |                                                       |   |         |                         |  |   | 59,703    |  
|Other comprehensive incomenet of tax:                  |  |                    |          |   |                                                       |   |         |                         |  |   |           |  
|Currency translation adjustment                         |  |                    |          |   |                                                       |   | 6,282   |                         |  |   | 6,282     |  
|Amortization of interest rate hedge                     |  |                    |          |   |                                                       |   | 275     |                         |  |   | 275       |  
|                                                        |  |                    |          |   |                                                       |   |         |                         |  |   |           |  
|Comprehensive income                                    |  |                    |          |   |                                                       |   |         |                         |  |   | 66,260    |  
|                                                        |  |                    |          |   |                                                       |   |         |                         |  |   |           |  
|                                                        |  |                    |         
|Distribution to members                                 |  |                    | (21,205  | ) |                                                       |   |         |                         |  |   | (21,205   | )
|                                                        |  |                    |         
|Amortization of stock units                             |  |                    | 4,177    |   |                                                       |   |         |                         |  |   | 4,177     |  
|                                                        |  |                    |         
|Additional costs relating to the financing transactions |  |                    | (2,677   | ) |                                                       |   |         |                         |  |   | (2,677    | )
|                                                        |  |                    |          |   |                                                       |   |         |                         |  |   |           |  
|BalanceMarch 31, 2006                                  |  | $                  | (795,999 | ) |                                                       | $ | (27,785 | )                       |  | $ | (823,784  | )
|                                                        |  |                    |          |   |                                                       |   |         |                         |  |   |           |  



See notes to unaudited
condensed consolidated financial statements.



6



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##### Table of Contents

LAZARD GROUP LLC



NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, unless otherwise noted)



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



Organization



The accompanying unaudited condensed consolidated financial statements of Lazard Group LLC and subsidiaries (a Delaware limited liability company,
formerly known as Lazard LLC and collectively referred to with its subsidiaries as Lazard Group, Lazard or the Company) have been prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (the SEC) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (U.S.
GAAP) for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in Lazard Groups annual report on Form 10-K for the year ended December 31, 2005 (the
Form 10-K). The December 31, 2005 unaudited condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The accompanying unaudited condensed
consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Preparing
financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and the accompanying disclosures. Although these estimates are based on managements best knowledge
of current events and actions that Lazard may undertake in the future, actual results may be different than the estimates. The consolidated results of operations for the three month period ended March 31, 2006 are not necessarily indicative of the
results to be expected for any future period or the full fiscal year. Certain prior year amounts have been reclassified to conform to the manner of presentation in the current year.



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 Unaudited Condensed 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 Unaudited Condensed 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 of a portion of the Lazard Group common membership interests held by LAZ-MD Holdings LLC (LAZ-MD Holdings)
subsequent to May 10, 2005, as well as (ii) certain other share issuances by Lazard Ltd subsequent to December 31, 2005, approximately 37.6% of all outstanding Lazard Group common membership interests as of both December 31, 2005 and March
31, 2006. Lazard Ltd, through its control of the managing members of Lazard Group, controls Lazard Group.



Lazard Group is governed by an Operating Agreement dated as of May 10, 2005, as amended on December 19, 2005 (the Operating
Agreement).



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LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



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



| |  |  | Financial Advisory, which includes providing advice on mergers, acquisitions, restructurings and other financial matters, 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 and marketable investments, 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 of the Paris House. 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 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 the three month period ended March 31, 2005. We refer to the transfer of the separated business as the separation.



The unaudited condensed 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 described in
Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements.



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



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LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



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 its 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.



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.



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 Unaudited Condensed 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.
| | - |  | ----------------------------------



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LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



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 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.



The separation and recapitalization transactions were consummated 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).



Basis of
Presentation



The consolidated financial statements
are prepared in conformity with U.S. GAAP. The Companys policy is to consolidate all majority-owned subsidiaries in which it has a controlling financial interest as well as variable interest entities (VIEs) where the Company is
deemed to be the primary beneficiary. All material intercompany transactions and balances have been eliminated.



In accordance with Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 46 (R), Consolidation of
Variable Interest Entities (FIN 46 R), the Company also consolidates any VIEs for which it is the primary beneficiary. 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 three month period ended March 31, 2005 are included in loss from discontinued operations on the unaudited condensed consolidated statements of income.



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LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



The accompanying unaudited condensed consolidated statements of income and cash flows for the three
month period ended March 31, 2005 do not reflect what the results of operations and cash flows 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, and distributions to profit participation members. As a result, prior to May 10, 2005, Lazard Groups
operating income included within the accompanying unaudited condensed 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 and the financing transactions as described in Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements, the Company now includes all payments for services rendered by its managing directors and distributions to profit
participation members 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, together with distributions to profit participation members, have been included within compensation and benefits expense.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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 unaudited condensed consolidated statements of income for the three month period ended March 31, 2005. See Note 14 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information relating to discontinued operations.



|2. | EQUITY PUBLIC OFFERING AND OTHER FINANCING TRANSACTIONS
|-- | -------------------------------------------------------



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 three months ended March 31, 2006, additional costs of $2,677 relating to 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 charge to 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 Class A common stock equal to a settlement rate based on the



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LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



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 6.120% 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 subsequent 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. 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 an 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 6.120% 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.



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



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LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



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 is a subsidiary of Caisse Nationale des Caisses dEpargne, 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 Lazard Ltd shares
of 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.



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 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. By entering into this interest rate forward agreement, Lazard Group was able 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, $11,003 was deemed to be the



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LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



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
FacilitiesConcurrent with the equity public offering, Lazard Group entered into a five year, $125,000 senior revolving credit facility with a group of lenders. As of March 31, 2006 and December 31, 2005, $25,000 and $30,000,
respectively, was outstanding under this credit facility. The $125,000 senior revolving 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 senior revolving 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 covenants that must be maintained.



3.    SIGNIFICANT ACCOUNTING POLICIES



The policies below represent recent changes to the Companys significant accounting policies. A complete discussion of the Companys significant
accounting policies are included in Lazard Groups Form 10-K.



Share-Based PaymentsIn December 2004, the FASB issued SFAS No. 123R, Share-Based Payments (SFAS 123R). SFAS No. 123R is a revision of SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS 123), and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and its related guidance. SFAS 123R is
effective for the Companys fiscal year beginning January 1, 2006. 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 the Lazard Ltds 2005 Equity Incentive Plan (described in more detail in Note 8 of Notes to Unaudited Condensed Consolidated
Financial Statements), the Company adopted the fair value recognition provisions under SFAS 123. Accordingly, subsequent to the dates of grant during 2005, Lazard recognized in compensation 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.



Effective for the first quarter of 2006, Lazard adopted SFAS 123R. Under SFAS 123R, share-based awards that do not require future service are expensed
immediately. Share-based employee 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 generally
applied only to share-based awards granted subsequent to adoption. Share-based awards granted to employees prior to the adoption of SFAS 123R must continue to be amortized over the stated service periods of the awards, however, should the awards
vest upon retirement, any unamortized cost would be recognized when the employee retires.



Additionally, SFAS 123R changed SFAS 123 by eliminating alternative methods for recognition of the costs of equity awards and recognition of award forfeitures. First, SFAS 123R changed SFAS 123 by precluding the use
of the intrinsic method as provided for under APB 25 and requiring fair value recognition. Second, SFAS 123R differed from SFAS 123 by precluding the recognition of forfeitures on an actual basis by requiring the application of an estimated
forfeiture rate to the amortizable cost of the award for all unvested awards. The Company adopted both the fair value recognition and the estimated forfeiture rate methods required under SFAS 123R in 2005 while accounting for equity awards under the
provisions of SFAS 123.



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LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



SFAS 123R also requires that the benefits of tax deductions in excess of recognized compensation
costs to be reported as a financing cash flow, rather than as an operating cash flow as prescribed under prior accounting standards. This requirement reduces net operating cash flows and increases net financing cash flows in periods beginning with
and subsequent to adoption of SFAS 123R. Total net cash flow remains unchanged from what would have been reported under prior accounting rules.



As a result of the Company adopting certain provisions consistent with SFAS 123R upon the introduction of Lazard Ltds 2005 Equity Incentive Plan
while under the provisions of SFAS 123, there is no significant effect resulting from the adoption of the provisions of SFAS 123R which would require restatement of its prior period financial statements.



Investments in Limited PartnershipsOn January 1, 2006,
the Company adopted, as required, the provisions of Emerging Issues Task Force (EITF) Issue No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or, Similar
Entity When the Limited Partners Have Certain Rights (EITF 04-5). The EITF consensus requires a general partner in a limited partnership to consolidate the limited partnership unless the presumption of control is overcome. The
general partner may overcome this presumption of control and not consolidate the entity if the limited partners have: (a) the substantive ability to dissolve or liquidate the limited partnership or otherwise remove the general partner without
having to show cause; or (b) substantive participating rights in managing the partnership. EITF 04-5 was effective for general partners of all newly-formed limited partnerships and for existing limited partnerships for which the partnership
agreements are modified after June 29, 2005, and for general partners in all other limited partnerships, no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005. The adoption of the provisions of
EITF 04-5 did not have a material impact on the Companys unaudited condensed consolidated financial statements.



Recent Accounting PronouncementsIn February 2006, the FASB issued SFAS No. 155 Accounting for Certain Hybrid Financial
Instruments  an amendment of FASB Statements No. 133 and 140(SFAS 155).SFAS 155 permits an entity to measure at fair value any financial instrument that contains an embedded derivative that otherwise would
require bifurcation. SFAS 155 is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. The Company is currently assessing the impact of adopting SFAS 155, but does not expect the standard
to have a material impact on the financial condition, results of operations, or cash flows of the Company.



In March 2006, the FASB issued SFAS No. 156 Accounting for Servicing of Financial Assets  an amendment of FASB Statement
No. 140(SFAS 156),which requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable, and for subsequent measurements, permits an entity to
choose either the amortization method or the fair value measurement method for each class of separately recognized servicing assets and servicing liabilities. SFAS 156 also requires separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. SFAS 156 is effective in fiscal years beginning after September 15,
2006. The Company is currently assessing the impact of adopting SFAS 156, but does not expect the standard to have a material impact on the financial condition, results of operations, or cash flows of the Company.



|4. | MINORITY INTEREST
|-- | -----------------



Minority interest consists of a number of components, including minority interests in LAM and the Companys business in Italy which, through a
strategic alliance, is owned 40% by Banca Intesa S.p.A. (Intesa). In addition, the Company consolidates various LAM related general partnership interests that it controls but does



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##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



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.



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, together with distributions to profit participation members, have been
included in compensation and benefits expense on the unaudited condensed consolidated statements of income.



|5. | STRATEGIC ALLIANCE IN ITALY
|-- | ---------------------------



Pursuant to the existing strategic alliance in effect since January 2003, Lazard Group and Intesa have 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 made the following investments:



| |  |  | the purchase in March 2003 from Lazard Funding Limited LLC (Lazard Funding), a wholly owned subsidiary of Lazard Group, of a $150,000 subordinated convertible promissory
note (the $150,000 Subordinated Convertible Note) issued by Lazard Funding, which is currently convertible into a contractual right that entitles 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);
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the investment in June 2003 in Lazard Italy of an amount of Euros then equal to $100,000 in exchange for 40% of the capital stock in Lazard Italy (the Intesa JV
Interest); and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



The $150,000 Subordinated Convertible Note, which is guaranteed by Lazard
Group (the Guarantee), currently has a scheduled maturity date in March 2018 and has 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
currently has a scheduled maturity date in the year 2078 (subject to extension), with interest payable annually at the rate of 3.0% per annum. The strategic alliance was governed by a Master Transaction and Relationship Agreement dated as of March
26, 2003 (the Master Agreement) among Lazard Group, Intesa and Lazard Italy.



As previously disclosed, in connection with the transactions in connection with the equity public offering of Lazard Ltd, Lazard Group and Intesa held various discussions concerning the joint venture relationship and
the impact of the equity public offering. In the course of such discussions, Intesa notified Lazard Group of its intention not to extend the term of the joint venture relationship beyond its initial expiration date of December 31, 2007. The
strategic alliance accordingly is due to expire on December 31, 2007, as a result of which Lazard Group would be obligated to acquire the Intesa JV Interest and the $50,000 Subordinated Promissory Note on or about February 4, 2008 for an aggregate
amount in cash not to exceed $150,000.



