SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
(Mark one)
     |X|       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended February 28, 2001

                                       OR

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

             For the transition period from ____________ to ____________

                          Commission file number 1-9466

                              Lehman Brothers Inc.
             (Exact name of registrant as specified in its charter)

                 Delaware                            13-2518466
(State or other jurisdiction of incorporation(I.R.S.Employer Identification No.)
                or organization)

       3 World Financial Center
           New York, New York                              10285
         (Address of principal                          (Zip Code)
            executive offices)

                                 (212) 526-7000
              (Registrant's telephone number, including area code)

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 |_|

THE REGISTRANT  MEETS THE CONDITIONS SET FORTH IN GENERAL  INSTRUCTIONS  H(1)(a)
AND (b) OF FORM  10-Q AND  THEREFORE  IS  FILING  THIS  FORM  WITH  THE  REDUCED
DISCLOSURE PERMITTED THEREBY.

As of April 16, 2001, 1,006 shares of the  Registrant's  Common Stock, par value
$0.10 per share, were outstanding.

<PAGE>



19

                      LEHMAN BROTHERS INC. and SUBSIDIARIES

                                    FORM 10-Q

                     FOR THE QUARTER ENDED FEBRUARY 28, 2001

                                      INDEX


   Part I.                 FINANCIAL INFORMATION                          Page
                                                                         Number

          Item 1.      Financial Statements - (unaudited)

               Consolidated Statement of Income -
               Three Months Ended
               February 28, 2001 and February 29, 2000....................    3

               Consolidated Statement of Financial Condition -
               February 28, 2001 and November 30, 2000....................    4

               Consolidated Statement of Cash Flows -
               Three Months Ended
               February 28, 2001 and February 29, 2000....................    6

               notes to Consolidated Financial Statements.................    7

          Item 2.    Management's Analysis of Results of Operations.......   12


   Part II.          OTHER INFORMATION

          Item 1.    Legal Proceedings....................................   16

          Item 6.    Exhibits and Reports on Form 8-K.....................   17

   Signature     .........................................................   18

   EXHIBIT INDEX..........................................................   19

   Exhibits



                                       2
<PAGE>


                      LEHMAN BROTHERS INC. and SUBSIDIARIES

                         PART I - FINANCIAL INFORMATION

ITEM 1                    Financial Statements

                      LEHMAN BROTHERS INC. and SUBSIDIARIES
                        CONSOLIDATED STATEMENT of INCOME
                                   (Unaudited)
                                  (In millions)
<TABLE>
<CAPTION>


                                                                                  Three months ended
                                                                         -------------------------------------
                                                                           February 28          February 29
                                                                              2001                 2000
                                                                         ----------------     ----------------
<S>                                                                         <C>                  <C>
           Revenues
                Principal transactions                                      $    600             $    696
                Investment banking                                               349                  384
                Commissions                                                      217                  168
                Interest and dividends                                         4,596                3,765
                Other                                                              9                   10
                                                                         ----------------     ----------------
                    Total revenues                                             5,771                5,023
           Interest expense                                                    4,494                3,705
                                                                         ----------------     ----------------
                    Net revenues                                               1,277                1,318
                                                                         ----------------     ----------------
           Non-interest expenses
                Compensation and benefits                                        651                  696
                Brokerage and clearance                                           59                   50
                Technology and communications                                     55                   49
                Business development                                              32                   22
                Professional fees                                                 19                   18
                Occupancy                                                         14                   15
                Management fee                                                    20                   23
                Other                                                             14                   15
                                                                         ----------------     ----------------
                    Total non-interest expenses                                  864                  888
                                                                         ----------------     ----------------
           Income before taxes                                                   413                  430
                Provision for income taxes                                       142                  159
                                                                         ----------------     ----------------

           Net income                                                       $    271             $    271
                                                                         ================     ================



</TABLE>
               See notes to consolidated financial statements.

                                       3
<PAGE>



                      LEHMAN BROTHERS INC. and SUBSIDIARIES
                  CONSOLIDATED STATEMENT of FINANCIAL CONDITION
                                   (Unaudited)
                                  (In millions)

<TABLE>
<CAPTION>

                                                                                  February 28          November 30
                                                                                     2001                  2000
                                                                                ----------------     -----------------
<S>                                                                                 <C>                  <C>
ASSETS
Cash and cash equivalents                                                         $       587          $     2,323

Cash and securities segregated and on deposit for regulatory and
   other purposes                                                                       2,793                1,988

Securities and other financial instruments owned:
     Governments and agencies                                                          28,203               18,101
     Corporate equities                                                                21,945               21,278
     Mortgages and mortgage-backed                                                      7,002                8,328
     Corporate debt and other                                                           8,063                7,770
     Derivatives and other contractual agreements                                       5,818                5,285
     Certificates of deposit and other money market instruments                         1,667                3,433
                                                                                ----------------     -----------------
                                                                                       72,698               64,195
                                                                                ----------------     -----------------

Collateralized short-term agreements:
     Securities purchased under agreements to resell                                   73,683               77,808
     Securities borrowed                                                               18,873               18,876

Receivables:
     Brokers, dealers and clearing organizations                                        4,314                2,302
     Customers                                                                          4,437                4,302
     Others                                                                             7,255                7,511

Property, equipment and leasehold improvements (net of
   accumulated depreciation and amortization of $483 in 2001
   and $504 in 2000)                                                                      345                  318

Other assets                                                                              518                  417

Excess of cost over fair value of net assets acquired (net of accumulated
   amortization of $124 in 2001 and $122 in 2000)                                         161                  163
                                                                                ----------------     -----------------

     Total assets                                                                   $ 185,664            $ 180,203
                                                                                ================     =================

</TABLE>

            See notes to consolidated financial statements.

