SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


[ X ]                       QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended August 31, 2000

                                       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)

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

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 format contemplated thereby.

As of September 30, 2000,  1,006 shares of the  Registrant's  Common Stock,  par
value $0.10 per share, were outstanding.
<PAGE>


                      LEHMAN BROTHERS INC. and SUBSIDIARIES

                                    FORM 10-Q

                      FOR THE QUARTER ENDED August 31, 2000

                                      INDEX


   Part I.                 FINANCIAL INFORMATION                            Page
                                                                          Number

          Item 1.      Financial Statements - (unaudited)

                           Consolidated Statement of Income -
                           Three and Nine Months Ended
                           August 31, 2000 and August 31, 1999..............   3

                           Consolidated Statement of Financial Condition -
                           August 31, 2000 and November 30, 1999............   5

                           Consolidated Statement of Cash Flows -
                           Nine Months Ended
                           August 31, 2000 and August 31, 1999..............   7

                           Notes to Consolidated Financial
                           Statements..........................................8

          Item 2.          Management's Analysis of Results of Operations.... 15

   Part II.                OTHER INFORMATION

          Item 1.          Legal Proceedings................................. 22

          Item 6.          Exhibits and Reports on Form 8-K.................. 25

   Signature     ............................................................ 26

   EXHIBIT INDEX                                                              27

   Exhibits
                                       2
<PAGE>



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

<TABLE>
<CAPTION>

                                                                       Three months ended
                                                              -------------------------------------
                                                                 August 31         August 31 1999
                                                                   2000
                                                              ----------------     ----------------
<S>                                                               <C>                 <C>
Revenues
     Principal transactions                                       $    527            $    297
     Investment banking                                                446                 350
     Commissions                                                       165                 107
     Interest and dividends                                          4,134               3,228
     Other                                                              10                   3
                                                              ----------------     ----------------
         Total revenues                                              5,282               3,985
Interest expense                                                     4,028               3,100
                                                              ----------------     ----------------
         Net revenues                                                1,254                 885
                                                              ----------------     ----------------
Non-interest expenses
     Compensation and benefits                                         652                 446
     Brokerage and clearance                                            52                  40
     Technology and communications                                      46                  41
     Management fees                                                    (8)                 86
     Business development                                               29                  22
     Professional fees                                                  21                  18
     Occupancy                                                          16                  10
     Other                                                               8                  13
                                                              ----------------     ----------------
         Total non-interest expenses                                   816                 676
                                                              ----------------     ----------------
Income before taxes                                                    438                 209
     Provision for income taxes                                        134                  70
                                                              ----------------     ----------------

Net income                                                        $    304            $    139
                                                              ================     ================
</TABLE>



       See notes to consolidated financial statements.
                                       3
<PAGE>



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

<TABLE>
<CAPTION>

                                                                       Nine months ended
                                                              -------------------------------------
                                                                 August 31         August 31 1999
                                                                   2000
                                                              ----------------     ----------------
<S>                                                               <C>                 <C>
Revenues
     Principal transactions                                      $   1,453          $      878
     Investment banking                                              1,244                 906
     Commissions                                                       492                 343
     Interest and dividends                                         12,187               9,888
     Other                                                              37                  12
                                                              ----------------     ----------------
         Total revenues                                             15,413              12,027
Interest expense                                                    11,918               9,548
                                                              ----------------     ----------------
         Net revenues                                                3,495               2,479
                                                              ----------------     ----------------
Non-interest expenses
     Compensation and benefits                                       1,819               1,256
     Brokerage and clearance                                           152                 138
     Technology and communications                                     137                 120
     Management fees                                                    71                 143
     Business development                                               81                  63
     Professional fees                                                  60                  40
     Occupancy                                                          43                  28
     Other                                                              32                  40
                                                              ----------------     ----------------
         Total non-interest expenses                                 2,395               1,828
                                                              ----------------     ----------------

Income before taxes                                                  1,100                 651
     Provision for income taxes                                        362                 199
                                                           ----------------     ----------------


Net income                                                      $      738          $      452
                                                              ================     ================
</TABLE>

            See notes to consolidated financial statements.