On March 31, 2006,
Lazard Group, Lazard Italy and Intesa reached an agreement regarding their future business relationship in Italy and entered into a Termination Agreement (the Termination Agreement), which provides for the termination of the joint
venture relationship and the Master Agreement at the closing of the transactions contemplated by the Termination Agreement and mutual release arrangements with respect to matters concerning the joint venture relationship. At this termination
closing, which is expected to occur



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LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



promptly after receipt of required regulatory approvals and satisfaction or waiver of other customary closing conditions, the following adjustments will be
made to the terms of Intesas investment in Lazard Group and its affiliates:



| |  |  | The $150,000 Subordinated Convertible Note will be 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, resulting in an aggregate of approximately 2,632,000 shares of Lazard Ltd Class A common stock being issuable to Intesa if it elects to fully convert the amended $150,000 Subordinated Convertible Note.
The amended $150,000 Subordinated Convertible Note will mature in September 2016 and have a fixed annual interest rate of 3.25%. One-third of the principal amount of the amended $150,000 Subordinated Convertible Note will generally be convertible
after July 1 in each of 2008, 2009 and 2010, and this note will no longer 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 Lazard Ltd Class A common stock it receives upon conversion of the amended $150,000 Subordinated Convertible Note. The Guarantee will also be amended to reflect the terms of the amended $150,000 Subordinated Convertible Note.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Intesa JV Interest and the $50,000 Subordinated Promissory Note will be 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 and a $50,000 subordinated promissory note of Lazard Group due February 28, 2008, respectively. The $96,000 senior promissory note will have a fixed annual interest rate of 4.25% and the $50,000 senior promissory
note will have a fixed annual interest rate of 4.6%.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lazard Group will pay to Intesa an amount equal to a 3% annualized return on the Intesa JV 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. Intesa will pay to Lazard any dividends it receives in respect of the Intesa JV Interest in respect of fiscal year 2005 of Lazard Italy.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6. | SENIOR AND SUBORDINATED DEBT
|-- | ----------------------------



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



|                                                        |  |                  |         |               |               |     |                      |           |      |                   |   |           |  |   |          
|------------------------------------------------------- |  | ---------------- | ------- | ------------- | ------------- | --- | -------------------- | --------- | ---- | ----------------- | - | --------- |  | - | ---------
|                                                        |  | Principal Amount |         | Maturity Date |               |     | Annual Interest Rate |           |      | Outstanding as of
|                                                        |  |                  |         |               | March 31,2006 |     | December 31,2005    
|Lazard Group Senior Notes(a)                            |  | $                | 550,000 |               | 2015          |     |                      | 7.125     | %    |                   | $ | 550,000   |  | $ | 550,000  
|Lazard Group Notes issued in connectionwith the ESUs(a) |  |                  | 437,500 |               | 2008-2035     | (b) |                      | 6.12      | %    |                   |   | 437,500   |  |   | 437,500  
|Revolving Credit Agreement(a)                           |  |                  | 125,000 |               | 2010          |     |                      | 5.37-6.37 | %(c) |                   |   | 25,000    |  |   | 30,000   
|Other                                                   |  |                  |         |               | 2006          |     |                      | Various   |      |                   |   | 3,017     |  |   | 4,582    
|                                                        |  |                  |         |               |               |     |                      |           |      |                   |   |           |  |   |          
|Total                                                   |  |                  |         |               |               |     |                      |           |      |                   | $ | 1,015,517 |  | $ | 1,022,082
|                                                        |  |                  |         |               |               |     |                      |           |      |                   |   |           |  |   |          

---

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

|(b) | 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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Interest rates vary and are based on either a Federal Funds rate or a Eurodollar rate, in each case plus an applicable margin.
|--- | ------------------------------------------------------------------------------------------------------------------------------



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LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



Subordinated DebtSubordinated debt at March 31, 2006 and December 31, 2005
amounted to $200,000 and consist of amounts due to Intesa in connection with the Strategic Alliance transaction in Italy (See Note 5 of Notes to Unaudited Condensed Consolidated Financial Statements).



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



|7. | COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------



CommitmentsLazard has various leases and other contractual commitments arising in the ordinary course of business. In the opinion of
management, the fulfillment of such commitments in accordance with their terms will not have a material adverse effect on Lazards consolidated financial position or results of operations.



During the three months ended March 31, 2005, the Company recorded
impairment costs of approximately $6,300 relating to certain abandoned leased facilities in the U.K, which is included in loss from discontinued operations on the unaudited condensed consolidated statement of income. These costs
represent a provision for lease obligations recorded prior to the lease indemnity from LFCM of $25,000 (described below) and as such are excluded from the indemnification. 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 discussed above, at March 31, 2006 and December 31, 2005 the Company has recorded liabilities of $35,208 and
$37,490, respectively, exclusive of the indemnification described below, which are included in other liabilities on the unaudited condensed 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, by and between LFCM Holdings and one of our
London subsidiaries, LFCM Holdings is obligated to indemnify Lazard Group for certain liabilities relating to abandoned leased space in the U.K., up to a maximum of $29,000. In connection with Lazard Groups recent entry into subleases with
respect to a portion of this abandoned leased space and the incurrence of the related liabilities, during the fourth quarter of 2005 Lazard Group entered into an agreement with LFCM Holdings which provides for LFCM Holdings to pay to Lazard Group
$25,000 in full satisfaction of LFCMs indemnification obligations with respect to the abandoned leased space.



The receivable relating to the indemnity from LFCM Holdings of $25,000 was recorded at its present value. After payments received in 2005 of $6,209, the
net present value of the balance due at March 31, 2006 and December 31, 2005 of $17,275 and $17,031, respectively, is included in receivables - related parties on the unaudited condensed consolidated statements of financial
condition (see Note 11 of Notes to Unaudited Condensed Consolidated Financial Statements). The balance is due based on a schedule of periodic payments through May 10, 2010.



LegalThe Company 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



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LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



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.



The Company received a request for information from the NASD as part of
what it understands to be an industry investigation relating to gifts and gratuities, which is 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 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. The Company believes that other broker-dealers also received requests for information. 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 Class A 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 a putative stockholder derivative lawsuit filed in the U.S. District Court for the Southern District of New York, and in a putative class action lawsuit and a putative stockholder derivative lawsuit filed in the Supreme Court of
the State of New York. The defendants removed the putative class action lawsuit filed in the Supreme Court of the State of New York to the U.S. District Court for the Eastern District of New York, and the plaintiffs moved for remand. The motion for
remand was referred to a Magistrate Judge, who has issued a Report and Recommendation recommending that the plaintiffs motion be granted. The defendants removed the putative derivative lawsuit filed in the Supreme Court of the State of New
York to the U.S. District Court for the Southern District of New York, and the plaintiff moved for remand. By Decision and Order dated February 17, 2006, the U.S. District Court for the Southern District of New York granted the plaintiffs
motion for remand. The defendants have filed a Notice of Appeal. The plaintiffs in the putative class action lawsuits filed in the U.S. District Court for the Southern District of New York have filed a consolidated amended complaint, and the
defendants have filed a motion to dismiss that complaint. The putative class action lawsuits purport to have been filed on behalf of persons who purchased securities of Lazard Ltd in connection with the equity public offering or in the open market.
The putative class actions allege various violations of the federal securities laws and seek, inter alia, compensatory damages, rescission or rescissory damages and other unspecified equitable, injunctive or other relief. The putative derivative
actions purport to be brought on behalf of Lazard Ltd against its directors and Goldman Sachs & Co. and allege, among other things, that the directors breached their fiduciary duties to Lazard Ltd in connection with matters related to the equity
public offering and seek compensatory damages, punitive damages and other unspecified equitable or other relief. We believe that the suits are without merit and intend to defend them vigorously.



For a description of recent developments involving the Companys
relationship with Intesa, see Note 5 of Notes to Unaudited Condensed Consolidated Financial Statements.



|8. | MEMBERS DEFICIENCY
|-- | -------------------



Pursuant to Lazard Groups Operating Agreement as in effect prior to the amended and restated Operating Agreement, Lazard Group allocated and
distributed to its members a substantial portion of its distributable profits in



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LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



three monthly installments, as soon as practicable after the end of each fiscal year. Such installment distributions usually began 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,
members equity was reduced by approximately $145,000 (including $18,000 in the three month period ended March 31, 2005) for the repurchase of working member interests prior to consummation of 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. At March 31, 2006, approximately 37.6% and 62.4% of the outstanding Lazard Group common membership interests are
held by subsidiaries of Lazard Ltd and by LAZ-MD Holdings, respectively. 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. In February 2006, Lazard Group distributed $5,591 to LAZ-MD Holdings and $3,375 to Lazard Ltds
subsidiaries, which latter amount was used by Lazard Ltd to pay dividends to holders of its Class A common stock. In March 2006, Lazard Group made tax distributions of $12,239, including $7,632 to LAZ-MD Holdings and $4,607 to subsidiaries of Lazard
Ltd.



Shares Available Under the Lazard Ltd 2005 Equity
Incentive Plan (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 equal to the
closing market price of Lazard Ltds Class A common stock at the date of grant.



Deferred Stock Unit (DSUs) Grants



As part of their compensation for serving as members of the Board of Directors and its various committees, during the three month period ended March 31,
2006, certain of the Non-Executive Directors of Lazard Ltd (who are also the same Non-Executive Directors of Lazard Group) were granted approximately 1,625 DSUs, with an average fair value on the dates of grant of $39.10 per unit. DSU awards are
expensed at their full fair value on their date of grant, and approximately $32 of expense was charged to Lazard Group in connection with the DSUs during the three month period ended March 31, 2006.



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.



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##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



Restricted Stock Unit (RSUs) Grants



On January 24, 2006, the Company granted 2,711,041 RSUs to eligible
employees. These RSUs include a dividend participation right during the vesting period that provides that each RSU receives additional RSUs (or fractions thereof) equivalent to any ordinary quarterly dividends paid on Lazard Ltd Class A common
stock. During the three month period ended March 31, 2006, such dividend participation rights resulted in the issuance of 6,341 additional RSUs. Through March 31, 2006, 32,943 of the RSUs granted in 2006 were forfeited, including those relating to
the dividend participation rights. In addition, during the three month period ended March 31, 2006, 4,000 shares relating to RSUs granted in 2005 were forfeited.



The RSUs convert into Lazard Ltd Class A common stock on a one-for-one basis after the stipulated vesting periods. The
aggregate fair value of the RSUs is amortized, as compensation expense, over the vesting periods. Expense relating to RSUs is charged to compensation and benefits within the unaudited condensed consolidated statement of income, and for
the three month period ended March 31, 2006 amounted to approximately $4,200.



The following is a summary of activity relating to DSUs and RSUs during the three month period ended March 31, 2006:



|                                                                       |  |        |   |  |                                        |       |  |       |           |   |                                        |   |       | 
|---------------------------------------------------------------------- |  | ------ | - |  | -------------------------------------- | ----- |  | ----- | --------- | - | -------------------------------------- | - | ----- | 
|                                                                       |  | DSUs   |   |  | RSUs                                   |      
|                                                                       |  | Units  |   |  | Grant Date Weighted Average Fair Value |       |  | Units |           |   | Grant Date Weighted Average Fair Value |  
|Balance, January 1, 2006                                               |  | 9,968  |   |  | $                                      | 25.33 |  |       | 1,033,733 |   |                                        | $ | 23.87 | 
|Granted (including 6,341 RSU units relating to dividend participation) |  | 1,625  |   |  | $                                      | 39.10 |  |       | 2,717,382 |   |                                        | $ | 34.76 | 
|Forfeited                                                              |  |        |   |  |                                        |       |  |       | (36,943   | ) |                                        | $ | 33.56 | 
|Converted                                                              |  | (3,059 | ) |  | $                                      | 25.33 |  |       |           |   |                                        |   |       | 
|                                                                       |  |        |   |  |                                        |       |  |       |           |   |                                        |   |       | 
|Balance, March 31, 2006                                                |  | 8,534  |   |  | $                                      | 27.95 |  |       | 3,714,172 |   |                                        | $ | 31.74 | 
|                                                                       |  |        |   |  |                                        |       |  |       |           |   |                                        |   |       | 



As of March 31, 2006,
unrecognized RSU compensation expense, adjusted for estimated forfeitures, was approximately $85,192. Such compensation expense is expected to be recognized over a weighted average period of approximately 4.0 years and 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 could cause the aggregate amount of compensation expense
recognized in future periods to differ from the estimated unrecognized compensation expense as of March 31, 2006.



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 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. There were no
share repurchases during the three month period ended March 31, 2006.



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LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



|9. | 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 incurred related to the defined benefit pension plans,
the defined benefit pension plan supplement and the post-retirement health care plans are included in compensation and benefits and, with respect to the separated businesses, loss from discontinued operations on the unaudited
condensed consolidated statements of income. Such expenses for the three month periods ended March 31, 2006 and 2005 are shown in the tables below.



|                                                                                                        |  |               |        |   |                         |   |    |                                |  |   |        |  
|------------------------------------------------------------------------------------------------------- |  | ------------- | ------ | - | ----------------------- | - | -- | ------------------------------ |  | - | ------ | -
|                                                                                                        |  | Pension Plans |        |   | Pension Plan Supplement |   |    | Post- Retirement Medical Plans | 
|Three month period ended March 31, 2006                                                                 |  |               |        |   |                         |   |    |                                |  |   |        |  
|Service cost                                                                                            |  | $             | 1,518  |   |                         |   |    |                                |  | $ | 50     |  
|Interest cost                                                                                           |  |               | 5,924  |   |                         | $ | 16 |                                |  |   | 111    |  
|Expected return on plan assets                                                                          |  |               | (6,966 | ) |                         |   |    |                                |  |   |        |  
|Amortization of transition (asset) obligation                                                           |  |               |        |   |                         |   |    |                                |  |   |        |  
|Amortization of prior service cost                                                                      |  |               |        |   |                         |   |    |                                |  |   | (346   | )
|Recognized actuarial (gain) loss                                                                        |  |               | 430    |   |                         |   |    |                                |  |   | 75     |  
|Settlements (curtailments)                                                                              |  |               |        |   |                         |   |    |                                |  |   | (2,134 | )
|                                                                                                        |  |               |        |   |                         |   |    |                                |  |   |        |  
|Net periodic benefit cost (credit)                                                                      |  | $             | 906    |   |                         | $ | 16 |                                |  | $ | (2,244 | )
|                                                                                                        |  |               |        |   |                         |   |    |                                |  |   |        |  
|Three month period ended March 31, 2005                                                                 |  |               |        |   |                         |   |    |                                |  |   |        |  
|Service cost                                                                                            |  | $             | 1,998  |   |                         |   |    |                                |  | $ | 89     |  
|Interest cost                                                                                           |  |               | 6,774  |   |                         | $ | 22 |                                |  |   | 135    |  
|Expected return on plan assets                                                                          |  |               | (6,973 | ) |                         |   |    |                                |  |   |        |  
|Amortization of prior service cost                                                                      |  |               | (115   | ) |                         |   |    |                                |  |   | (482   | )
|Recognized actuarial (gain) loss                                                                        |  |               | 844    |   |                         |   | (3 | )                              |  |   | 111    |  
|Settlements (curtailments)                                                                              |  |               |        |   |                         |   |    |                                |  |   | (2,302 | )
|                                                                                                        |  |               |        |   |                         |   |    |                                |  |   |        |  
|Net periodic benefit cost (credit)                                                                      |  | $             | 2,528  |   |                         | $ | 19 |                                |  | $ | (2,449 | )
|                                                                                                        |  |               |        |   |                         |   |    |                                |  |   |        |  
|The net periodic benefit cost (credit) is related to continuing and discontinued operations as follows: |  |               |        |   |                         |   |    |                                |  |   |        |  
|Continuing operations                                                                                   |  | $             | 2,560  |   |                         | $ | 13 |                                |  | $ | (2,402 | )
|Discontinued operations                                                                                 |  |               | (32    | ) |                         |   | 6  |                                |  |   | (47    | )
|                                                                                                        |  |               |        |   |                         |   |    |                                |  |   |        |  
|Net periodic benefit cost (credit)                                                                      |  | $             | 2,528  |   |                         | $ | 19 |                                |  | $ | (2,449 | )
|                                                                                                        |  |               |        |   |                         |   |    |                                |  |   |        |  



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 three month periods ended March 31, 2006 and 2005, compensation and benefits expense was reduced by $2,134 and $2,302, respectively, related to the effect of such termination.