                                       4
<PAGE>



                      LEHMAN BROTHERS INC. and SUBSIDIARIES
              CONSOLIDATED STATEMENT of FINANCIAL CONDITION - (Continued)
                                   (Unaudited)
                        (In millions, except share data)

<TABLE>
<CAPTION>


                                                                                             February 28          November 30
                                                                                                 2001                 2000
<S>                                                                                             <C>                  <C>

LIABILITIES AND STOCKHOLDER'S EQUITY
Commercial paper and short-term debt                                                          $       814         $        741
Securities and other financial instruments sold but not yet purchased:
     Governments and agencies                                                                      20,012                8,542
     Derivatives and other contractual agreements                                                   4,579                3,824
     Corporate equities                                                                             1,240                2,159
     Corporate debt and other                                                                       3,520                2,909
                                                                                            ---------------     -----------------
                                                                                                   29,351               17,434
                                                                                            ---------------     -----------------
Collateralized short-term financing:
     Securities sold under agreements to repurchase                                                86,262              105,611
     Securities loaned                                                                             30,402               24,082
Advances from Holdings and other affiliates                                                        19,767               15,045
Payables:
     Brokers, dealers and clearing organizations                                                    3,284                3,320
     Customers                                                                                      5,972                4,058
Accrued liabilities and other payables                                                              2,407                2,481
Long-term debt:
     Senior notes                                                                                      99                  207
     Subordinated indebtedness                                                                      3,396                3,586
                                                                                            ---------------     -----------------
         Total liabilities                                                                        181,754              176,565
                                                                                            ---------------     -----------------

Commitments and contingencies


STOCKHOLDER'S EQUITY
Preferred stock,  $0.10 par value;  10,000 shares  authorized;  none outstanding
Common stock, $0.10 par value; 10,000 shares authorized;
  1,006 shares issued and outstanding
Additional paid-in capital                                                                          1,683                1,683
Accumulated other comprehensive income                                                                  3                    2
Retained earnings                                                                                   2,224                1,953
                                                                                                                -----------------
                                                                                            ---------------
         Total stockholder's equity                                                                 3,910                3,638
         Total liabilities and stockholder's equity                                             $ 185,664            $ 180,20



                                                                                            ===============     =================

</TABLE>
             See notes to consolidated financial statements.


                                       5
<PAGE>


                      LEHMAN BROTHERS INC. and SUBSIDIARIES
                      CONSOLIDATED STATEMENT of CASH FLOWS
                                   (Unaudited)
                                  (In millions)

<TABLE>
<CAPTION>

                                                                                               Three months ended
                                                                                      --------------------------------------
                                                                                        February 28           February 29
                                                                                            2001                 2000
                                                                                      -----------------     ----------------
<S>                                                                                     <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITES
Net income                                                                              $     271           $       271
Adjustments to reconcile net income to net cash provided by
  operating activities:
     Depreciation and amortization                                                             14                     9
     Other adjustments                                                                         (8)                   15
Net change in:
     Cash and securities segregated                                                          (805)               (1,003)
     Securities and other financial instruments owned                                      (8,406)                3,565
     Securities borrowed                                                                        3                (7,386)
     Receivables from brokers, dealers and clearing organizations                          (2,012)                  797
     Receivables from customers                                                              (135)               (1,020)
     Securities and other financial instruments sold but not yet purchased                 11,917                 4,483
     Securities loaned                                                                      6,320                 3,985
     Payables to brokers, dealers and clearing organizations                                  (36)                   65
     Payables to customers                                                                  1,914                   633
     Accrued liabilities and other payables                                                   (82)                 (337)
     Other operating assets and liabilities, net                                              157                 1,159
                                                                                      -----------------     ----------------
         Net cash provided by operating activities                                          9,112                 5,236
                                                                                      -----------------     ----------------

CASH FLOWS FROM FINANCING ACTIVITES
Principal repayments of senior notes                                                         (206)                    -
Principal repayments of sub debt                                                             (194)                    -
Net proceeds from commercial paper and short-term debt                                         73                   121
Resale agreements net of repurchase agreements                                            (15,224)               (6,701)
Increase in advances from Holdings and other affiliates                                     4,722                 1,490
                                                                                      -----------------     ----------------
         Net cash used in financing activities                                            (10,829)               (5,090)
                                                                                      -----------------     ----------------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold improvements                                   (19)                   (4)
                                                                                      -----------------     ----------------
         Net cash used in investing activities                                                (19)                   (4)
                                                                                      -----------------     ----------------
         Net change in cash and cash equivalents                                           (1,736)                  142
                                                                                      -----------------     ----------------
Cash and cash equivalents, beginning of period                                              2,323                 1,384
                                                                                      -----------------     ----------------

         Cash and cash equivalents, end of period                                       $     587            $    1,526
                                                                                      =================     ================
</TABLE>

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (in millions)

                                                                      Interest
paid totaled  $4,526 and $3,710 for the three months ended February 28, 2001 and
February 29, 2000, respectively.
Income taxes paid totaled $22 for the three months ended February 29, 2001.