                                       4
<PAGE>



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

<TABLE>
<CAPTION>

                                                                             August 31      November 31 1999
                                                                               2000

<S>                                                                          <C>                <C>
ASSETS
Cash and cash equivalents                                                  $       339         $    1,384

Cash and securities segregated and on deposit for regulatory
   and other purposes                                                            2,389              1,434

Securities and other financial instruments owned:
     Governments and agencies                                                   24,111             21,603
     Corporate equities                                                         21,899              9,144
     Mortgages and mortgage-backed                                               8,475              8,457
     Derivatives and other contractual agreements                                4,962              5,249
     Corporate debt and other                                                    5,815              5,331
     Certificates of deposit and other money market instruments                  2,281              2,123
                                                                          ------------------------------------
                                                                                67,543             51,907
                                                                          ------------------------------------

Collateralized short-term agreements:
     Securities purchased under agreements to resell                            73,535             61,365
     Securities borrowed                                                        22,424             11,243

Receivables:
     Brokers, dealers and clearing organizations                                 1,996              2,346
     Customers                                                                   3,791              2,922
     Others                                                                      7,592              5,920

Property, equipment and leasehold improvements (net of
   accumulated depreciation and amortization of $537 in 2000
   and $588 in 1999)                                                               296                280

Other assets                                                                       276                261

Excess of cost over fair value of net assets acquired (net of
   accumulated amortization of $120 in 2000 and $115 in 1999)                      116                120
                                                                          ------------------------------------


     Total Assets                                                            $ 180,297          $ 139,182
                                                                          ====================================

</TABLE>




              See notes to consolidated financial statements.

                                       5
<PAGE>



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

<TABLE>
<CAPTION>

                                                                                              August 31        November 31 1999
                                                                                                2000

<S>                                                                                           <C>                 <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Commercial paper and short-term debt                                                        $       836        $        615
Securities and other financial instruments sold but not yet purchased:
     Governments and agencies                                                                    16,411              10,237
     Corporate equities                                                                           2,191               3,207
     Derivatives and other contractual agreements                                                 3,505               3,985
     Corporate debt and other                                                                     2,434               1,218
                                                                                            --------------    -------------------
                                                                                                 24,541              18,647
                                                                                            --------------    -------------------
Collateralized short-term financing:
     Securities sold under agreements to repurchase                                              92,487              76,587
     Securities loaned                                                                           26,165               9,809
Advances from Holdings and other affiliates                                                      17,666              16,118
Payables:
     Brokers, dealers and clearing organizations                                                  2,211               2,485
     Customers                                                                                    6,306               5,535
Accrued liabilities and other payables                                                            2,328               2,324
Long-term debt:
     Senior notes                                                                                   202                 186
     Subordinated indebtedness                                                                    3,780               3,773
                                                                                            --------------    -------------------

         Total liabilities                                                                      176,522             136,079
                                                                                            --------------    -------------------
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                                                                        1,684               1,684
Accumulated other comprehensive income (net of tax)                                                   1                   2
Retained earnings                                                                                 2,090               1,417
                                                                                            --------------    -------------------
         Total stockholder's equity                                                               3,775               3,103
                                                                                            --------------    -------------------

         Total liabilities and stockholder's equity                                           $ 180,297           $ 139,182
                                                                                            ==============    ===================
</TABLE>


               See notes to consolidated financial statements.

                                       6
<PAGE>



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

<TABLE>
<CAPTION>
                                                                                                Nine months ended
                                                                                      --------------------------------------
                                                                                         August 31             August 31
                                                                                            2000                 1999
                                                                                      -----------------     ----------------
<S>                                                                                       <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                              $     738              $    452
Adjustments to reconcile net income to net cash provided by
         (used in) operating activities:
     Depreciation and amortization                                                             28                    43
     Provisions for losses and other reserves                                                  17                    24
     Other adjustments                                                                         23                    30
Net change in:
     Cash and securities segregated                                                          (955)                  (92)
     Securities and other financial instruments owned                                     (15,636)               (6,310)
     Securities borrowed                                                                  (11,181)               (7,103)
     Receivables from brokers, dealers and clearing organizations                             350                  (239)
     Receivables from customers                                                              (869)                  161
     Securities and other financial instruments sold but not yet purchased                  5,894                 4,581
     Securities loaned                                                                     16,356                10,971
     Payables to brokers, dealers and clearing organizations                                 (274)                   13
     Payables to customers                                                                    771                    75
     Accrued liabilities and other payables                                                   (13)                   76
     Other operating assets and liabilities, net                                           (1,688)               (2,078)
                                                                                      -----------------     ----------------
         Net cash provided by (used in) operating activities                             $ (6,439)                $ 604
                                                                                      -----------------     ----------------