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LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



Amendments to LCH Pension Plans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 will
be retained.



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 well as with asset allocation. Irrespective of the terms of these
agreements, in considering their duties to beneficiaries, the trustees also have the power to change the asset allocation. Any changes in the asset allocation could increase or decrease the unfunded liability that would be funded over time,
depending on asset mix, any increase in liabilities and investment returns. In addition, the pensions regulator in the U.K. may have the power to require contributions to be made to plans, and to impose support in respect of the funding of plans by
related companies other than the direct obligors. 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.



Contributions of approximately $29,800 (or 16.4
million British pounds) were made to the Companys defined benefit pension plans in the U.K during the year ended December 31, 2005, of which 15.0 million British pounds were reimbursed by LFCM Holdings.



The Company will make further payments amounting to 16.4 million British
pounds on June 1, 2006, 8.2 million British pounds on June 1, 2007 and 8.2 million British pounds on June 1, 2008. Relating to the June 1, 2006 payment, Lazard Group recorded a receivable of approximately $26,800 from LFCM Holdings relating to the
15.0 million British pounds which is the remaining amount that LFCM Holdings is obligated to reimburse the Company (see Note 11 of Notes to Unaudited Condensed Consolidated Financial Statements).



|10. | INCOME TAXES
|--- | ------------



The provision for income taxes for the three month periods ended March 31, 2006 and 2005 was $13,284 and $7,803, respectively, representing effective tax
rates on operating income from continuing operations of 17.0% and 7.9%, respectively. Lazard Group historically has 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 Groups income has not been 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 has operated principally through corporations
and has been subject to local income taxes. Income taxes reflected on the condensed consolidated statements of income are attributable to taxes incurred in non-U.S. entities and to UBT attributable to Lazard Groups operations apportioned to
New York City. Lazard Groups provision for income taxes is accounted for under the provisions of SFAS No. 109Accounting for Income Taxes.



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.



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



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##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



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 unaudited condensed 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. 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.



|11. | RELATED PARTIES
|--- | ---------------



Amounts receivable from and payable to related parties as of March 31, 2006 and December 31, 2005 are set forth below:



|                        |  |               |        |                  |   |       
|----------------------- |  | ------------- | ------ | ---------------- | - | ------
|                        |  | March 31,2006 |        | December 31,2005
|Receivables             |  |               |        |                  |   |       
|LFCM Holdings           |  | $             | 51,791 |                  | $ | 53,787
|LAZ-MD Holdings         |  |               | 17     |                  |   | 145   
|Lazard Ltd Subsidiaries |  |               | 818    |                  |   | 617   
|                        |  |               |        |                  |   |       
|Total                   |  | $             | 52,626 |                  | $ | 54,549
|                        |  |               |        |                  |   |       
|Payables                |  |               |        |                  |   |       
|LFCM Holdings           |  | $             | 1,101  |                  | $ | 1,234 
|Lazard Ltd Subsidiaries |  |               | 7,499  |                  |   | 8,280 
|                        |  |               |        |                  |   |       
|Total                   |  | $             | 8,600  |                  | $ | 9,514 
|                        |  |               |        |                  |   |       



LFCM Holdings



LFCM Holdings owns and operates the separated businesses
and is owned by the working members, including Lazards managing directors who are also members of LAZ-MD Holdings. In addition to the master separation agreement which effected the separation and recapitalization as discussed in Note 1 of
Notes to Unaudited Condensed 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 9 of Notes to Unaudited Condensed 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



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##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



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.



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.



For the three month period ended March 31, 2006, amounts recorded by
Lazard Group relating to administrative and support services and referral fees for underwriting transactions amounted to approximately $1,015 and $551, respectively.



Receivables from LFCM Holdings and its subsidiaries as of March 31, 2006 and December 31, 2005 include $17,275 and $17,031,
respectively, outstanding related to the lease indemnity agreement and $26,800 as of March 31, 2006 and December 31, 2005 related to the U.K. pension indemnity. The remaining receivables of $7,716 and $9,956 at March 31, 2006 and December 31, 2005,
respectively, relate primarily to administrative and support services and reimbursement of expenses paid on behalf of LFCM Holdings ($4,300 and $2,600 as of March 31, 2006 and December 31, 2005, respectively) and referral fees for underwriting
transactions ($2,900 and $6,300 as of March 31, 2006 and December 31, 2005, respectively).



LAZ-MD Holdings



As of March 31, 2006, LAZ-MD Holdings holds an approximate 62.4% common membership interest in Lazard Group and Lazard Ltd holds the remaining 37.6% common membership interest. 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. As of March 31, 2006, the Lazard Ltd Class B common stock provides LAZ-MD Holdings with approximately 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.



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##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



Lazard Group provides selected administrative and support services to LAZ-MD Holdings through the
administrative services agreement as discussed above. Lazard Group charges LAZ-MD Holdings for these services based on Lazard Groups cost allocation methodology and, for the three month period ended March 31, 2006, such charges amounted to
$50.



Lazard Ltd Subsidiaries



As of March 31, 2006 and December 31, 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 March 31, 2006 and December 31, 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 $4,617 and $5,647, respectively, and, as of both dates, a $2,000
interest-bearing loan payable to a wholly-owned subsidiary of Lazard Ltd, plus accrued interest thereon.



|12. | 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 March 31, 2006, LFNYs regulatory net capital was $35,133, which exceeded the minimum requirement by $30,465.



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). The Company presently estimates that at March 31, 2006, the aggregate regulatory net capital of the U.K. Subsidiaries was $169,676, which exceeded the
minimum requirement by $101,219.



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 March 31, 2006, the
consolidated regulatory net capital of LF was $153,770, which exceeded the minimum requirement set for regulatory capital levels by $65,198.



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 March 31, 2006, for those subsidiaries with regulatory capital requirements, their aggregate net capital was $38,549, which exceeded the minimum required capital by $26,824.



During the three month period ended March 31, 2006, each of these
subsidiaries individually were in compliance with its regulatory capital requirements.



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##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



|13. | 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 as discussed in Note 1 of Notes to Unaudited
Condensed Consolidated Financial Statements. Consequently, subsequent to May 10, 2005, the Company has two segments: Financial Advisory which includes providing advice on mergers, acquisitions, restructurings and other financial matters; 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 and marketable investments, 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 Unaudited Condensed Consolidated Financial Statements, historical 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, historical 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 three month periods ended March 31, 2006 and 2005 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 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.



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##### Table of Contents

LAZARD GROUP LLC



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(dollars in thousands, unless otherwise noted)



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:



|                   |  |                         |  |                                      |         |   |      |   |         |  
|------------------ |  | ----------------------- |  | ------------------------------------ | ------- | - | ---- | - | ------- | -
|                   |  |                         |  | For the Three Months Ended March 31, |        
|                   |  |                         |  | 2006                                 |         |   | 2005 |  
|Financial Advisory |  | Net Revenue             |  | $                                    | 222,131 |   |      | $ | 157,259 |  
|                   |  | Operating Expenses      |  |                                      | 164,270 |   |      |   | 97,418  |  
|                   |  |                         |  |                                      |         |   |      |   |         |  
|                   |  | Operating Income        |  | $                                    | 57,861  |   |      | $ | 59,841  |  
|                   |  |                         |  |                                      |         |   |      |   |         |  
|                   |  |                         | 
|Asset Management   |  | Net Revenue             |  | $                                    | 124,402 |   |      | $ | 106,863 |  
|                   |  | Operating Expenses      |  |                                      | 92,430  |   |      |   | 69,982  |  
|                   |  |                         |  |                                      |         |   |      |   |         |  
|                   |  | Operating Income        |  | $                                    | 31,972  |   |      | $ | 36,881  |  
|                   |  |                         |  |                                      |         |   |      |   |         |  
|                   |  |                         | 
|Corporate          |  | Net Revenue             |  | $                                    | (10,317 | ) |      | $ | (4,023  | )
|                   |  | Operating Expenses      |  |                                      | 1,266   |   |      |   | (5,570  | )
|                   |  |                         |  |                                      |         |   |      |   |         |  
|                   |  | Operating Income (Loss) |  | $                                    | (11,583 | ) |      | $ | 1,547   |  
|                   |  |                         |  |                                      |         |   |      |   |         |  
|                   |  |                         | 
|Total              |  | Net Revenue             |  | $                                    | 336,216 |   |      | $ | 260,099 |  
|                   |  | Operating Expenses      |  |                                      | 257,966 |   |      |   | 161,830 |  
|                   |  |                         |  |                                      |         |   |      |   |         |  
|                   |  | Operating Income        |  | $                                    | 78,250  |   |      | $ | 98,269  |  
|                   |  |                         |  |                                      |         |   |      |   |         |  

|                   |  |   |           |                |   |                   |  | 
|------------------ |  | - | --------- | -------------- | - | ----------------- |  | 
|                   |  |  
|                   |  |   |           | As of         
|                   |  |   |           | March 31, 2006 |   | December 31, 2005
|Total Assets:      |  |   |           |                |   |                   |  | 
|Financial Advisory |  | $ | 333,166   |                | $ | 336,576          
|Asset Management   |  |   | 294,859   |                |   | 308,054          
|Corporate          |  |   | 1,141,494 |                |   | 1,262,503        
|                   |  |   |           |                |   |                   |  | 
|Total              |  | $ | 1,769,519 |                | $ | 1,907,133        
|                   |  |   |           |                |   |                   |  | 



14.
    DISCONTINUED OPERATIONS



Loss
from discontinued operations for the three month period ended March 31, 2005 was comprised of the following:



|                                               |  |                                   |        |  
|---------------------------------------------- |  | --------------------------------- | ------ | -
|                                               |  | Three Months Ended March 31, 2005 |       
|                                               | 
|Net revenue                                    |  | $                                 | 37,879 |  
|                                               |  |                                   |        |  
|Pre-tax loss                                   |  | $                                 | (6,597 | )
|Provision for income taxes                     |  |                                   | 253    |  
|                                               |  |                                   |        |  
|Loss from discontinued operations (net of tax) |  | $                                 | (6,850 | )
|                                               |  |                                   |        |  



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##### Table of Contents

Item 1A.   Pro Forma Financial Information (Unaudited)

|                                                                                                               |  |     
|-------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                               |  | Page
|Unaudited Pro Forma Condensed Consolidated Statement of Income For The Three Month Period Ended March 31, 2005 |  | 30  



As described below and
elsewhere in this quarterly report on Form 10-Q, the historical results of operations for periods prior to May 10, 2005, the date of the equity public offering, are not comparable to results of operations for subsequent periods. Accordingly, for
periods prior to May 10, 2005, Lazard believes that pro forma results provide the most meaningful basis for comparison of historical periods.



The following unaudited pro forma condensed consolidated statement of income for the three month period ended March 31, 2005 presents the consolidated
results of operations of Lazard Group assuming that the separation and recapitalization transactions, including the equity public offering and the financing transactions, had been completed as of January 1, 2005. The pro forma adjustments are based
on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the separation and recapitalization transactions, including the equity public offering and the
financing transactions, on the historical financial information of Lazard. The adjustments are described in the notes to the unaudited pro forma condensed consolidated statement of income and principally include the matters set forth below.



| |  |  | The separation, which is described in more detail in Managements Discussion and Analysis of Financial Condition and Results of Operations and the accompanying
Notes to Unaudited Condensed Consolidated Financial Statements.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Payment for services rendered by Lazard Groups managing directors, which, as a result of Lazard Group operating as a limited liability company, prior to May 10, 2005 has been
accounted for as distributions from members capital, or in some cases as minority interest, rather than as compensation and benefits expense and distributions to profit participation members. As a result, Lazard Groups operating income
prior to May 10, 2005 included within the accompanying unaudited condensed 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 Unaudited Condensed Consolidated Financial Statements, Lazard now includes all payments for services rendered by its managing directors and distributions to profit participation members in compensation
and benefits expense.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



The unaudited pro forma financial information of the Company should be read together with the accompanying Managements Discussion and Analysis
of Financial Condition and Results of Operations and Lazards historical unaudited condensed consolidated financial statements and the related notes included elsewhere herein.