             See notes to consolidated financial statements.



                                       6
<PAGE>



                      LEHMAN BROTHERS INC. and SUBSIDIARIES
                   NOTES to CONSOLIDATED FINANCIAL STATEMENTS


1.       Basis of Presentation:

The consolidated  financial  statements  include the accounts of Lehman Brothers
Inc., a registered  broker-dealer  ("LBI") and subsidiaries  (collectively,  the
"Company").  LBI is a wholly owned  subsidiary of Lehman Brothers  Holdings Inc.
("Holdings").  LBI is  one  of  the  leading  global  investment  banks  serving
institutional,  corporate,  government and high-net-worth individual clients and
customers.  The Company's worldwide headquarters in New York are complemented by
offices in additional locations in North America, Europe, the Middle East, Latin
America  and the Asia  Pacific  Region.  The  Company is  engaged  in  providing
financial  services.  All material  intercompany  accounts and transactions have
been eliminated in consolidation.  The Company's financial  statements have been
prepared in accordance  with the rules and  regulations  of the  Securities  and
Exchange  Commission  (the "SEC") with  respect to the Form 10-Q and reflect all
normal recurring adjustments which are, in the opinion of management,  necessary
for a fair  presentation  of the  results  for the  interim  periods  presented.
Pursuant to such rules and regulations,  certain footnote  disclosures which are
normally  required under  generally  accepted  accounting  principles  have been
omitted. It is recommended that these consolidated  financial statements be read
in conjunction with the audited  consolidated  financial  statements included in
the Company's  Annual  Report on Form 10-K for the twelve months ended  November
30, 2000 (the "Form 10-K"). The Consolidated Statement of Financial Condition at
November 30, 2000 was derived from the audited financial statements.

The nature of the  Company's  business  is such that the  results of any interim
period may vary  significantly from quarter to quarter and may not be indicative
of the results to be expected for the fiscal year.  Certain prior period amounts
reflect reclassifications to conform to the current period's presentation.

2.       Capital Requirements:

As a  registered  broker-dealer,  LBI is  subject  to SEC Rule  15c3-1,  the Net
Capital  Rule,  which  requires LBI to maintain net capital of not less than the
greater of 2% of aggregate  debit items arising from customer  transactions,  as
defined,  or 4% of funds  required to be  segregated  for  customers'  regulated
commodity  accounts,  as defined.  At February 28, 2001,  LBI's  regulatory  net
capital,  as defined,  of $2,038  million  exceeded the minimum  requirement  by
$1,895 million.

As a  clearing  broker-dealer,  the  Company  has  elected  to compute a reserve
requirement  for  Proprietary  Accounts  of  Introducing  Broker-Dealers  ("PAIB
calculation"). The PAIB calculation is completed in order for each correspondent
firm that uses the Company as its clearing  broker-dealer to classify its assets
held by the  Company as  allowable  assets in the  correspondent's  net  capital
calculation.  At February 28, 2001,  the Company had a reserve  requirement  for
PAIB of $6 million.  Additionally,  the  Company  had $57  million of  qualified
securities  or cash on deposit in a Special  Reserve Bank Account as of February
28, 2001.

The Company's "AAA" rated derivatives  subsidiaries,  Lehman Brothers  Financial
Products Inc. ("LBFP") and Lehman Brothers  Derivative  Products Inc.  ("LBDP"),
have established  certain capital and operating  restrictions which are reviewed
by various rating agencies. At February 28, 2001, LBFP and LBDP each had capital
which  exceeded  the  requirement  of  the  most  stringent   rating  agency  by
approximately $51 million and $25 million, respectively.

Repayment  of  subordinated  indebtedness  and  certain  advances  and  dividend
payments  by  LBI  are  restricted  by the  regulations  of the  SEC  and  other
regulatory agencies. In addition, certain investments governing the indebtedness
of LBI contractually limit its ability to pay dividends.

                                       7
<PAGE>





3.  Derivative Financial Instruments:

Effective   December  1,  2000,  the  Company  adopted  Statement  of  Financial
Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging  Activities",  as  amended  by SFAS No.  138,  "Accounting  for  Certain
Derivative  Instruments and Certain Hedging Activities," which requires that all
derivative  instruments be reported on the  consolidated  statement of financial
condition  at  fair  value  and   establishes   criteria  for   designation  and
effectiveness  of hedging  relationships.  The  adoption of SFAS No. 133 did not
have a material  effect on the  Company's  consolidated  statement  of financial
condition or the results of operations.

