Lazard EMERGING MARKETS EQUITY

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1 FEATURING Lazard EMERGING MARKETS EQUITY Currently, emerging-markets equities (as measured by the MSCI Emerging Markets Index) have generated higher financial productivity and carry an almost 20 percent price-to-earnings-ratio discount relative to developed-markets equities (as measured by the MSCI World Index). Though not as deeply discounted as it was three to five years ago, the asset class has still generated attractive returns. Lazard Asset Management ( Lazard ) has a substantial history of managing emerging-markets products, including Emerging Markets Equity Select, a concentrated separate-account portfolio of non-rule 144A ADRs and The Lazard Funds, Inc. Emerging Markets Portfolio, a U.S. mutual fund of emerging-markets equity securities available as Institutional Shares (LZEMX) and Open Shares (LZOEX). WHY LAZARD EMERGING MARKETS EQUITY? Lazard believes that there are four solid reasons to consider its emerging-markets equity products: A 15-year history of managing emerging-markets portfolios All its emerging-markets equity products are designed for to achieve consistent consistent patterns patterns of performance of performance over time over time It has extensive resources focused on emerging-markets investing The portfolio management team follows a consistently applied, repeatable investment process

2 WHY INVEST IN Lazard s Emerging Markets Equity PRODUCTS? Substantial Emerging-Markets History Lazard has a substantial history of managing emerging-markets products, with almost $4.4 billion in assets under management in three emerging-markets asset classes, as of December 31, These asset classes include emerging-markets equities, launched in 1994, emerging-markets local currency and debt, launched in 1995, and an emerging-markets fund of closed-end funds, launched in LAZARD S EMERGING-MARKETS ASSETS In Millions Source: Lazard Asset Management LLC. As of December 31, Designed for Consistency Lazard s emerging-markets equity products were designed to outperform in normal market environments (not dominated by crises or external events), to participate in rising markets, and to preserve capital during falling markets versus their peer groups and their benchmark, the MSCI Emerging Markets Index. Both emerging-markets equity products mentioned in this piece invest in emerging-markets equity securities with a typical market capitalization of $300 million of greater, or that are domiciled in those countries that comprise the MSCI Emerging Markets Index. The Lazard Emerging Markets Portfolio seeks long-term capital appreciation by investing in companies with strong, sustainable financial productivity at attractive valuations. Emerging Markets Equity Select seeks to generate strong relative returns, over a long-term time horizon, by investing in non-rule 144A ADRs that demonstrate strong financial productivity at attractive valuations. Depth of Resources A six-person portfolio team manages both Lazard s Emerging Markets Equity Select and the Lazard Emerging Markets Portfolio. This seasoned team focuses solely on emergingmarkets equity investing, with all members of the team conducting fundamental company research and benefiting from research from other Lazard resources. The emerging-markets local currency and debt team provides an emerging-markets local currency perspective as well as other macroeconomic and political input. The emerging-markets fund of closed-end funds team provides in-depth macroeconomic and political insight and access to information from local emerging-markets country managers. The firm s risk management and quantitative research team generates the database screening and provides input on the risk aspects of the portfolios to aid optimal diversification. The firm s global research platform of sector analysts provides sector, industry, and company insight and research recommendations. A Repeatable Process For the emerging-markets equity products mentioned here, Lazard s Emerging Markets Equity portfolio management team follows a bottom-up, relative-value approach to stock selection that includes proprietary database screening, accounting validation, fundamental analysis, and portfolio construction/risk evaluation: Quantitative Screening highlights long-term relative value by analyzing the relationships between historical returns and valuations. Accounting Validation examines a company s stated financial statistics (income statement, cash flow statement, balance sheet, and footnotes), leading to either an applicable industry comparison or an uninvestable opportunity. Fundamental Analysis analyzes expectations for companies revenues, margins, and ROE over the next three years, the existence of potential catalysts, and whether returns can be sustained. Portfolio Construction/Risk Evaluation determines stocks viability for inclusion in the portfolio. Assesses companies political risk, macroeconomic risk, corporate governance risk, and portfolio risk; and monitors the portfolios against country and sector parameters.