The unaudited pro forma condensed consolidated financial information is included for informational purposes only and does
not purport to reflect the results of operations of Lazard Group that would have occurred had it operated as a separate, independent company during the period presented. Actual results might have differed from pro forma results if Lazard Group had
operated independently. The unaudited pro forma condensed consolidated financial information should not be relied upon as being indicative of Lazard Groups results of operations had the transactions described in connection with the separation
and recapitalization transactions, including the equity public offering and the financing transactions, been completed on January 1, 2005. The unaudited pro forma condensed consolidated financial information also does not project the results of
operations for any future period or date.



29



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##### Table of Contents

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME



|                                                                   |  |                                         |         |      |                      |    |         |       |  |   |                                                   |   |  |                                   |         |      |  |   |         |  
|------------------------------------------------------------------ |  | --------------------------------------- | ------- | ---- | -------------------- | -- | ------- | ----- |  | - | ------------------------------------------------- | - |  | --------------------------------- | ------- | ---- |  | - | ------- | -
|                                                                   |  | Three Month Period Ended March 31, 2005 |        
|                                                                   |  | Historical                              |         |      | Pro FormaAdjustments |    |         | Total |  |   | Pro FormaAdjustmentsFor The FinancingTransactions |   |  | Lazard GroupPro Forma,as Adjusted |        
|                                                                   |  | ($ in thousands)                        |        
|Total revenue                                                      |  | $                                       | 270,007 |      |                      |    |         |       |  | $ | 270,007                                           |   |  |                                   |         |      |  | $ | 270,007 |  
|Interest expense                                                   |  |                                         | (9,908  | )(a) |                      |    |         |       |  |   | (9,908                                            | ) |  | $                                 | (13,943 | )(d) |  |   | (23,851 | )
|                                                                   |  |                                         |         |      |                      |    |         |       |  |   |                                                   |   |  |                                   |         |      |  |   |         |  
|Net revenue                                                        |  |                                         | 260,099 |      |                      |    |         |       |  |   | 260,099                                           |   |  |                                   | (13,943 | )    |  |   | 246,156 |  
|                                                                   |  |                                         |         |      |                      |    |         |       |  |   |                                                   |   |  |                                   |         |      |  |   |         |  
|                                                                   |  |                                         |         |      |                     
|Operating Expenses:                                                |  |                                         |         |      |                      |    |         |       |  |   |                                                   |   |  |                                   |         |      |  |   |         |  
|Compensation and benefits                                          |  |                                         | 105,881 |      |                      | $  | 46,798  | (b)   |  |   | 152,679                                           |   |  |                                   |         |      |  |   | 152,679 |  
|Premises and occupancy costs                                       |  |                                         | 16,383  |      |                      |    |         |       |  |   | 16,383                                            |   |  |                                   |         |      |  |   | 16,383  |  
|Professional fees                                                  |  |                                         | 8,858   |      |                      |    |         |       |  |   | 8,858                                             |   |  |                                   |         |      |  |   | 8,858   |  
|Travel and entertainment                                           |  |                                         | 8,975   |      |                      |    |         |       |  |   | 8,975                                             |   |  |                                   |         |      |  |   | 8,975   |  
|Other                                                              |  |                                         | 21,733  |      |                      |    |         |       |  |   | 21,733                                            |   |  |                                   |         |      |  |   | 21,733  |  
|                                                                   |  |                                         |         |      |                      |    |         |       |  |   |                                                   |   |  |                                   |         |      |  |   |         |  
|Operating expenses                                                 |  |                                         | 161,830 |      |                      |    | 46,798  |       |  |   | 208,628                                           |   |  |                                   |         |      |  |   | 208,628 |  
|                                                                   |  |                                         |         |      |                      |    |         |       |  |   |                                                   |   |  |                                   |         |      |  |   |         |  
|Operating income from continuing operations                        |  |                                         | 98,269  |      |                      |    | (46,798 | )     |  |   | 51,471                                            |   |  |                                   | (13,943 | )    |  |   | 37,528  |  
|Provision (benefit) for income taxes                               |  |                                         | 7,803   |      |                      |    | (11     | )(c)  |  |   | 7,792                                             |   |  |                                   | (2,163  | )(e) |  |   | 5,629   |  
|                                                                   |  |                                         |         |      |                      |    |         |       |  |   |                                                   |   |  |                                   |         |      |  |   |         |  
|Income allocable to members before minority interest in net income |  |                                         | 90,466  |      |                      |    | (46,787 | )     |  |   | 43,679                                            |   |  |                                   | (11,780 | )    |  |   | 31,899  |  
|Minority interest in net income                                    |  |                                         | 10,260  |      |                      |    | (14,534 | )(b)  |  |   | (4,274                                            | ) |  |                                   |         |      |  |   | (4,274  | )
|                                                                   |  |                                         |         |      |                      |    |         |       |  |   |                                                   |   |  |                                   |         |      |  |   |         |  
|Income from continuing operations                                  |  | $                                       | 80,206  |      |                      | ($ | 32,253  | )     |  | $ | 47,953                                            |   |  | ($                                | 11,780  | )    |  | $ | 36,173  |  
|                                                                   |  |                                         |         |      |                      |    |         |       |  |   |                                                   |   |  |                                   |         |      |  |   |         |  





See Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income



30



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Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income ($ in thousands):



|(a) | Interest expense includes accrued dividends relating to Lazard Groups mandatorily redeemable preferred stock issued in March 2001, which amounted to $2,000 for the three month
period ended March 31, 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Prior to the equity public offering, payments for services rendered by the Company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 through May 9, 2005, rather than as compensation and benefits expense. As a result, the Companys compensation and benefits
expense and income from continuing operations did not reflect most payments for services rendered by Lazard Groups managing directors. See Managements Discussion and Analysis of Financial Condition and Results of
OperationsKey Financial Measures and IndicatorsNet Income Allocable to Members.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | The adjustment reflects the classification of those payments for services rendered prior to May 10, 2005 as compensation and benefits expense and has been determined as if the new
compensation policy described below had been in place prior to May 10, 2005. Accordingly, the unaudited pro forma condensed consolidated statement of income data reflects compensation and benefits expense based on new retention agreements that are
in effect.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Following the completion of the equity public offering, the Companys policy is that its compensation and benefits expense, including that payable to its managing directors,
will not exceed 57.5% of operating revenue each year (although the Company retains the ability to change this policy in the future). The Companys managing directors have been informed of this new policy. The new retention agreements with its
managing directors generally provide for a fixed salary and discretionary bonus, which may include an equity-based compensation component. Lazard defines operating revenue for these purposes as 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, with such operating revenue being $265,529 for the three month period ended March 31, 2005.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | The overall net adjustment to increase historical compensation and benefits expense is $46,798 for the three month period ended March 31, 2005. The net adjustments are the result of
aggregating the distributions representing payments for services rendered by managing directors and employee members of LAM prior to May 10, 2005.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | Reflects a net tax benefit adjustment for a reclassification from LAM minority interest.
|--- | ----------------------------------------------------------------------------------------



|(d) | Reflects net incremental interest expense related to the separation and recapitalization transactions, including the financing transactions and the amortization of capitalized costs
associated with the financing transactions, estimated to be $13,943 for the three month period ended March 31, 2005.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(e) | Reflects the net income tax impact associated with the separation and recapitalization transactions.
|--- | ----------------------------------------------------------------------------------------------------



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



The following discussion should be read in conjunction with Lazard Groups unaudited condensed consolidated
financial statements and the related notes included elsewhere in this Form 10-Q.



Forward-Looking Statements and Certain Factors that May Affect Our Business



Management has included in Parts I and II of this Quarterly Report on Form 10-Q, including in its Managements Discussion and Analysis of Financial Condition and Results of Operations (the MD&A),
statements 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. These factors include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2005 (the Form
10-K) under the caption Risk Factors, including the following:



| |  |  | a decline in general economic conditions or the global financial markets,
| | - |  | -------------------------------------------------------------------------



| |  |  | losses caused by financial or other problems experienced by third parties,
| | - |  | --------------------------------------------------------------------------



| |  |  | losses due to unidentified or unanticipated risks,
| | - |  | --------------------------------------------------



| |  |  | a lack of liquidity, i.e., ready access to funds, for use in our businesses, and
| | - |  | --------------------------------------------------------------------------------



| |  |  | competitive pressure.
| | - |  | ---------------------



The Company operates 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 management 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
management believes the expectations reflected in the forward-looking statements are reasonable, management cannot guarantee future results, level of activity, performance or achievements. Moreover, neither management 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. The Company is under no duty to update any of these forward-looking
statements after the date of this Quarterly Report on Form 10-Q to conform our prior statements to actual results or revised expectations and does not intend to do so.



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



| |  |  | 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 its business,
| | - |  | ---------------------------------------------------------



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



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



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



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



| |  |  | benefits to our business resulting from the effects of the separation and recapitalization transactions, including the equity public offering and the financing transactions,
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



Lazard Group is committed to providing timely and accurate information to the investing public, consistent with our legal and regulatory obligations. To
that end, Lazard and its operating companies use their websites to convey information about their businesses, including the anticipated release of quarterly financial results and the posting of updates of assets under management (AUM) in
various hedge funds and mutual funds and other investment products managed by Lazard Asset Management LLC and its subsidiaries. Monthly updates of these funds will be posted to the Lazard Asset Management website (www.lazardnet.com) by the
5th business day following the end of each month. Investors can link to Lazard and its operating company websites through www.lazard.com. Our websites and the information contained therein or connected thereto shall not be deemed to be
incorporated into this quarterly report.



Completion of Separation and
Recapitalization Transactions



The separation and
recapitalization transactions were completed as of May 10, 2005, at which time the separated business became part of LFCM Holdings. Except as otherwise expressly noted, this quarterly report, including this MD&A and the historical consolidated
financial data of Lazard Group reflect the historical results of operations and financial position of Lazard Group, and includes the separated businesses in discontinued operations. In addition to other adjustments, the pro forma financial data
included in this Form 10-Q reflect financial data of Lazard Group giving effect to the separation, as well as other adjustments made as a result of the equity public offering, the financing transactions and the recapitalization.



Historical results of operations are reported as a 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, historical 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 and other financial matters, 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 and marketable investments, 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



33



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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.



For the three month period ended March 31, 2006, Financial Advisory, Asset Management and Corporate contributed
approximately 66%, 37% and (3)% of consolidated net revenue, respectively.



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 the 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.



The respective source for the data contained herein relating to (i) the volume of global and trans-Atlantic completed and announced merger and acquisition transactions is Thompson Financial as of April 21, 2006, and
(ii) the amount of corporate debt defaults is Moodys Investors Service, Inc., all rights reserved.



Financial Advisory



For the three month period ended March 31, 2006, the volume of global completed M&A transactions increased 55% versus the corresponding period ended
March 31, 2005, increasing to $639 billion from $411 billion, respectively, with the volume of trans-Atlantic completed M&A transactions experiencing a 61% increase, to $61 billion from $38 billion. Over the same period, the volume of
global announced M&A transactions increased by 46%, to $889 billion, from $607 billion, and the volume of trans-Atlantic announced M&A transactions increased by 331% to $69 billion from $16 billion reflecting growing
industry-wide activity. Over the same time frame, financial restructuring activity remained flat, with the amount of corporate debt defaults at $2 billion in both periods. Lazard believes that its Financial Advisory business would continue to
benefit from any sustained increase in M&A volume. While the rate of global corporate debt defaults are near all time low levels, we believe our financial restructuring business would benefit from any future increase in global
restructuring activity.



Asset Management



During the three month period ended March 31,
2006, global stock markets increased as evidenced by the MSCI World Index increasing by 6%. European markets were strong, with the DAX, CAC 40 and FTSE 100 gaining 10%, 11% and 6%, respectively. In the U.S., gains were more modest, with the Dow
Jones Industrial Average and the S&P 500 indices each increasing by 4%, while the NASDAQ increased 6%.



For the twelve month period from April 1, 2005 until March 31, 2006, the MSCI World Index rose by 16%. European markets experienced gains of
37%, 28% and 22%, respectively, for the DAX, CAC 40 and FTSE 100 indices. In the U.S, gains of 17%, 10% and 6%, respectively, were experienced in the NASDAQ, S&P 500 and the Dow Jones Industrial Average indices.



The changes in global market indices generally correspond to Lazards
market-related changes in its AUM.