Most of the  Company's  derivative  transactions  are  entered  into for trading
related  activities  for which the  adoption  of SFAS No. 133 had no  accounting
impact. The Company's trading related derivative activities are marked-to-market
through earnings as a component of Principal  Transactions revenues. The Company
also utilizes  derivatives for non-trading purposes as an end user to modify the
market risk exposures of certain  assets and  liabilities.  In this regard,  the
Company primarily enters into fair value hedges utilizing interest rate swaps to
convert a substantial  portion of the Company's  fixed rate  long-term  debt and
certain  term fixed rate secured  financing  activities  to a floating  interest
rate.  The  ineffective  portion  of the fair  value  hedges  were  included  in
"Interest  Expense" on the consolidated  statement of income and were immaterial
for the three months ended February 28, 2001.

Market or fair value for trading-related  instruments is generally determined by
either quoted market prices (for exchange-traded futures and options) or pricing
models (for  over-the-counter  swaps,  forwards  and  options).  Pricing  models
utilize a series of market  inputs to determine the present value of future cash
flows, with adjustments, as required for credit risk and liquidity risk. Further
valuation  adjustments may be recorded, as deemed appropriate for new or complex
products or for positions with significant concentrations. These adjustments are
integral  components of the  mark-to-market  process.  Credit-related  valuation
adjustments  represent  estimates of expected losses which incorporate  business
and  economic  conditions,  historical  experience,   concentrations,   and  the
character, quality and performance of credit sensitive financial instruments.

Unrealized gains and losses on derivative  contracts are recorded on a net basis
in the Consolidated Statement of Financial Condition for those transactions with
counterparties executed under a legally enforceable master netting agreement and
are netted across products when such provisions are stated in the master netting
agreement.  Listed in the  following  table is the fair  value of the  Company's
trading-related  derivative  activities.  Assets and  liabilities  represent net
unrealized  gains (amounts  receivable from  counterparties)  and net unrealized
losses (amounts payable to counterparties), respectively.

<TABLE>
<CAPTION>



                                                                   Fair Value*                      Fair Value*
                                                                February 28, 2001                November 30, 2000
                                                          -------------------------------- ---------------------------------
(in millions)                                               Assets          Liabilities      Assets           Liabilities
-------------------------------------------------------- -------------- -- -------------- -------------- --- --------------
<S>                                                          <C>               <C>            <C>                <C>
Interest rate and currency swaps and options
(including caps, collars and floors)                         $ 4,275           $ 2,901        $ 3,918            $ 2,331
Foreign exchange forward contracts and options                   467               348            305                285
Other fixed income securities contracts
  (includingoptions and TBAs)                                    294               349            412                415
Equity contracts (including equity swaps,
   warrants and options)                                          782               981            650                793
                                                         -------------- -- -------------- -------------- --- --------------

         Total                                               $ 5,818           $ 4,579        $ 5,285            $ 3,824
                                                         -------------- -- -------------- -------------- --- --------------
</TABLE>

*    Amounts  represent  carrying  value  (exclusive of  collateral)  and do not
     include   receivables  or  payables  related  to  exchange-traded   futures
     contracts.


                                       8
<PAGE>

Assets   included   in   the   table   above   represent   the   Company's   net
receivable/payable  for derivative financial instruments before consideration of
collateral.  Included within the $5,818 million fair value of assets at February
28, 2001 was $5,038  million  related to swaps and other OTC  contracts and $780
million related to exchange-traded option and warrant contracts. Included within
the $5,285  million fair value of assets at November 30, 2000 was $4,638 million
related  to  swaps  and  other  OTC  contracts  and  $647  million   related  to
exchange-traded option and warrant contracts.

With respect to OTC contracts, including swaps, the Company views its net credit
exposure  to   third-parties   to  be  $4,085  million  at  February  28,  2001,
representing the fair value of the Company's OTC contracts in an unrealized gain
position, after consideration of amounts due from affiliates of $404 million and
collateral of $549 million.  Presented below is an analysis of the Company's net
credit exposure at February 28, 2001 for OTC contracts based upon actual ratings
made by  external  rating  agencies or by  equivalent  ratings  established  and
utilized by the Company's Credit Risk Management Department.



 Counterparty             S&P/Moody's         Net Credit
 Risk Rating              Equivalent           Exposure
 -----------              ----------           --------
      1                     AAA/Aaa              26%
      2                AA-/Aa3 or higher         28%
      3                 A-/A3 or higher          26%
      4               BBB-/Baa3 or higher        15%
      5                BB-/Ba3 or higher          4%
      6                 B+/B1 or lower            1%

The  Company is also  subject  to credit  risk  related  to its  exchange-traded
derivative contracts.  Exchange-traded contracts,  including futures and certain
options,  are  transacted  directly  on the  exchange.  To protect  against  the
potential  for  a  default,  all  exchange  clearinghouses  impose  net  capital
requirements for their membership. Additionally, exchange clearinghouses require
counterparties  to futures  contracts to post margin upon the origination of the
contracts  and for any changes in the market  value of the  contracts on a daily
basis (certain  foreign  exchanges  provide for  settlement  within three days).
Therefore, the potential for losses from exchange-traded products is limited.

For a further discussion of the Company's  derivative related activities,  refer
to Notes 1 and 8 to the Consolidated  Financial  Statements included in the Form
10-K.

