Annualized Returns
Name 3-Month YTD 1-Year 3-Year 5-Year 10-Year Since Inception (%; Gross of fees) (01/01/1994) Lazard European Equity Select ADR - SMA -13.2 -13.7 3.4 -11.1 1.8 2.7 7.4 (%; Net of fees) Lazard European Equity Select ADR - SMA -13.9 -15.0 0.3 -13.8 -1.3 -0.3 4.2 MSCI European Index -15.2 -16.7 5.7 -15.0 0.3 0.4 6.5
Performance is presented gross and net of all fees. Net of fees performance has been calculated using a 3.0% fee assumption. Gross of fee performance is presented as supplementary information, as performance excludes transaction costs. Please refer to the disclosures for important additional details of this composite. The performance quoted represents past performance. Past performance does not guarantee future results.

					Lazard			MSCI Europe Index
Number of Securities					35			459
Current Dividend Yield (%)					3.5			3.6
Average Weighted Market Cap ($ billions)					56.9			44.9

Characteristics

Equity	94.2%
Cash and Equivalents	5.8%
Belgium	2.9
Anheuser-Busch InBev (ADR)
Denmark	2.4
Novo Nordisk (ADR)
France	10.5
BNP Paribas (ADR)
LVMH Moet Hennessy Louis Vuitton (ADR)
Sanofi-Aventis (ADR)
Total (ADR)
Germany	4.1
SAP (ADR)
Ireland	2.3
CRH (ADR)
Italy	3.0
Eni (ADR)
Spain	2.6
Banco Santander (ADR)
Sweden	2.8
Assa Abloy (ADR)

Switzerland	18.9
Credit Suisse Group (ADR)
Nestle (ADR)
Novartis (ADR)
Roche Holding (ADR)
UBS
Zurich Financial Services (ADR)
United Kingdom	44.7
BAE Systems (ADR)
Barclays (ADR)
BG Group (ADR)
BHP Billiton (ADR)
British American Tobacco (ADR)
GlaxoSmithKline (ADR)
HSBC Holdings (ADR)
Imperial Tobacco (ADR)
Lloyds TBS Group (ADR)
Prudential (ADR)
Royal Dutch Shell CL A (ADR)
SABMiller (ADR)
Tesco (ADR)
Tullow Oil (ADR)
Unilever (ADR)
Vodafone (ADR)
William Morrison Supermarket (ADR)
Xstrata (ADR)

World equity markets were volatile in the second quarter, falling sharply from mid-April to late May as European sovereign debt fears intensified. Uncertainty over growth prospects in the United States and China also weighed on stocks. European markets—particularly those with strained governmental finances, such as Greece, Italy, and Spain—were weak during the quarter, as the large bailout package did little to calm investors’ fears. Additionally, austerity measures by several European governments led to concerns that the economic recovery could be held back. A series of recent events, including ongoing financial reform legislation and the oil spill in the Gulf of Mexico, also hinted at more aggressive governmental influence on business, further hurting investor sentiment.
 
Asian markets finished the quarter with mixed performance, as investors were wary of an economic and real estate slowdown in China and political tensions in Korea. Japanese stocks were also hurt by concerns of a global economic slowdown, while strong yen appreciation versus the U.S. dollar and euro weighed on export-oriented Japanese companies.
 
By sector, economically defensive groups such as telecom services, consumer staples, and health care outperformed, while the materials sector, particularly commodity producers, lagged over concerns about weaker Chinese growth and the prospects of greater taxation. The energy sector notably underperformed due to slowing demand and the oil spill in the Gulf of Mexico.
 
In currency markets, the Japanese yen and the U.S. dollar rose as investors sought "safe havens," while commodity-linked currencies, such as the Australian dollar, were generally weak. The euro also weakened due to the aforementioned sovereign debt problems.
 
For the quarter, a high exposure to the outperforming consumer staples sector benefited the strategy’s returns. A low exposure to, and stock selection in, the materials sector also added to returns, as did stock selection in the industrials and information technology sectors.
 
Conversely, a low exposure to, and stock selection in, the consumer discretionary sector, as well as stock selection in the financials sector negatively affected the strategy.
 
As we move into the second half of 2010, we see conflicting signals regarding economic conditions. Corporate earnings and economic growth in most parts of the world are much improved compared to the recessionary times of 2008 and early 2009. Southern Europe, with its fiscal deficits, remains a region with special challenges relative to the rest of the world. Governments are beginning to take the difficult actions necessary to restore their fiscal positions; however, these actions are threatening some of the more optimistic forecasts for the pace of the economic recovery.
 
Following recent declines, many equities appear to offer considerable value. Companies with strong balance sheets, robust organic cash flow, and the resulting operational flexibility typically offer better reward and risk profiles than do their peers with lesser characteristics. While we expect short-term ebbs and flows in actual stock price performance, we believe strongly that these companies will deliver better results over time.

1 Investment characteristics are based upon a portfolio that represents the proposed investment for a fully discretionary account. Source: Lazard, MSCI
 
2 The allocations mentioned are based upon a portfolio that represents the proposed investment for a fully discretionary account. Allocations are subject to change.
 
3 The allocations and specific securities mentioned are based upon a portfolio that represents the proposed investment for a fully discretionary account. Allocations and security selection are subject to change. The securities mentioned are not necessarily held by Lazard for all client portfolios, and their mention should not be considered a recommendation or solicitation to purchase or sell these securities. It should not be assumed that any investment in these securities was, or will prove to be, profitable, or that the investment decisions we make in the future will be profitable or equal to the investment performance of securities referenced herein. There is no assurance that any securities referenced herein are currently held in the portfolio or that securities sold have not been repurchased. Please note that cash is not viewed as a strategic asset class. The securities mentioned may not represent the entire portfolio.
 
Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one’s home market. The values of these securities may be affected by changes in currency rates, application of a country’s specific tax laws, changes in government administration, and economic and monetary policy.
 
Certain information included herein is derived by Lazard in part from an MSCI index or indices (the "Index Data"). However, MSCI has not reviewed this product or report, and does not endorse or express any opinion regarding this product or report or any analysis or other information contained herein or the author or source of any such information or analysis. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any Index Data or data derived therefrom. The MSCI Index Data may not be further redistributed or used as a basis for other indices or any securities or financial products.