34



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##### Table of Contents

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 or similar
transactions. The main driver of Financial Advisory net revenue is overall M&A and restructuring volume, 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 between Lazards Financial Advisory and 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 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 actively managed 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
the form of a carried interest when profits from merchant banking investments exceed a specified threshold. Incentive fees earned for the years ended December 31, 2005, 2004, and 2003 of $45 million, $27 million and $38 million, respectively,
demonstrate the volatility 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 marketable investments 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 now included in Corporate net revenue. Corporate net revenue can fluctuate due to mark-to-market adjustments on long-term and marketable investments, changes in interest rates and in interest
rate spreads earned by LFB and changes in the levels of Lazards cash, marketable investments, long-term investments and indebtedness. Although Corporate net revenue during the three month period ended March 31, 2006 represented (3)% of
Lazards net revenue, total assets in this segment represented 65% of Lazards consolidated total assets as of March 31, 2006, principally attributable to the relatively significant amounts of assets associated with LFB, and, to a lesser
extent, cash, marketable investments 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



35



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earned upon the successful completion of a transaction or financial restructuring, 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 such date is 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. Subsequent to the consummation of the equity public offering, Lazard now includes all payments for services rendered by its managing directors, including the managing directors of LAM and distributions to profit participation
members, in compensation and benefits expense. As a result, while Lazards compensation and benefits expense and operating income for the three month period ended March 31, 2006 includes all such payments, compensation and benefits expense and
operating income for the three month period ended March 31, 2005 does not include those payments for services rendered by Lazards managing directors.



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 added 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.



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.



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 the three month period ended
March 31, 2006 are not comparable to amounts recorded as minority interest for the three month period ended March 31, 2005.



The Company consolidates various LAM related general partnership interests that it controls but does not wholly own, and its business in Italy which,
through the Strategic Alliance, was 40% owned by Banca Intesa S.p.A. (Intesa).



36



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As described in Note 5of Notes to Unaudited Condensed Consolidated Financial Statements, on March
31, 2006 Lazard Group, Lazard & Co. S.r.l. (Lazard Italy), an indirect subsidiary of Lazard Group, and Intesa reached an agreement regarding their future business relationship in Italy and entered into a Termination Agreement (the
Termination Agreement), which provides for the termination of the joint venture relationship at the closing of the transactions contemplated by the Termination Agreement and mutual release arrangements with respect to matters concerning
the joint venture relationship. At this termination closing, which is expected to occur promptly after receipt of required regulatory approvals and satisfaction or waiver of other customary closing conditions, Lazard Group will repurchase
Intesas investment Lazard Italy and make certain other adjustments to the terms of Intesas investment in Lazard Group and its affiliates.



As described in Note 1 of Notes to Unaudited Condensed 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 and distributions to profit
participation members.



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 when 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 now includes all payments for services rendered by its managing directors, including the managing directors of LAM and distributions to profit participation
members, in compensation and benefits expense.



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 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. 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.



Historical 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



37



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expense. Such payments are included in subsequent periods. Therefore, historical 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 is set forth below, followed by a more detailed discussion of business segment results.



The consolidated results of operations for the three month periods ended March 31, 2006 and 2005, are set forth below:



|                                                                                                           |  |                             |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                           |  | Three Months EndedMarch 31, |        
|                                                                                                           |  | 2006                        |         |   | 2005 |  
|                                                                                                           |  | ($ in thousands)            |        
|Net Revenue:                                                                                               |  |                             |         |   |      |   |         |  
|Financial Advisory                                                                                         |  | $                           | 222,131 |   |      | $ | 157,259 |  
|Asset Management                                                                                           |  |                             | 124,402 |   |      |   | 106,863 |  
|Corporate                                                                                                  |  |                             | (10,317 | ) |      |   | (4,023  | )
|                                                                                                           |  |                             |         |   |      |   |         |  
|Net revenue                                                                                                |  |                             | 336,216 |   |      |   | 260,099 |  
|                                                                                                           |  |                             |         |   |      |   |         |  
|Operating Expenses:                                                                                        |  |                             |         |   |      |   |         |  
|Compensation and benefits (and, commencing May 10, 2005, distributions to profit participation members)(*) |  |                             | 200,139 |   |      |   | 105,881 |  
|Non-compensation expense                                                                                   |  |                             | 57,827  |   |      |   | 55,949  |  
|                                                                                                           |  |                             |         |   |      |   |         |  
|Total operating expenses                                                                                   |  |                             | 257,966 |   |      |   | 161,830 |  
|                                                                                                           |  |                             |         |   |      |   |         |  
|Operating Income from Continuing Operations(*)                                                             |  |                             | 78,250  |   |      |   | 98,269  |  
|Provision for income taxes                                                                                 |  |                             | 13,284  |   |      |   | 7,803   |  
|                                                                                                           |  |                             |         |   |      |   |         |  
|Income from Continuing Operations Before Minority Interest in Net Income(*)                                |  |                             | 64,966  |   |      |   | 90,466  |  
|Minority interest in net income                                                                            |  |                             | 5,263   |   |      |   | 10,260  |  
|                                                                                                           |  |                             |         |   |      |   |         |  
|Income from Continuing Operations(*)                                                                       |  |                             | 59,703  |   |      |   | 80,206  |  
|Loss from Discontinued Operations (net of income tax provision of $253)(*)                                 |  |                             |         |   |      |   | (6,850  | )
|                                                                                                           |  |                             |         |   |      |   |         |  
|Net Income Allocable to Members of Lazard Group(*)                                                         |  | $                           | 59,703  |   |      | $ | 73,356  |  
|                                                                                                           |  |                             |         |   |      |   |         |  

---

|(*) | Excludes, as applicable, with respect to the three month period ended March 31, 2005 (a) 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company calculates operating revenue as
follows:



|                                                             |  |                              |   |  |          |  
|------------------------------------------------------------ |  | ---------------------------- | - |  | -------- | -
|                                                             |  | Three Months Ended March 31, |  
|                                                             |  | 2006                         |   |  | 2005     |  
|                                                             |  | ($ in thousands)             |  
|Operating revenue                                            |  |                              |   |  |          |  
|Historical total revenue                                     |  | $360,243                     |   |  | $270,007 |  
|Add (deduct):                                                |  |                              |   |  |          |  
|LFB Interest expense                                         |  | (3,875                       | ) |  | (4,478   | )
|Revenue related to consolidation of LAM general partnerships |  | (5,259                       | ) |  |          |  
|                                                             |  |                              |   |  |          |  
|Operating revenue                                            |  | $351,109                     |   |  | $265,529 |  
|                                                             |  |                              |   |  |          |  



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Certain key ratios, statistics and headcount information for the three month periods ended March 31, 2006
and 2005 are set forth below:



|                       |  |                              |   |  |      |  
|---------------------- |  | ---------------------------- | - |  | ---- | -
|                       |  | Three Months Ended March 31, |  
|                       |  | 2006                         |   |  | 2005 |  
|As a % of Net Revenue: |  |                              |   |  |      |  
|Financial Advisory     |  | 66                           | % |  | 60   | %
|Asset Management       |  | 37                           |   |  | 41   |  
|Corporate              |  | (3                           | ) |  | (1   | )
|                       |  |                              |   |  |      |  
|Net Revenue            |  | 100                          | % |  | 100  | %
|                       |  |                              |   |  |      |  
|As a % of Net Revenue: |  |                              |   |  |      |  
|Operating Income       |  | 23                           | % |  | 38   | %
|                       |  |                              |   |  |      |  



|                                          |  |                 |  |      
|----------------------------------------- |  | --------------- |  | -----
|                                          | 
|                                          |  | As of March 31,
|                                          |  | 2006            |  | 2005*
|                                          |  |                
|Headcount:                                |  |                 |  |      
|Managing Directors:                       |  |                 |  |      
|Financial Advisory                        |  | 128             |  | 131  
|Asset Management                          |  | 43              |  | 39   
|Corporate                                 |  | 8               |  | 6    
|Limited Managing Directors                |  | 5               |  | 19   
|Other Employees:                          |  |                 |  |      
|Business segment professionals            |  | 753             |  | 754  
|All other professionals and support staff |  | 1,228           |  | 1,281
|                                          |  |                 |  |      
|Total                                     |  | 2,165           |  | 2,230
|                                          |  |                 |  |      

---

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



Three Months Ended March 31, 2006 versus March 31, 2005



Net revenue was $336 million for the three month period ended March 31, 2006, up $76 million, or 29%, versus net revenue of $260 million in the
corresponding period in 2005. During the 2006 period, Financial Advisory net revenue was $222 million, an increase of $65 million or 41% versus net revenue of $157 million in the corresponding period in 2005, with M&A net revenue having
increased by $72 million or 59% and Financial Restructuring net revenue having decreased by $11 million or 44%. Asset Management net revenue was $124 million, an increase of $18 million or 16%, versus net revenue of approximately $107 million
in the corresponding period in 2005, with management fees having increased by $8 million or 8%, and incentive fees having increased by approximately $1 million or 35% and other revenue having increased by $8 million. Corporate net revenue decreased
by $6 million.



The increase in M&A net revenue is a result
of both strong M&A performance, consistent with increased industry-wide completed mergers and acquisitions activity and our increased productivity. Lazards M&A Group advised on a number of the first quarter of 2006s major
completed transactions, including MCI in its $8.8 billion merger with Verizon Communications, ITV in its £5.4 billion defense against the approach by a private equity consortium, Prentiss Properties in its $3.3 billion sale to Brandywine
Realty Trust and Maytag in its $2.7 billion sale to Whirlpool. Financial Restructuring net revenue decreased as compared to the period ended March 31, 2005, due in part to the low level of debt defaults experienced in the last twelve months. In
addition, the timing of restructuring closings also impacts net revenue. We continue to be involved in a number of restructuring



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assignments, including those involving Calpines Unsecured Creditors Committee, Northwest Airlines Creditors Committee, and the UAW.



The increase in Asset Management net revenue is principally attributed to a
$5.3 billion, or 6%, increase in average AUM for the three month period ended March 31, 2006 as compared to the three month period ended March 31, 2005. AUM as of March 31, 2006 was $95.1 billion, an increase of $6.9 billion since December 31, 2005.
The growth in the three month period was largely due to market appreciation of $5.8 billion, net inflows of $0.9 billion and the remainder attributable to the positive impact of foreign currency adjustments. Net inflows in AUM during the three month
period ended March 31, 2006 were experienced particularly in Emerging Markets, Global Thematic Equity, U.K. and European Equity products.



In addition to increases in management and incentive fees as described above, other asset management revenue increased by $8 million, which includes $5
million relating to interests in LAM general partnership held directly by certain of our LAM managing directors which is also deducted as minority interest expense in net income.



The decrease in Corporate net revenue is principally due to interest expense on financings associated with 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 incremental interest expense related thereto for the three month period ended March 31, 2006
approximating $15 million, partially offset by a positive net change in investment gains and losses in the 2006 period versus 2005.



Compensation and benefits expense was $200 million for the three month period ended March 31, 2006, an increase of $94 million, or 89%, versus expense of
$106 million in the corresponding period in 2005. 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, including distributions to profit participation members 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. In addition, performance-based bonus awards increased as a result of the increase in net revenue. Headcount (including managing directors and all other employees) as of March 31, 2006 was 2,165 down
65 versus headcount as of March 31, 2005, representing reductions principally in support personnel and, to a lesser extent, Financial Advisory. Asset Management headcount increased as a result of hirings in selected growth areas.



Non-compensation expense was $58 million or 16.5% of operating revenue of
$351 million in the three month period ended March 31, 2006, compared with $56 million or 21% of operating revenue of $266 million for the corresponding period in 2005. The decrease in the year-to-date ratio is due to the operating leverage from
higher operating revenues. The increase in non-compensation expense for the period ended March 31, 2006 as compared to the period ended March 31, 2005 is principally the result of increased costs for outsourcing and costs associated with being a
public company. Premises and occupancy expenses in the 2006 period were $17 million, essentially flat versus the 2005 period. Professional fees in the 2006 period were $15 million, up approximately $6 million, or 68%, versus the 2005 period.
Travel and entertainment expenses for the 2006 period were $9 million, flat versus the 2005 period. Communication and information services and equipment costs for the 2006 period, in the aggregate, were $13 million, also flat versus the 2005
period. Other expenses were $5 million, a decrease of approximately $4 million, or 43%, versus the 2005 period.



Professional fees increased principally due to the recording of a commitment to a former managing director, as well as from increased outsourcing fees,
consulting fees relating to work regarding the Sarbanes-Oxley Act of 2002, and various legal fees. Other expenses decreased principally due to a recovery of VAT costs expensed in prior years.



Operating income was $78 million for the three month period ended March 31,
2006, a decrease of $20 million, or 21% lower than operating income of $98 million for the corresponding period in 2005. Operating



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income as a percentage of net revenue was 23% for the first quarter of 2006 versus 38% for the corresponding period in 2005, 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.



Provision for income taxes was $13 million for the three month period ended March 31, 2006, an increase of $5 million versus $8 million for the corresponding period in 2005, due to an increased tax provision recorded in the 2006 period for
locations that are subject to corporate income taxes.



Minority
interest in net income was $5 million for the three month period ended March 31, 2006, decrease of $5 million versus $10 million for the 2005 period. The decrease was principally due to the compensation for LAM members now 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. Partially offsetting the decrease was
approximately $5 million relating to interests in LAM general partnerships held directly by certain of our LAM managing directors. 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.



The Company had no income from discontinued operations during the three month period ended March 31, 2006, versus a loss from discontinued operations of
$7 million for the corresponding period in 2005.



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.