4.       Other Commitments and Contingencies:

In  connection  with its  financing  activities,  the  Company  had  outstanding
commitments under certain lending  arrangements of approximately $3.0 billion at
February 28, 2001 and November 30, 2000. These commitments  require borrowers to
provide acceptable  collateral,  as defined in the agreements,  when amounts are
drawn  under the  lending  facilities.  Advances  made  under the above  lending
arrangements are typically at variable  interest rates and generally provide for
over-collateralization based upon the borrowers' creditworthiness.

In addition,  the Company,  through its high grade and high yield sales, trading
and  underwriting  activities,  makes  commitments  to  extend  credit  in  loan
syndication  transactions  and then  participates  out a significant  portion of
these commitments.  The Company had lending  commitments to high grade borrowers
of $3.0  billion and $2.7  billion at February  28, 2001 and  November 30, 2000,
respectively.  In addition,  lending commitments to high yield borrowers totaled
$767  million and $935  million at  February  28, 2001 and  November  30,  2000,
respectively.  All of these  commitments  and any  related  draw-downs  of these
facilities  are typically  secured  against the  borrowers'  assets,  have fixed
maturity  dates  and are  generally  contingent  upon  certain  representations,
warranties  and  contractual  conditions  applicable  to  the  borrower.   Total
commitments  are not indicative of actual risk or funding  requirements,  as the


                                       9
<PAGE>

commitments may not be drawn or fully utilized, and the Company will continue to
syndicate and/or sell these commitments.

At February  28, 2001 and  November 30,  2000,  the Company had  commitments  to
invest up to $543 million and $282 million,  respectively,  directly and through
partnerships in private equity related  investments.  These  commitments will be
funded  as  required  through  the  end of the  respective  investment  periods,
principally expiring in 2004.

In the normal course of its business,  the Company has been named a defendant in
a number of  lawsuits  and other  legal  proceedings.  Although  there can be no
assurances as to the ultimate  outcome,  the Company has denied,  or believes it
has a  meritorious  defense and will deny,  liability in all  significant  cases
pending  against it, and intends to defend  vigorously each such case, and based
on  information  currently  available  and  established  reserves,  the  Company
believes  that the eventual  outcome of the actions  against it will not, in the
aggregate, have a material adverse effect on the consolidated financial position
or results of operations of the Company.

As a leading  global  investment  bank,  risk is an inherent  part of all of the
Company's  businesses and activities.  The extent to which the Company  properly
and effectively identifies,  assesses,  monitors and manages each of the various
types of risks involved in its trading (including  derivatives),  brokerage, and
investment  banking  activities is critical to the success and  profitability of
the Company.  The principal types of risks involved in the Company's  activities
are market risk, credit or counterparty  risk and transaction  risk.  Management
has  developed a control  infrastructure  throughout  the Company to monitor and
manage these risks on a global basis.  For further  discussion of these matters,
refer to Note 10 to the Consolidated Financial Statements,  included in the Form
10-K.

5.       Segments

The Company operates in three segments:Investment Banking, Capital Markets, and
Client Services.

The Investment Banking Division provides advice to corporate,  institutional and
government  clients  throughout  the world on  mergers,  acquisitions  and other
financial matters.  The Division also raises capital for clients by underwriting
public and private offerings of debt and equity securities.

The  Capital  Markets  Division  includes  the  Company's  institutional  sales,
trading,  research and financing  activities in equity and fixed income cash and
derivatives products. Through the Division, the Company is a global market-maker
in numerous equity and fixed income products, including U.S., European and Asian
equities,  government and agency  securities,  money market products,  corporate
high  grade,   high  yield  and  emerging  market   securities,   mortgage-  and
asset-backed securities,  municipal securities, bank loans, foreign exchange and
derivatives  products.  The Division also includes the Company's  risk arbitrage
and secured financing businesses,  as well as, realized and unrealized gains and
losses related to the Company's direct private equity investments. The financing
business  manages the Company's equity and fixed income matched book activities,
supplies secured financing to institutional clients and customers,  and provides
secured funding for the Company's inventory of equity and fixed income products.

Client Services  revenues reflect earnings from the Company's private client and
private  equity  businesses.  Private  client  revenues  reflect  the  Company's
high-net-worth  retail customer flow activities as well as asset management fees
earned from these clients.  Private equity  revenues  include the management and
incentive  fees  earned in the  Company's  role as general  partner  for private
equity partnerships.

Certain prior period segment information has been reclassified to conform to the
current period  presentation.

                                       10
<PAGE>
The Company's segment information for the first quarter of 2001 and 2000 is
presented below and was developed  consistent with the accounting  policies used
to prepare the Company's consolidated financial statements.
<TABLE>
<CAPTION>

                                      Investment             Capital           Client Services
(in millions)                           Banking              Markets                                     Total
                                    ----------------    ------------------    ------------------    -----------------
<S>                                            <C>                 <C>               <C>                     <C>
February 28, 2001

Net revenue                                   $ 347                 $ 741             $ 189                  $ 1,277
                                    ================    ==================    ==================    =================
Earnings before taxes                          $ 59                 $ 296            $   58                    $ 413
                                    ================    ==================    ==================    =================
Segment assets (billions)                      $0.8               $ 179.5            $  5.4                  $ 185.7
                                    ================    ==================    ==================    =================