3 Why Invest in Emerging Markets Equities? Steep Climb After Seven Years of Famine Like the global capital markets, the emerging-markets equity asset class has weathered some dramatic changes over the years. The impressive returns of the late 1980s were followed by an equally significant downturn in the mid-1990s through Since then, the asset class has been on a steep climb. At the root of the asset class s downturn were the pressures of increased globalization and substantial withdrawals of investor capital during periods that included the devaluations of the Mexican peso (1994), the Thai baht and Indonesian rupiah (1997), the Russian ruble (1998), the Brazilian real (1999), the Turkish lira (2001), and the Argentine peso (2002), illustrated in the chart below. While it has taken time to recover from the deeply discounted valuations caused by these crises, when compared to developed-markets returns, emerging-markets equities have generated impressive returns since 2002, as seen in the chart on the right. Since the beginning of 2002, emerging-markets equities have been in recovery, with all regions playing their part. EMERGING MARKETS IN RECOVERY Growth of a Dollar by Asset Class ( 02-05) ($USD) Jan-02 MSCI WORLD MSCI EAFE MSCI EM MSCI US Jul-02 Jan-03 Significant Evolution in Emerging-Markets Fundamentals Today, while the asset class is not as deeply discounted as it was three to five years ago, investors continue to be interested in its still-attractive returns. Why? THE SEVEN YEARS OF FAMINE IN THE EMERGING MARKETS (US$) Mexican Peso July 2, 1997 Thai Baht Liquidity-led recovery Tequila crisis Indonesian Rupiah goes to 15,000/$ August 1998 Russian Ruble Malaysian capital controls implemented January 16, 1999 Brazilian Real Turkish Lira Argentine Peso Brazilian election turmoil Jul-92 Dec-92 May-93 Oct-93 Mar-94 Aug-94 Jan-95 Jun-95 Nov-95 Apr-96 Sep-96 Feb-97 Jul-97 Dec-97 May-98 Oct-98 Mar-99 Aug-99 Jan-00 Jun-00 Nov-00 Apr-01 Sep-01 Feb-02 Jul-02 Dec-02 Jul-03 Source: MSCI. As of December 31, The performance quoted represents past performance. Past performance does not guarantee future results. Jan-04 Jul-04 Jan-05 Jul-05 Dec-05 Source: Bloomberg and MSCI Emerging Markets Index. As of December 31, 2002.

4 The structure of the emerging-markets equity asset class has fundamentally changed. After a long, difficult period, many developing countries have been able to overhaul their economies, leading to reduced trade deficits and debt, and less-expensive borrowing costs. Growth is at its highest level in 20 years, encouraging even some left-leaning governments toward economic orthodoxy. Furthermore, corporate governance within emerging-markets companies has greatly improved. These fundamental changes have led to higher credit ratings for countries and companies in the emerging markets, as seen in the table below. EVIDENCE OF THIS SIGNIFICANT EVOLUTION Current Account (% of GDP) -0.8% 4.1% GDP Growth 2.4% 6.7% Fiscal Deficit (% of GDP) -4.6% -0.7% Inflation 11.8% 5.0% Average Credit Rating* -BB BBB- % of Investment Grade* 4% 38% *External Debt Source: Goldman Sachs, JPMorgan, Deutsche Bank, Lazard Asset Management. As of December 15, Current Account (% of GDP), GDP Growth, Fiscal Deficit (% of GDP), and Inflation data for 2005 are estimated. Emerging-Markets Equities Today The factors supporting the emerging-markets equity asset class today include: More-flexible currency regimes Decreased volatility Valuation still at a discount to developed-market equities VOLATILITY COMPARISON Standard Deviation (%) 0 Jun-96 DECREASED VOLATILITY Although the emerging-markets equity asset class is perceived to be volatile in recent years its volatility has actually been in line with that of the S&P 500 Index, and in line with and below that of the Nasdaq. In fact, volatility for the asset class, almost as high as 40 percent (standard deviation) in 1998, has now retreated to less than 20 percent. (%) Dec-96 S&P 500 MSCI EM Nasdaq Jun-97 Dec-97 Jun-98 Dec-98 Jun-99 Source: MSCI, Frank Russell. As of December 31, Dec-99 ATTRACTIVE RELATIVE VALUATIONS Jun-00 Dec-00 MSCI World 12 Month Forward P/E MSCI EMF 12 Month Forward P/E Jun-01 Relative Valuations Remain Attractive Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 MORE-FLEXIBLE CURRENCY REGIMES One outcome of the financial crises that rocked the emerging markets was the breaking of the currency pegs of between 15 and 20 countries, which produced economic dislocations almost universally. In the aftermath came an environment where many of these countries currencies no longer required the credibility of pegged exchange rates, due to low levels of global inflation and low interest rates. Today, many emergingmarkets countries have the luxury of free-floating currencies Dec-90 Dec-93 Dec-96 Source: I/B/E/S, MSCI World Index, and MSCI Emerging Markets Index. As of December 31, The performance quoted represents past performance. Past performance does not guarantee future results. Dec-99 Dec-02 Dec-05