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##### Table of Contents

Financial Advisory



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



|                                                                                                             |  |                              |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------ |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                             |  | Three Months Ended March 31, |        
|                                                                                                             |  | 2006                         |         |   | 2005 |  
|                                                                                                             |  | ($ in thousands)             |        
|M&A                                                                                                          |  | $                            | 193,983 |   |      | $ | 122,311 |  
|Financial Restructuring                                                                                      |  |                              | 13,593  |   |      |   | 24,148  |  
|Corporate Finance and Other                                                                                  |  |                              | 14,555  |   |      |   | 10,800  |  
|                                                                                                             |  |                              |         |   |      |   |         |  
|Net Revenue                                                                                                  |  |                              | 222,131 |   |      |   | 157,259 |  
|                                                                                                             |  |                              |         |   |      |   |         |  
|Direct Compensation and Benefits and, commencing May 10, 2005, distributions to profit participation members |  |                              | 119,165 |   |      |   | 49,885  |  
|Other Operating Expenses(a)                                                                                  |  |                              | 45,105  |   |      |   | 47,533  |  
|                                                                                                             |  |                              |         |   |      |   |         |  
|Total Operating Expenses                                                                                     |  |                              | 164,270 |   |      |   | 97,418  |  
|                                                                                                             |  |                              |         |   |      |   |         |  
|Operating Income                                                                                             |  | $                            | 57,861  |   |      | $ | 59,841  |  
|                                                                                                             |  |                              |         |   |      |   |         |  
|Operating Income as a Percentage of Net Revenue                                                              |  |                              | 26      | % |      |   | 38      | %
|                                                                                                             |  |                              |         |   |      |   |         |  
|                                                                                                             | 
|                                                                                                             |  | As of March 31,              |        
|                                                                                                             |  | 2006                         |         |   | 2005 |  
|Headcount (b):                                                                                               |  |                              |         |   |      |   |         |  
|Managing Directors                                                                                           |  |                              | 128     |   |      |   | 131     |  
|Limited Managing Directors                                                                                   |  |                              | 2       |   |      |   | 5       |  
|Other Employees:                                                                                             |  |                              |         |   |      |   |         |  
|Business segment professionals                                                                               |  |                              | 464     |   |      |   | 482     |  
|All other professionals and support staff                                                                    |  |                              | 294     |   |      |   | 309     |  
|                                                                                                             |  |                              |         |   |      |   |         |  
|Total                                                                                                        |  |                              | 888     |   |      |   | 927     |  
|                                                                                                             |  |                              |         |   |      |   |         |  

---

|(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.
|--- | ----------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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 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:



|                                                             |  |                              |     |   |      |   |     |  
|------------------------------------------------------------ |  | ---------------------------- | --- | - | ---- | - | --- | -
|                                                             |  | Three Months Ended March 31, |    
|                                                             |  | 2006                         |     |   | 2005 |  
|Lazard Statistics:                                           |  |                              |     |   |      |   |     |  
|Number of Clients:                                           |  |                              |     |   |      |   |     |  
|Total                                                        |  |                              | 171 |   |      |   | 159 |  
|With Fees Greater than $1 million                            |  |                              | 51  |   |      |   | 37  |  
|Percentage of Total Fees from Top 10 Clients                 |  |                              | 42  | % |      |   | 48  | %
|Number of M&A Transactions Completed Greater than $1 billion |  |                              | 14  |   |      |   | 5   |  
|                                                             |  |                             
|Industry Statistics ($ in billions):                         |  |                              |     |   |      |   |     |  
|Volume of Completed M&A Transactions:                        |  |                              |     |   |      |   |     |  
|Global                                                       |  | $                            | 639 |   |      | $ | 411 |  
|Trans-Atlantic                                               |  |                              | 61  |   |      |   | 38  |  
|Global Corporate Debt Defaults                               |  |                              | 2   |   |      |   | 2   |  



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 and Germany) and the rest of
the world (principally in Asia).



|              |  |                              |   |  |      |  
|------------- |  | ---------------------------- | - |  | ---- | -
|              |  | Three Months Ended March 31, |  
|              |  | 2006                         |   |  | 2005 |  
|North America |  | 59                           | % |  | 44   | %
|Europe        |  | 40                           |   |  | 52   |  
|Rest of World |  | 1                            |   |  | 4    |  
|              |  |                              |   |  |      |  
|Total         |  | 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



Three Months Ended March 31, 2006
versus March 31, 2005



In the 2006 period, Financial
Advisory net revenue was $222 million, an increase of $65 million or 41% versus net revenue of $157 million in the corresponding period in 2005. M&A net revenue of $194 million increased $72 million, or 59% versus the corresponding period in
2005, driven by the improved productivity of our managing directors and the continued improved environment for mergers and acquisitions activity. The



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increase in M&A net revenue was offset by an approximate $11 million, or 44%, decrease in Financial Restructuring net revenue versus the corresponding
period in 2005. Corporate Finance and Other net revenue increased by $4 million or 35% principally as a result of a higher level of private equity fund raising.



Lazards M&A Group advised on a number of major completed transactions in the first quarter of 2006, including, among others, MCI in its $8.8
billion merger with Verizon Communications, ITV in its £5.4 billion defense against the approach by a private equity consortium, Prentiss Properties in its $3.3 billion sale to Brandywine Realty Trust and Maytag in its $2.7 billion sale to
Whirlpool. Other clients with whom Lazard Group transacted significant business during the first quarter of 2006 included Bon-Ton Stores, Eiffage S.A., Electra Partners, KeySpan, Pfizer, and The Town & Country Trust. The decrease in Financial
Restructuring net revenue, as compared to the period ended March 31, 2005, is due in part to the near all time low level of corporate debt defaults experienced in the last twelve months as well as the timing of restructuring closings. We continue to
be involved in a number of restructuring assignments, including those involving Calpines Unsecured Creditors Committee, Collins & Aikman, Eurotunnel, Meridian Automotive, Northwest Airlines Creditors Committee, Olympic Airlines, SunCom
Wireless, Tower Automotive and the UAW with regard to alternatives for restructuring Ford Motor Companys post-retirement healthcare obligations to UAW members.



Operating expenses were $164 million in 2006 period, an increase of $67 million, or 69%, versus operating expenses of $97
million in the corresponding period in 2005. Compensation and benefits expense increased by $69 million or 139% as compared to the corresponding period in 2005. 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, including distributions to profit participation members, in compensation and benefits expense. In addition, bonuses to employees increased
in the first quarter of 2006. Other operating expenses decreased by $2 million or 5% due to lower premises and occupancy expense of $1 million, and all other cost categories of $1 million.



Financial Advisory operating income was $58 million for the 2006 period,
slightly below the corresponding period in 2005. Operating income as a percentage of segment net revenue was 26% for 2005 versus 38% in the corresponding period in 2005, with the increase in recorded compensation expense in the 2006 period 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.



44



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Asset Management



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



|                           |  |                 |        |                  |   |       
|-------------------------- |  | --------------- | ------ | ---------------- | - | ------
|                           |  | As of          
|                           |  | March 31,2006   |        | December 31,2005
|                           |  | ($ in millions)
|AUM:                       |  |                 |        |                  |   |       
|International Equities     |  | $               | 45,891 |                  | $ | 42,104
|Global Equities            |  |                 | 18,600 |                  |   | 15,872
|U.S. Equities              |  |                 | 13,506 |                  |   | 12,920
|                           |  |                 |        |                  |   |       
|Total Equities             |  |                 | 77,997 |                  |   | 70,896
|                           |  |                 |        |                  |   |       
|International Fixed Income |  |                 | 6,777  |                  |   | 6,604 
|Global Fixed Income        |  |                 | 1,722  |                  |   | 2,135 
|U.S. Fixed Income          |  |                 | 2,385  |                  |   | 2,374 
|                           |  |                 |        |                  |   |       
|Total Fixed Income         |  |                 | 10,884 |                  |   | 11,113
|                           |  |                 |        |                  |   |       
|Alternative Investments    |  |                 | 3,515  |                  |   | 3,394 
|Merchant Banking           |  |                 | 796    |                  |   | 826   
|Cash Management            |  |                 | 1,941  |                  |   | 2,005 
|                           |  |                 |        |                  |   |       
|Total AUM                  |  | $               | 95,133 |                  | $ | 88,234
|                           |  |                 |        |                  |   |       



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



|            |  |                              |        |      |   |       
|----------- |  | ---------------------------- | ------ | ---- | - | ------
|            |  | Three Months Ended March 31,
|            |  | 2006                         |        | 2005
|            |  | ($ in millions)             
|Average AUM |  | $                            | 91,684 |      | $ | 86,346
|            |  |                              |        |      |   |       



The following is a
summary of changes in AUM for the three month periods ended March 31, 2006 and 2005.



|                             |  |                              |        |      |   |        |  
|---------------------------- |  | ---------------------------- | ------ | ---- | - | ------ | -
|                             |  | Three Months Ended March 31, |       
|                             |  | 2006                         |        | 2005 |  
|                             |  | ($ in millions)              |       
|AUMBeginning of Period      |  | $                            | 88,234 |      | $ | 86,435 |  
|Net Flows                    |  |                              | 863    |      |   | 346    |  
|Market Appreciation          |  |                              | 5,757  |      |   | (43    | )
|Foreign Currency Adjustments |  |                              | 279    |      |   | (481   | )
|                             |  |                              |        |      |   |        |  
|AUMEnd of Period            |  | $                            | 95,133 |      | $ | 86,257 |  
|                             |  |                              |        |      |   |        |  



AUM as of March 31,
2006 was $95.1 billion, up $6.9 billion from AUM of $88.2 billion as of December 31, 2005. Merchant banking AUM as of March 31, 2006 and December 31, 2005 includes approximately $0.4 billion of assets held by an investment company for which Lazard
may earn carried interests. During the three months ended March 31, 2006, market appreciation of $5.8 billion was accompanied by net inflows of $0.9 billion and the positive impact of changes in foreign currency exchange rates of approximately
$0.3 billion. Net inflows were experienced primarily in Emerging Markets, Global Thematic Equity, U.K. and European Equity products.



For the three month period ended March 31, 2006, average AUM was $91.7 billion, an increase of approximately $5.3 billion, or 6%, versus $86.3
billion in the corresponding period in 2005.



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



|                                                                                                            |  |                              |         |   |      |   |         |  
|----------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                            |  | Three Months Ended March 31, |        
|                                                                                                            |  | 2006                         |         |   | 2005 |  
|                                                                                                            |  | ($ in thousands)             |        
|Management Fees                                                                                             |  | $                            | 103,805 |   |      | $ | 95,746  |  
|Incentive Fees                                                                                              |  |                              | 6,483   |   |      |   | 4,820   |  
|Other                                                                                                       |  |                              | 14,114  |   |      |   | 6,297   |  
|                                                                                                            |  |                              |         |   |      |   |         |  
|Net Revenue                                                                                                 |  |                              | 124,402 |   |      |   | 106,863 |  
|                                                                                                            |  |                              |         |   |      |   |         |  
|Direct Compensation and Benefits, and, commencing May 10, 2005, distributions to profit participant members |  |                              | 53,810  |   |      |   | 33,740  |  
|Other Operating Expenses(a)                                                                                 |  |                              | 38,620  |   |      |   | 36,242  |  
|                                                                                                            |  |                              |         |   |      |   |         |  
|Total Operating Expenses                                                                                    |  |                              | 92,430  |   |      |   | 69,982  |  
|                                                                                                            |  |                              |         |   |      |   |         |  
|Operating Income                                                                                            |  | $                            | 31,972  |   |      | $ | 36,881  |  
|                                                                                                            |  |                              |         |   |      |   |         |  
|Operating Income as a Percentage of Net Revenue                                                             |  |                              | 26      | % |      |   | 35      | %
|                                                                                                            |  |                              |         |   |      |   |         |  
|                                                                                                            | 
|                                                                                                            |  | As of March 31,              |        
|                                                                                                            |  | 2006                         |         |   | 2005 |  
|Headcount(b):                                                                                               |  |                              |         |   |      |   |         |  
|Managing Directors                                                                                          |  |                              | 43      |   |      |   | 39      |  
|Limited Managing Directors                                                                                  |  |                              | 2       |   |      |   | 2       |  
|Other Employees:                                                                                            |  |                              |         |   |      |   |         |  
|Business segment professionals                                                                              |  |                              | 278     |   |      |   | 260     |  
|All other professionals and support staff functions                                                         |  |                              | 323     |   |      |   | 321     |  
|                                                                                                            |  |                              |         |   |      |   |         |  
|Total                                                                                                       |  |                              | 646     |   |      |   | 622     |  
|                                                                                                            |  |                              |         |   |      |   |         |  

---

|(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.
|--- | ----------------------------------------------------------------------------------------------------------------



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



|              |  |                             |   |  |      |  
|------------- |  | --------------------------- | - |  | ---- | -
|              |  | Three MonthsEnded March 31, |  
|              |  | 2006                        |   |  | 2005 |  
|North America |  | 60                          | % |  | 60   | %
|Europe        |  | 34                          |   |  | 32   |  
|Rest of World |  | 6                           |   |  | 8    |  
|              |  |                             |   |  |      |  
|Total         |  | 100                         | % |  | 100  | %
|              |  |                             |   |  |      |  



Asset Management
Results of Operations



Three Months Ended March 31,
2006 versus March 31, 2005



Asset Management net revenue
was $124 million for the 2006 period, an increase of $18 million, or 16%, versus net revenue of approximately $107 million for the corresponding period in 2005. Management fees for the 2006 period were $104 million, up $8 million, or 8%, generally
consistent with the increase in average AUM for the corresponding period in 2005. Incentive fees earned for the 2006 period were $6 million, an increase of $1 million versus approximately $5 million recorded for the corresponding period in 2005 due
to better performance



46



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##### Table of Contents

in certain funds that provide for such incentive fees. Other income was $14 million, an increase of $8 million principally due to increased revenue from LAM
general partnerships held directly by certain of our LAM managing directors which is also deducted as minority interest expense in net income.