February 29, 2000

Net revenue                                   $ 383                 $ 760             $ 175                  $ 1,318
                                    ================    ==================    ==================    =================
Earnings before taxes                          $ 81                 $ 290            $   59                    $ 430
                                    ================    ==================    ==================    =================

Segment assets (billions)                      $0.5                $143.5            $  6.2                  $ 150.2
                                    ================    ==================    ==================    =================

The following are net revenues by geographic region:

                                                              February 28           February 29
(in millions)                                                    2001                   2000
                                                           ------------------    -------------------

Americas                                                         $ 1,103               $ 1,195
Europe                                                               148                    65
Asia Pacific and other                                                26                    58
                                                           ------------------    -------------------
      Total                                                      $ 1,277               $ 1,318
                                                           ==================    ===================

</TABLE>

The  following   information  describes  the  Company's  methods  of  allocating
consolidated  net revenues to geographic  regions.  Net revenues,  if syndicate,
trading or sales related,  have been  distributed  based upon the location where
the  primary  or  secondary   position  was  fundamentally   risk  managed;   if
fee-related, by the location of the senior coverage banker. In addition, certain
revenues  associated  with domestic  products and services  which  resulted from
relationships with international clients and customers have been reclassified as
international  revenues  using  an  allocation  consistent  with  the  Company's
internal reporting.

6.       Related Parties

In the normal  course of  business,  the Company  engages in various  securities
trading,  investment banking and financial  activities with Holdings and many of
its subsidiaries (the "Related Parties").  Various charges, such as compensation
and benefits,  occupancy,  administration and computer  processing are allocated
between the Related Parties,  based upon specific  identification and allocation
methods.


                                       11
<PAGE>



ITEM 2               LEHMAN BROTHERS INC. and SUBSIDIARIES
                 MANAGEMENT'S ANALYSIS of RESULTS of OPERATIONS


Forward-Looking Statements

Some of the  statements  contained in this  Management's  Analysis of Results of
Operations,  including  those  relating  to the  Company's  strategy  and  other
statements  that are  predictive in nature,  that depend upon or refer to future
events or conditions  or that include  words such as  "expects,"  "anticipates,"
"intends,"  "plans,"  "believes,"  "estimates"  and  similar  expressions,   are
forward-looking  statements  within the meaning of Section 21E of the Securities
Exchange Act of 1934.  These  statements  are not  historical  facts but instead
represent only the Company's  expectations,  estimates and projections regarding
future events.  These  statements are not guarantees of future  performance  and
involve certain risks and uncertainties that are difficult to predict, which may
include market, credit or counterparty,  liquidity, legal and operational risks.
Market  risks  include  changes  in  interest  and  foreign  exchange  rates and
securities  valuations,  global  economic  and  political  trends  and  industry
competition.  The Company's  actual results and financial  condition may differ,
perhaps materially,  from the anticipated results and financial condition in any
such forward-looking  statements. The Company undertakes no obligation to update
any forward-looking statements,  whether as a result of new information,  future
events or otherwise.

Results of Operations
For the Three Months Ended February 28, 2001 and February 29, 2000

The Company  reported net income of $271 million for the quarter ended  February
28, 2001,  unchanged from to the amount  reported for the quarter ended February
29, 2000.

The  Company  believes  these  results  are  relatively  strong,  given the very
difficult market environment experienced during the quarter, and demonstrate the
growing breadth of the franchise.  During the first quarter of 2001, the Company
continued to selectively  grow its high margin  investment  banking and equities
businesses  through  increased  headcount  and product  offerings.  In addition,
through the Company's  continued emphasis on expense  discipline,  non-personnel
expenses  increased  only 6% compared to the fourth  quarter of 2000  consistent
with a 6% increase in net revenues.

The Company is segregated  into the following  three business  segments (each of
which is  described  below):  Investment  Banking,  Capital  Markets  and Client
Services.  Each segment  represents  a group of  activities  and  products  with
similar characteristics.  These business activities result in revenues from both
institutional and high-net-worth  retail clients which are recognized across the
different revenue categories contained in the Company's  Consolidated  Statement
of Income.  (Net revenues by segment also contain certain internal  allocations,
including funding costs, which are centrally managed.)

Three Months Ended February 28, 2001 and February 29, 2000


(in millions)                               Net Revenues
                                               for the
                                         Three Months Ended
                                  ----------------------------------
                                      Feb 28             Feb 29
                                        2001               2000
                                  ---------------    ---------------
Investment Banking                  $    347           $    383
Capital Markets                          741                760
Client Services                          189                175
                                  ---------------    ---------------
Total                                $ 1,277            $ 1,318
                                  ===============    ===============


                                       12
<PAGE>

The following  discussion provides an analysis of the Company's net revenues for
the periods above.

Investment  Banking This  segment's net revenues  result from fees earned by the
Company for underwriting public and private offerings of fixed income and equity
securities,  and advising clients on merger and acquisition activities and other
services.

Investment Banking's net revenues decreased 9% during the Investment Banking Net
Revenues first quarter to $347 million from $383 million in the first quarter of
2000,  reflecting the weak market conditions for equity originations,  partially
offset by stronger fixed income underwriting activity.