5 ATTRACTIVE RELATIVE VALUATIONS In 2000, emerging-markets equities valuation discount to global equities reached its widest point. Since then, the asset class has generated fairly consistent outperformance with a narrowing of the valuation discount. Today, emerging-markets equities carry an almost 20 percent price-to-earnings ratio discount relative to the developed markets, with significantly higher financial productivity. In fact, emerging-markets equities have generated higher levels of financial productivity than developed-markets equities for 19 consecutive quarters. Based on forward-looking research analysts (I/B/E/S) expectations, the outlook continues to appear attractive, as seen in the chart on the previous page. But There Are Risks This picture is not entirely rosy. Emerging-markets equities could face some headwinds in the form of abruptly rising interest rates across the global capital markets. Because most emerging-markets nations have growing, yet still modest, dedicated capital, they look to the world s wealthier nations, leading to dependence on foreign capital. Higher interest rates would likely lead to greater competition for this capital. The emerging markets also face potential risks from geopolitical issues, such as terrorism, significant increases in the price of oil and other commodities, and trade friction. China remains a potential wild card for the asset class. Its equity markets have performed surprisingly poorly, over a long period of time, yet the country is in the midst of the economic and social changes of a major industrial revolution. History tells us that these revolutions usually have a positive impact on a country s capital markets. Another potential risk is the fact that Lazard s Emerging Markets Equity Select invests in a relatively small number of securities. Consequently, if one or more of the securities held in this portfolio declines or underperforms relative to the market, it may have a greater impact on an account s performance than if the account held a larger number of securities. Thus an account invested in Emerging Markets Equity Select may experience more volatility, particularly over the short term, than an account invested with a greater number of holdings. In Summary Emerging-markets equities have logged in four consecutive years of dramatic outperformance, outperforming developedmarkets equities for the past six years and, for the first time ever, emerging-markets equities have had three consecutive years of positive returns. While the Lazard Emerging Markets Equity team is somewhat cautious in the immediate term, team members remain constructive on the medium-term and long-term outlook for the asset class. END NOTES: Please consider a fund s investment objectives, risks, charges, and expenses carefully before investing. For more complete information about the Lazard Funds, you may obtain a prospectus by calling Read the prospectus carefully before you invest. The prospectus contains investment objectives, risks, charges, expenses, and other information about The Lazard Funds, Inc. which may not be detailed in this document. The Lazard Funds are distributed by Lazard Asset Management Securities LLC. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The MSCI Emerging Markets Index consists of 26 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey, and Venezuela. The index is unmanaged and has no fees. To the extent the investments depicted herein represent international securities; you should be aware that there may be additional risks associated with international investing involving foreign economic, political, monetary and/or legal factors. International investing may not be for everyone. These risks may be magnified in emerging markets. In addition, the securities of small-capitalization companies may be subject to higher volatility than larger, more established companies. Foreign securities may be less liquid, more volatile, and less subject to governmental supervision than in the United States. The values of foreign securities are affected by changes in currency rates, application of foreign tax laws, changes in government administration, and economic and monetary policy Lazard Asset Management LLC

6 LAZARD EMERGING MARKETS EQUITY Lazard Asset Management LLC 30 Rockefeller Plaza New York, NY LZDBR031 2/06 GN02258

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