Operating expenses were $92 million for the 2006 period, an increase of $22 million, or 32%, versus operating expenses of $70 million for the
corresponding period in 2005. Compensation and benefits expense increased by $20 million or 59% as compared to the corresponding period in 2005. 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) including distributions to profit participation members, in compensation and benefits expense which had previously been
accounted for as minority interest in net income. Other operating expenses increased by $2 million or 7% versus the corresponding period in 2005 due to higher professional fees of $1 million, higher other expenses of $2 million, offset by lower
premises and occupancy costs of $1 million.



Asset Management
operating income was $32 million for 2006 period, a decrease of $5 million, or 13%, versus operating income of $37 million for the corresponding period in 2005. Operating income as a percentage of segment net revenue was 26% for the 2006 period
versus 35% for the corresponding period in 2005, with the decline in the 2006 period attributable to the increase in recorded compensation expense in the 2006 period as described above, partially offset by higher revenues for the corresponding
period 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 receipt of Financial Advisory and Asset Management fees, the timing of
distributions to shareholders and payment of bonuses to employees. The accounts receivables collection period generally approximates 60 days. 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.



Cash and cash equivalents were $398 million at March 31, 2006, a decrease of
$92 million versus cash and cash equivalents of $490 million at December 31, 2005. During the three month period ended March 31, 2006, cash of $50 million was used by operating activities, comprised of (i) $60 million provided
from net income allocable to members, (ii) approximately $13 million provided by noncash charges, principally consisting of depreciation and amortization of $3 million relating to property, $5 million relating to the amortization of
deferred expenses and restricted stock units, minority interest in net income of $5 million, and (iii) offset by $123 million being used by net changes in other operating assets and operating liabilities. Cash of $1 million was used
for investing activities, principally from net acquisitions of property. Financing activities during the period used cash of $43 million, primarily for distributions to members and minority interest holders, as well as repayments of senior
borrowings. Exchange rate changes provided cash of $2 million. The Company traditionally makes payments for employee bonuses and distributions to members and minority interest holders primarily in the first four months of the year with respect to
the prior years results.



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 discretionary bonuses have historically been paid to employees in January 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



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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.



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 March 31, 2006, Lazard had $181 million in unused lines of credit available to it, including $50 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. Concurrently with the equity public offering, Lazard Group entered into a five year, $125 million senior revolving credit facility with a
group of lenders. As of March 31, 2006, $25 million was 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 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.



Pursuant to the existing strategic alliance in effect since January 2003,
Lazard Group and Intesa have conducted selected Italian investment banking business solely through Lazard Italy. As part of the strategic alliance, Intesa made the following investments:



| |  |  | the purchase in March 2003 from Lazard Funding Limited LLC (Lazard Funding), a wholly owned subsidiary of Lazard Group, of a $150 million subordinated convertible
promissory note (the $150 million Subordinated Convertible Note) issued by Lazard Funding, which is currently convertible into a contractual right that entitles 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);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the investment in June 2003 in Lazard Italy of an amount of Euros then equal to $100 million in exchange for 40% of the capital stock in Lazard Italy (the Intesa JV
Interest); and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



The $150 million Subordinated Convertible Note, which is guaranteed by
Lazard Group (the Guarantee), currently has a scheduled maturity date in March 2018 and has interest payable annually at a variable interest rate of not less than 3%, and not more than 3.25%, per annum. The $50 million Subordinated
Promissory Note currently has a scheduled maturity date in the year 2078 (subject to extension), with interest payable annually at the rate of 3.0% per annum. The strategic alliance was governed by a Master Transaction and Relationship Agreement
dated as of March 26, 2003 (the Master Agreement) among Lazard Group, Intesa and Lazard Italy.



As previously disclosed, in connection with the transactions in connection with the equity public offering of Lazard Ltd, Lazard Group and Intesa held
various discussions concerning the joint venture relationship and the impact of the equity public offering. In the course of such discussions, Intesa notified Lazard Group of its intention not to extend the term of the joint venture relationship
beyond its initial expiration date of



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December 31, 2007. The strategic alliance accordingly is due to expire on December 31, 2007, as a result of which Lazard Group would be obligated to
acquire the Intesa JV Interest and the $50 million Subordinated Promissory Note on or about February 4, 2008 for an aggregate amount in cash not to exceed $150 million.



On March 31, 2006, Lazard Group, Lazard Italy and Intesa reached an agreement regarding their future business relationship
in Italy and entered into a Termination Agreement (the Termination Agreement), which provides for the termination of the joint venture relationship and the Master Agreement at the closing of the transactions contemplated by the
Termination Agreement and mutual release arrangements with respect to matters concerning the joint venture relationship. At this termination closing, which is expected to occur promptly after receipt of required regulatory approvals and satisfaction
or waiver of other customary closing conditions, the following adjustments will be made to the terms of Intesas investment in Lazard Group and its affiliates:



| |  |  | The $150 million Subordinated Convertible Note will be 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, resulting in an aggregate of approximately 2,632,000 shares of Lazard Ltd Class A common stock being issuable to Intesa if it elects to fully convert the amended $150 million Subordinated Convertible
Note. The amended $150 million Subordinated Convertible Note will mature in September 2016 and have a fixed annual interest rate of 3.25%. One-third of the principal amount of the amended $150 million Subordinated Convertible Note will generally be
convertible after July 1 in each of 2008, 2009 and 2010, and this note will no longer 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 Lazard Ltd Class A common stock it receives upon conversion of the amended $150 million Subordinated Convertible Note. The Guarantee will also be amended to reflect the terms of the amended $150 million Subordinated
Convertible Note.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Intesa JV Interest and the $50 million Subordinated Promissory Note will be 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 and a $50 million subordinated promissory note of Lazard Group due February 28, 2008, respectively. The $96 million senior promissory note will have a fixed annual interest rate of 4.25% and the $50 million
senior promissory note will have a fixed annual interest rate of 4.6%.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lazard Group will pay to Intesa an amount equal to a 3% annualized return on the Intesa JV 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. Intesa will pay to Lazard any dividends it receives in respect of the Intesa JV Interest in respect of fiscal year 2005 of Lazard Italy.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



On February 7, 2006, the Board of Directors of Lazard Ltd authorized the repurchase of up to $100 million in aggregate cost of the Lazard Ltds Class A common stock. The share repurchase program will be used primarily to offset shares
to be issued under Lazard Ltds 2005 Equity Incentive Plan. Purchases may be made in the open market or through privately negotiated transactions in 2006 and 2007. There were no share repurchases during the three month period ended March 31,
2006.



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 12 of Notes to Unaudited Condensed Consolidated Financial Statements for further information. These



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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 the 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, 2005:



|                                                                                        |  |                                               |           |                 |   |           |  |   |           |     |                   |   |         |  |   |           |    
|--------------------------------------------------------------------------------------- |  | --------------------------------------------- | --------- | --------------- | - | --------- |  | - | --------- | --- | ----------------- | - | ------- |  | - | --------- | ---
|                                                                                        |  | Contractual Obligations Payment Due by Period |          
|                                                                                        |  | Total                                         |           | Less than1 Year |   | 1-3 Years |  |   | 3-5 Years |     | More than 5 Years |  
|                                                                                        |  | ($ in thousands)                              |          
|Operating Leases (exclusive of $70,546 of sublease income)                              |  | $                                             | 491,977   |                 | $ | 57,815    |  | $ | 107,637   |     |                   | $ | 84,334  |  | $ | 242,191   |    
|Capital Leases (including interest)                                                     |  |                                               | 34,584    |                 |   | 2,491     |  |   | 4,982     |     |                   |   | 4,982   |  |   | 22,129    |    
|Senior Debt (including interest)                                                        |  |                                               | 1,458,307 |                 |   | 72,754    |  |   | 555,730   | (a) |                   |   | 108,376 |  |   | 721,447   |    
|Subordinated Loans (including interest)                                                 |  |                                               | 258,192   |                 |   | 6,000     |  |   | 60,644    | (b) |                   |   | 9,000   |  |   | 182,548   | (b)
|Repurchase of Equity Interest in Lazard Italy                                           |  |                                               | 100,000   |                 |   |           |  |   | 100,000   | (b) |                   |   |         |  |   |           |    
|Merchant Banking CommitmentsLAI managed funds (c)                                      |  |                                               | 126,289   |                 |   | 44,118    |  |   | 82,171    |     |                   |   |         |  |   |           |    
|Merchant Banking Commitmentscompany sponsored funds                                    |  |                                               | 4,622     |                 |   | 3,873     |  |   |           |     |                   |   | 716     |  |   | 33        |    
|Contractual Commitments to Managing Directors, Senior Advisors, Employees and Other (d) |  |                                               | 83,395    |                 |   | 50,939    |  |   | 29,995    |     |                   |   | 1,016   |  |   | 1,445     |    
|                                                                                        |  |                                               |           |                 |   |           |  |   |           |     |                   |   |         |  |   |           |    
|Total (e)                                                                               |  | $                                             | 2,557,366 |                 | $ | 237,990   |  | $ | 941,159   |     |                   | $ | 208,424 |  | $ | 1,169,793 |    
|                                                                                        |  |                                               |           |                 |   |           |  |   |           |     |                   |   |         |  |   |           |    

---

|(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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | The contractual obligation table above is based on amounts outstanding as of December 31, 2005, including the then estimated amount required to repurchase the
equity interest in Lazard Italy. Accordingly, the table does not include developments subsequent to December 31, 2005 relating to the Termination Agreement entered into with Intesa on March 31, 2006. See Liquidity and Capital
Resources and Note 5 of Notes to Unaudited Condensed Consolidated Financial Statements. The table includes interest expense based on the terms in effect as of December 31, 2005, which provided for interest on the $50 million subordinated
promissory note at its fixed rate of interest of 3.0% per annum through February 4, 2008. In addition, the table includes interest relating to the $150 million subordinated convertible note through its scheduled
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | maturity date of March 26, 2018, at its minimum annual interest rate of 3% per annum. The $150 million subordinated convertible note has a maximum annual
interest rate of 3.25%.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 on February 25, 2005, with $1 billion of institutional capital commitments and a $100 million capital commitment
from us, the principal portion of which may require funding at any time through 2010 (as of December 31, 2005, Lazard Group contributed $89 thousand of its capital commitment). For purposes of the table above, Lazards remaining commitment
of approximately $99.9 million as of December 31, 2005 is estimated to be funded in the amounts of $37.5 million, $37.5 million, and $24.9 million in the years ending December 31, 2006, 2007 and 2008, respectively; (2) obligations related to
the first closing of a private equity fund formed in July 2005, with the ability to raise up to a maximum of $550 million of capital commitments, including a minimum and maximum capital commitment from us of $10 million and $27 million,
respectively, the principal portion of which will require funding at any time through 2008 (as of December 31, 2005, Lazard Group contributed its initial capital commitment which amounted to $622 thousand and, in addition, pursuant to a January
2006 capital call, the Company funded an additional $1.6 million in the three month period ended March 31, 2006). For purposes of this table, included is the maximum remaining commitment of $27 million and Lazards remaining maximum commitment
of approximately $26.4 million as of December 31, 2005 is estimated to be funded in the amounts of $6.6 million, $18.7 million, and $1.1 million in the years ending December 31, 2006, 2007 and 2008, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | The Company has agreements relating to future minimum distributions to certain managing directors and compensation to certain employees incurred for the purpose of recruiting and
retaining these senior professionals. Also included are guaranteed compensation arrangements with advisors and a commitment to a former managing director.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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, 2005, to a maximum of approximately 14
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 stock price fails to sustain certain price levels); (3) any contingent limited partner capital commitments as described in Note 7 of Notes to Consolidated Financial Statements included in the Form 10-K; (4) interest relating
to Lazard Groups revolving credit agreement, which is a variable rate obligation; (5) the lending commitments and indemnifications provided by LFB to third parties as described in Note 12 of Notes to Consolidated Financial Statements included
in the Form 10-K and (6) reduction of the Companys maximum commitment related to the private equity fund described in note (c)(2) above, from $27 million to $10 million, with such latter amount now estimated to be funded during the years
ending December 31, 2006, 2007 and 2008 in the amounts of $6 million, $3 million and $1 million, respectively. 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 the Company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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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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 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. 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



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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 the 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 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.



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



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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 hold 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
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.



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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, cross-currency interest rate swaps and other derivative contracts to hedge exposures to interest rate and currency fluctuations.



At March 31, 2006, substantially all of the $349 million of securities owned, at fair value, were fixed-income securities
within LFBs portfolio, 95% 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 March 31, 2006
and December 31, 2005, derivative contracts, all of which related to LFBs operations and which are recorded at fair value, were as follows:



|                             |  |                  |     |                   |   |      
|---------------------------- |  | ---------------- | --- | ----------------- | - | -----
|                             |  | March 31,2006    |     | December 31, 2005
|                             | 
|                             |  | ($ in thousands)
|Assets:                      |  |                  |     |                   |   |      
|Interest rate swap contracts |  | $                | 166 |                   | $ | 186  
|                             |  |                 
|Liabilities:                 |  |                  |     |                   |   |      
|Interest rate swap contracts |  | $                | 744 |                   | $ | 3,028



The primary market
risks associated with LFBs securities inventory, foreign exchange, hedging and securities 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 annual interest rate risk as measured by a 1% +/ change in interest rates totaled approximately $100 thousand as of March 31, 2006 and was approximately $93
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 $2 thousand both as of March 31, 2006 and
December 31, 2005.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



LFB fully collateralizes
its repurchase 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 March 31, 2006 total receivables amounted to $640 million, net of an allowance for
bad debts of $14 million. As of that date, inter-bank lending, financial advisory and asset management fee, customer receivables and related party receivables comprised 32%, 44%, 16% and 8% of total receivables, respectively. At December 31, 2005
total receivables amounted to $749 million, net of allowance for bad debts of $13 million. As of that date, inter-bank lending, financial advisory and



55



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asset management fee, and customer receivables and related party receivables comprised 46%, 38%, 9% and 7% of total receivables, respectively. Historically,
the vast majority of financial advisory and asset management fee receivables are collected with 60 days of invoice.