                   Investment Banking Net Revenues
      ---------------------- ------------------------------
      (in millions)               Three Months Ended
                              February 28     February 29
                                  2001           2000
      ---------------------- --------------- --------------
      Equity Underwriting       $   68           $ 159
      Debt Underwriting            182             111
      Merger            and
        Acqui-sition
        Advisory                    97             113
      ---------------------- --------------- --------------
                                 $ 347           $ 383
      ---------------------- --------------- --------------

Equity  origination  revenues  were  significantly  down  compared  to  the
year-ago period, consistent with an overall decline in common stock underwriting
in the  global  marketplace  as a  result  of the  deterioration  in the  equity
markets. Much of the equity capital raised during the quarter was in the form of
convertible  securities,  which  is a more  conservative  investment  class  and
generally  carries  smaller  underwriting  fees.  However,  the  benefits of the
Company's growth strategy in investment banking and equities were evidenced by a
higher  global  equity  origination  volume  share  which  increased  during the
quarter.

Debt underwriting revenues totaled $182 million for the first quarter of 2001, a
64% increase over the prior year's comparable period as fees from high grade and
high yield were both up compared  to last year's  first  quarter.  Fixed  income
origination  benefited  this  quarter  from the actions of the Federal  Reserve,
tightening  credit and swap  spreads,  a steepening of the yield curve to a more
normal shape and issuers' move to raise  lower-coupon  long-term debt to replace
some of their  short-term  debt. In addition,  contributing to these results was
the increase in the Company's  global market share for high yield  underwriting,
which  grew  significantly  as  compared  to  full  year  2000,  from  5.0%  for
calendar-year 2000 to 7.2% for the fiscal first quarter of 2001, combined with a
19% increase in market volume during the period,  according to Thomson Financial
Securities Data Corp.

Merger and acquisition  advisory revenues for the first quarter of 2001 were $97
million slightly lower than first quarter of 2000 results.

Capital  Markets  This  segment's  net  revenues  reflect   institutional   flow
activities  and  secondary  trading and  financing  activities  related to fixed
income  and  equity  products.  These  products  include  a wide  range of cash,
derivative, secured financing and structured instruments.


Capital  Markets' net revenues were $741 million for the first
quarter  of 2001,  down 3% from  the  first  quarter  of 2000.
Excluding a $150 million  realized gain from a single  private
equity  related  principal  investment in the first quarter of
2000,  net revenues  increased by 21%,  during a quarter which
experienced  volatile  markets  and  a  broad  devaluation  of
equity securities.

               Capital Markets Net Revenues
   ---------------------- ------------------------------
   (in millions)               Three Months Ended
                           February 28     February 29
                               2001           2000
   ---------------------- --------------- --------------
   Equities                   $ 338           $ 494
   Fixed Income                 403             266
   ---------------------- --------------- --------------
                              $ 741           $ 760
   ---------------------- --------------- --------------


The overall  consistency of Capital  Markets'  revenues  during these  difficult
market  conditions  demonstrates  the  strength of the  Company's  institutional
"customer flow" business.  This customer flow business provides the Company with
a relatively  stable form of revenues as  customers  rebalance  their

                                       13
<PAGE>

portfolio  across  market  cycles  with the full  array of  capital  market
products that are provided by the Company.

Net revenues from the equity  component of Capital  Markets were $338 million in
the first quarter of 2001,  relatively unchanged from the first quarter of 2000,
after adjusting first quarter 2000 results for the private equity gain described
above.  Despite significant  declines in the major market indices, the Company's
institutional  market volumes were up versus the year-ago period.  This activity
led to strong  returns  from equity  cash  businesses  in the U.S.,  convertible
securities and equity derivative activities.

Net revenues from the fixed income  component of Capital  Markets  increased 52%
from the  first  quarter  of 2000 as the yield  curve  began to return to a more
normal slope and credit  spreads  tightened.  Increases  were driven by improved
institutional  flow in credit products,  particularly  high grade and high yield
bonds, and municipals. Given the heightened level of global uncertainty, foreign
exchange revenues from customer flow activities also increased.

Client Services Client Services net revenues reflect earnings from the Company's
private  client and  private  equity  businesses.  Private  client net  revenues
reflect the Company's  high-net-worth retail customer flow activities as well as
asset  management  fees.  Private equity net revenues include the management and
incentive  fees  earned in the  Company's  role as general  partner  for private
equity partnerships.


Client Services' net revenues were $189 million in the first Client Services Net
Revenues  quarter of 2001 compared to $175 million in the first quarter of 2000.
Client  Services'  results  improved  slightly as the  Company's  high-net-worth
retail sales force had its strongest production quarter ever.


               Client Services Net Revenues
  ---------------------- ------------------------------
  (in millions)               Three Months Ended
                          February 28     February 29
                              2001           2000
  ---------------------- --------------- --------------
  Private Client             $ 187           $ 174
  Private Equity                 2               1
  ---------------------- --------------- --------------
                             $ 189           $ 175
  ---------------------- --------------- --------------

Non-Interest  Expenses  Non-interest  expenses  were $864  million for the first
quarter  of 2001  compared  to $888  million  for the  first  quarter  of  2000.
Compensation and benefits  expense as a percentage of net revenues  decreased to
51.0%  for the  quarter  compared  to the prior  year  first  quarter  of 52.8%.
Nonpersonnel  expenses  were $213  million for the first  quarter of 2001,  $201
million for the fourth of 2000 and $192  million for the first  quarter of 2000.
The  increase  in  nonpersonnel  expenses  from  the  first  quarter  of 2000 is
consistent  with the  increase in  headcount  and also  reflects  the  Company's
continued investment in technology.