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 March 31, 2006 the Company had no exposure to an individual counterparty that exceeded $38 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 $3 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



Share-Based PaymentsIn December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R, Share-Based Payments (SFAS 123R). SFAS No. 123R is a revision of SFAS
No. 123, Accounting for Stock-Based Compensation (SFAS 123), and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and its
related guidance. SFAS 123R is effective for the Companys fiscal year beginning January 1, 2006. 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 the Companys 2005 Equity Incentive Plan (described in more detail in Note 8 of Notes to
Unaudited Condensed Consolidated Financial Statements), the Company adopted the fair value recognition provisions under SFAS 123. Accordingly, subsequent to the dates of grant during 2005, Lazard recognized in compensation 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.



Effective for the first quarter of 2006, Lazard adopted SFAS 123R. Under SFAS 123R, share-based awards that do not require future service are expensed
immediately. Share-based employee 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 generally
applied only to share-based awards granted subsequent to adoption. Share-based awards granted to employees prior to the adoption of SFAS 123R must continue to be amortized over the stated service periods of the awards, however, should the awards
vest upon retirement, any unamortized cost would be recognized when the employee retires.



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Additionally, SFAS 123R changed SFAS 123 by eliminating alternative methods for recognition of the costs
of equity awards and recognition of award forfeitures. First, SFAS 123R changed SFAS 123 by precluding the use of the intrinsic method as provided for under APB 25 and requiring fair value recognition. Second, SFAS 123R differed from SFAS 123 by
precluding the recognition of forfeitures on an actual basis by requiring the application of an estimated forfeiture rate to the amortizable cost of the award for all unvested awards. The Company adopted both the fair value recognition and the
estimated forfeiture rate methods required under SFAS 123R in 2005 while accounting for equity awards under the provisions of SFAS 123.



SFAS 123R also requires that the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather
than as an operating cash flow as prescribed under prior accounting standards. This requirement reduces net operating cash flows and increases net financing cash flows in periods beginning with and subsequent to adoption of SFAS 123R. Total net cash
flow remains unchanged from what would have been reported under prior accounting rules.



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 is no significant effect resulting
from the adoption of the provisions of SFAS 123R which would require restatement of its prior period financial statements.



Investments in Limited PartnershipsOn January 1, 2006, the Company adopted, as required, the provisions of Emerging Issues Task Force
(EITF) Issue No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or, Similar Entity When the Limited Partners Have Certain Rights (EITF
04-5). The EITF consensus requires a general partner in a limited partnership to consolidate the limited partnership unless the presumption of control is overcome. The general partner may overcome this presumption of control and not
consolidate the entity if the limited partners have: (a) the substantive ability to dissolve or liquidate the limited partnership or otherwise remove the general partner without having to show cause; or (b) substantive participating rights
in managing the partnership. EITF 04-5 was effective for general partners of all newly-formed limited partnerships and for existing limited partnerships for which the partnership agreements are modified after June 29, 2005, and for general partners
in all other limited partnerships, no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005. The adoption of the provisions of EITF 04-5 did not have a material impact on the Companys
unaudited condensed consolidated financial statements.



Recent Accounting PronouncementsIn February 2006, the FASB issued SFAS No. 155 Accounting for Certain Hybrid Financial Instruments  an amendment of FASB Statements No. 133 and 140(SFAS 155).SFAS 155 permits an entity to measure at fair value any financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS 155 is effective for all financial instruments
acquired or issued in fiscal years beginning after September 15, 2006. The Company is currently assessing the impact of adopting SFAS 155, but does not expect the standard to have a material impact on the financial condition, results of
operations, or cash flows of the Company.



In March 2006, the
FASB issued SFAS No. 156 Accounting for Servicing of Financial Assets  an amendment of FASB Statement No. 140(SFAS 156),which requires all separately recognized servicing assets and servicing
liabilities to be initially measured at fair value, if practicable, and for subsequent measurements, permits an entity to choose either the amortization method or the fair value measurement method for each class of separately recognized servicing
assets and servicing liabilities. SFAS 156 also requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately
recognized servicing assets and servicing liabilities. SFAS 156 is effective in fiscal years beginning after September 15, 2006. The Company is currently assessing the impact of adopting SFAS 156, but does not expect the standard to have a
material impact on the financial condition, results of operations, or cash flows of the Company.



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|Item 3. | 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.



|Item 4. | 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 the end of the period covered by this report. 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
quarterly report, 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.



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PART II. OTHER INFORMATION



|Item 1. | 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.



We received a request for information from the NASD as part of what we
understand to be an industry investigation relating to gifts and gratuities, which is 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
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. We believe that other broker-dealers also received requests for information. 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 we cannot predict their potential outcomes, which outcomes, if any, could include the consequences discussed in the caption Regulation in our Annual Report on Form
10-K for the year ended December 31, 2005.



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 a putative stockholder derivative lawsuit filed in the U.S. District Court for the Southern District of New York, and in a putative class action lawsuit and a putative stockholder derivative lawsuit filed in the Supreme Court of
the State of New York. The defendants removed the putative class action lawsuit filed in the Supreme Court of the State of New York to the U.S. District Court for the Eastern District of New York, and the plaintiffs moved for remand. The motion for
remand was referred to a Magistrate Judge, who has issued a Report and Recommendation recommending that the plaintiffs motion be granted. The defendants removed the putative derivative lawsuit filed in the Supreme Court of the State of New
York to the U.S. District Court for the Southern District of New York, and the plaintiff moved for remand. By Decision and Order dated February 17, 2006, the U.S. District Court for the Southern District of New York granted the plaintiffs
motion for remand. The defendants have filed a Notice of Appeal. The plaintiffs in the putative class action lawsuits filed in the U.S. District Court for the Southern District of New York have filed a consolidated amended complaint, and the
defendants have filed a motion to dismiss that complaint. The putative class action lawsuits purport to have been filed on behalf of persons who purchased securities of Lazard Ltd in connection with the equity public offering or in the open market.
The putative class actions allege various violations of the federal securities laws and seek, inter alia, compensatory damages, rescission or rescissory damages and other unspecified equitable, injunctive or other relief. The putative derivative
actions purport to be brought on behalf of Lazard Ltd against its directors and Goldman Sachs & Co. and allege, among other things, that the directors breached their fiduciary duties to Lazard Ltd in connection with matters related to the equity
public offering and seek compensatory damages, punitive damages and other unspecified equitable or other relief. We believe that the suits are without merit and intend to defend them vigorously.



For a description of recent developments involving Lazard Groups
relationship with Intesa see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources and Note 5 of Notes to Unaudited Condensed Consolidated Financial Statements.



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



There were no material changes from the risk factors previously disclosed in the registrants Annual Report on Form 10-K for the year ended December
31, 2005.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------



Not applicable.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------



None.



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



None.



|Item 5. | Other Information
|------- | -----------------



On May 9, 2006, the Board of Directors adopted the Directors Fee Deferral Unit Plan, which allows our Non-Executive Directors to elect to receive
additional deferred stock units (DSUs) pursuant to the 2005 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. This description of the Directors Fee Deferral Unit Plan is qualified in its entirety by reference to the full text of the plan which has been filed as an exhibit to this Quarterly Report on Form 10-Q.



In May 2006, in light of our recent financial performance and the
correspondingly enhanced cash position at LAZ-MD Holdings, LAZ-MD Holdings modified the terms of its operating agreement regarding the distribution of the LAZ-MD Holdings redeemable capital, in order to accelerate the fourth and final redemption
payment to the time of the first redemption payment. Accordingly, on May 10, 2006, LAZ-MD Holdings paid to the holders of LAZ-MD Holdings redeemable capital an aggregate of approximately $50 million in satisfaction of the first and fourth redemption
payments relating to LAZ-MD Holdings redeemable capital.



|Item 6. | 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).



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|     |  |                                                                                                                                                                                                                                                                                                                                                       
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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).     
|     | 
|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 |  | 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).                                                                                                                                                   
|     | 
|10.3 |  | Stockholders Agreement, dated as of May 10, 2005, by and among LAZ-MD Holdings LLC, the Registrant and certain members of LAZ-MD Holdings LLC (incorporated by reference to Exhibit 10.1
to Lazard Ltds Quarterly Report (File No. 001-32492) on Form 10-Q filed on June 16, 2005).                                                                 
|     | 
|10.4 |  | 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).                                                                    
|     | 
|10.5 |  | 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).                                                                                                   
|     | 
|10.6 |  | 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).       
|     | 
|10.7 |  | 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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|      |  |                                                                                                                                                                                                                                                                                                                                                
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.8  |  | 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).                                                                                            
|      | 
|10.9  |  | 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).                                                                
|      | 
|10.10 |  | Master Transaction and Relationship Agreement, dated as of March 26, 2003, by and among Banca Intesa S.p.A., Lazard LLC and Lazard & Co. S.r.l. (incorporated by reference to Exhibit 10.11
to Lazard Ltds Registration Statement (File No. 333-121407) on Form S-1/A filed on February 11, 2005).                                            
|      | 
|10.11 |  | Note Purchase Agreement, dated as of March 26, 2003, by and among Lazard Funding LLC, Lazard LLC and Banca Intesa S.p.A. (incorporated by reference to Exhibit 10.12 to Lazard Ltds
Registration Statement (File No. 333-121407) on Form S-1/A filed on February 11, 2005).                                                                   
|      | 
|10.12 |  | $150 Million Subordinated Convertible Promissory Note due 2018, issued by Lazard Funding LLC to Banca Intesa S.p.A. (incorporated by reference to Exhibit 10.13 to Lazard Ltds
Registration Statement (File No. 333-121407) on Form S-1/A filed on February 11, 2005).                                                                        
|      | 
|10.13 |  | $50 Million Subordinated Non-Transferable Promissory Note due 2078, issued by Lazard & Co. S.r.l. to Banca Intesa S.p.A. (incorporated by reference to Exhibit 10.14 to Lazard Ltds
Registration Statement (File No. 333-121407) on Form S-1/A filed on February 11, 2005).                                                                   
|      | 
|10.14 |  | Guaranty of Lazard LLC to Banca Intesa S.p.A., dated as of March 26, 2003 (incorporated by reference to Exhibit 10.15 to Lazard Ltds Registration Statement (File No. 333-121407) on
FormS-1/A filed on February 11, 2005).                                                                                                                   
|      | 
|10.15 |  | 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).                                                                         
|      | 
|10.16 |  | Note Purchase Agreement, dated as of May 11, 2001, by and between Lazard Funding Limited LLC, Lazard LLC, and the purchasers thereto (incorporated by reference to Exhibit 10.17 to Lazard
Ltds Registration Statement (File No. 333-121407) on Form S-1/A filed on February 11, 2005).                                                       
|      | 
|10.17 |  | Amendment No. 1, dated as of August 27, 2003, to the Note Purchase Agreement, dated as of May 11, 2001, by and between Lazard Funding Limited LLC, Lazard LLC and the purchasers thereto
(incorporated by reference to Exhibit 10.18 to Lazard Ltds Registration Statement (File No. 333-121407) on Form S-1/A filed on February 11, 2005).   
|      | 
|10.18 |  | 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).                                                                              
|      | 
|10.19 |  | 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).                                
|      | 
|10.20 |  | 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).
|      | 
|10.21 |  | 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).                                                                                                                                                          



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.22 |  | 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).                                                                                                                                                                                                                                      
|      | 
|10.23 |  | 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).                                                                                                           
|      | 
|10.24 |  | 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).                                                                                                                                                    
|      | 
|10.25 |  | 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).                                                                                                             
|      | 
|10.26 |  | Form of Agreement Relating to Retention and Noncompetition and Other Covenants, dated as ofMay 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).                                                 
|      | 
|10.27 |  | 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
FormS-1/A filed on April 11, 2005).                                                                                                                                                                                            
|      | 
|10.28 |  | 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).                                                                                                                                          
|      | 
|10.29 |  | 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).                                                                                                                                                
|      | 
|10.30 |  | 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).                                                                                                     
|      | 
|10.31 |  | 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).                                                                                                                                                                                           
|      | 
|10.32 |  | 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).
|      | 
|10.33 |  | 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).                                                                                                                                                                                                            
|      | 
|10.34 |  | 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).                                                                                                                                                                                    
|      | 
|10.35 |  | 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).                                                                                                                                                 



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|      |  |                                                                                                                                                                                                                                                                                                                                 
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.36 |  | 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).                                                         
|      | 
|10.37 |  | Directors Fee Deferral Unit Plan.                                                                                                                                                                                                                                                                                              
|      | 
|10.38 |  | 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.
|      | 
|12.1  |  | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                                                              
|      | 
|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.                                                                                                                                                                                                                                                                           





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SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Date: May 11, 2006



LAZARD GROUP LLCBy:

/s/    Bruce WassersteinName: Bruce Wasserstein Title:   Chairman
and Chief Executive OfficerBy:

/s/    Michael J. CastellanoName: Michael J. Castellano Title:   Chief
Financial Officer




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