Income Taxes The  Company's  income tax provision was $142 million for the first
quarter of 2001 versus $159 million for the first quarter of 2000. The effective
tax rate was 34.4% for the first quarter of 2001 lower than the first quarter of
2000 tax rate of 37.0%. The decrease in the effective tax rate was primarily due
to the impact of certain tax preference items.

New Accounting Developments


In September  2000, the FASB issued SFAS No. 140,  "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities--a  replacement
of FASB No. 125" ("SFAS  140").  SFAS 140 carries over the  fundamental  control
premise of SFAS No. 125,  which  requires an entity to recognize  only assets it
controls and to derecognize assets only when control has been surrendered.  SFAS
140 amends the control framework of SFAS 125 by revising the criteria to be used
for  evaluating  whether a  financial  asset is  controlled  and  providing  new
criteria necessary to meet the definition of a Qualifying

                                       14
<PAGE>

Special Purpose Entity ("QSPE").   A  QSPE  is  a   limited-purpose   vehicle
often  used  for  asset securitizations.


SFAS 140 will also change the accounting for collateral. SFAS 140 will no longer
require entities to recognize  controlled  collateral as an asset on the balance
sheet.  Rather,  SFAS 140 will require entities to separately classify financial
assets owned and pledged.  SFAS 140 also requires new disclosures for collateral
and retained interests in securitizations.

SFAS 140 has multiple  effective  dates.  The  accounting  for new  transfers of
financial assets will begin March 31, 2001 unless grandfathering provisions have
been met. The new collateral  accounting rules will be effective for the Company
as of November  30,  2001.  The  adoption of SFAS 140 is not  expected to have a
material impact to the Company's financial position or results of operations.



                                       15
<PAGE>




                      LEHMAN BROTHERS INC. and SUBSIDIARIES

                           PART II - OTHER INFORMATION


ITEM 1   Legal Proceedings

The Company is  involved in a number of  judicial,  regulatory  and  arbitration
proceedings  concerning  matters  arising in connection  with the conduct of its
business.  Such  proceedings  include  actions  brought  against the Company and
others with respect to transactions in which the Company acted as an underwriter
or financial  advisor,  actions  arising out of the  Company's  activities  as a
broker or dealer in securities and  commodities and actions brought on behalf of
various  classes of claimants  against many  securities and  commodities  firms,
including the Company.


Although  there can be no  assurance as to the  ultimate  outcome,  the
Company has denied,  or  believes  it has a  meritorious  defense and will deny,
liability in all  significant  cases  pending  against it including  the matters
described below,  and intends to defend  vigorously each such case, and based on
information currently available and established  reserves,  the Company believes
that the  eventual  outcome of the  actions  against it,  including  the matters
described below,  will not, in the aggregate,  have a material adverse effect on
the consolidated financial position or results of operations of the Company.


McNamara  et al. v. Bre-X  Minerals  Ltd.  et al.  (Reported  in LBI's 2000
Annual Report on Form 10-K)

  On March  30,  2001,  the  Court  filed a  Memorandum  Opinion  and  Order,
dismissing the claims against LBI with prejudice.

Harold Gillet,  et al. v. Goldman Sachs & Co., et al.; Yakov Prager, et al.
v. Goldman,  Sachs & Co., et al.; David Holzman, et al. v. Goldman, Sachs & Co.,
et al. (Reported in LBI's 2000 Annual Report on Form 10-K)

  On March 15,  2001,  another  related  class action was filed in the United
States  District  Court  for the  Southern  District  of New  York.  That  case,
captioned Equalnet Communications Corp. v. Goldman Sachs Group, Inc., et al., is
brought by a bankrupt issuer of securities. The complaint in Equalnet names over
25 underwriter defendants,  including LBI, and is substantially identical to the
Gillet complaint.

                                       16
<PAGE>


ITEM 6   Exhibits and Reports on Form 8-K


(a)      Exhibits:

         The following  exhibits are filed as part of this Quarterly  Report, or
         where indicated,  were heretofore filed and are hereby  incorporated by
         reference:

         12       Computation of Ratio of Earnings to Fixed Charges (filed
                  herewith)

(b)      Reports on Form 8-K:

         The  following  reports on Form 8-K were filed  during the  quarter for
which this Quarterly Report is filed:

         None


                                       17
<PAGE>




                                    SIGNATURE



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.



                                          LEHMAN BROTHERS INC.
                                              (Registrant)




Date:    April 16, 2001           By:             /s/ David Goldfarb
                                    --------------------------------------------
                                                 Chief Financial Officer
                                                (Principal Financial Officer)










                                       18
<PAGE>



                                  EXHIBIT INDEX



Exhibit No.                Exhibit

Exhibit 12                 Computation of Ratio of Earnings to Fixed Charges


                                       19