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of subordinated indebtedness                                                                     (202)
Net proceeds from commercial paper and short-term debt                                          221                  (44)
Resale agreements net of repurchase agreements                                                3,730                4,840
Advances from Holdings and other affiliates                                                   1,548               (4,834)
Dividends paid                                                                                  (65)                 (46)
                                                                                        ----------------     ----------------
       Net cash provided by (used in) financing activities                                    5,434                 (286)
                                                                                        ----------------     ----------------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold improvements                                     (40)                 (20)
                                                                                        ----------------     ----------------
       Net cash used in investing activities                                                    (40)                 (20)
                                                                                        ----------------     ----------------
       Net change in cash and cash equivalents                                               (1,045)                 298
                                                                                        ----------------     ----------------
Cash and cash equivalents, beginning of period                                                1,384                  460
                                                                                        ----------------     ----------------

       Cash and cash equivalents, end of period                                           $     339            $     758
                                                                                        ================     ================
</TABLE>

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (in millions)

Interest  paid  totaled  $11,926 and $9,558 for the nine months ended August 31,
2000 and August 31,  1999,  respectively.  Income taxes paid totaled $412 and $3
for the nine months ended August 31, 2000 and August 31, 1999, respectively.

               See notes to consolidated financial statements.
                                       7
<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, 1999 (the "Form 10-K"). The Consolidated Statement of Financial Condition at
November 30, 1999 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:

The Company operates  globally  through a network of subsidiaries,  with several
being  subject to  regulatory  requirements.  In the United  States,  LBI,  as a
registered  broker-dealer,  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 August 31, 2000, LBI's regulatory net capital, as defined, of $1,828
million exceeded the minimum requirement by $1,689 million.

In addition, 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 August 31, 2000, LBFP and LBDP each had
capital which exceeded the  requirement  of the most stringent  rating agency by
approximately   $63  million  and  $26  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  covenants  governing the  indebtedness of LBI  contractually
limit its ability to pay dividends.

                                       8
<PAGE>
                      LEHMAN BROTHERS INC and SUBSIDIARIES
                   NOTES to CONSOLIDATED FINANCIAL STATEMENTS

3.  Derivative Financial Instruments:

In  the  normal  course  of  business,   the  Company  enters  into   derivative
transactions to satisfy the needs of its clients and to manage the Company's own
exposure  to market  and  credit  risk  resulting  from its  trading  activities
(collectively, "Trading-Related Derivative Activities").

Derivative  transactions entered into for Trading-Related  Derivative Activities
are  recorded at market or fair value with  realized  and  unrealized  gains and
losses  recognized  currently  in  Principal  transactions  in the  Consolidated
Statement of Income.  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 incorporate business and economic
conditions, historical experience, concentrations,  estimates of expected losses
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 and  average  fair
value of the  Company's  Trading-Related  Derivative  Activities.  Average  fair
values of these  instruments were calculated  based upon month-end  statement of
financial condition values, which the Company believes do not vary significantly
from the average  fair value  calculated  on a more  frequent  basis.  Variances
between  average  fair  values and  period-end  values are due to changes in the
volume of activities in these  instruments and changes in the valuation of these
instruments due to variations in market and credit conditions.

                                       9
<PAGE>
                      LEHMAN BROTHERS INC and SUBSIDIARIES
                   NOTES to CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                  Average Fair Value*
                                                                   Fair Value*                     Nine Months Ended
                                                                 August 31, 2000                    August 31, 2000
                                                     --------------------------------- ----------------------------------
(in millions)                                               Assets          Liabilities       Assets           Liabilities
-------------------------------------------------------- -------------- -- --------------- -------------- --- ---------------
<S>                                                          <C>                <C>             <C>               <C>
Interest rate and currency swaps and options
(including caps, collars and floors)                         $ 3,564            $ 2,193        $ 3,923            $ 2,767
Foreign exchange forward contracts and
   options                                                       407                342            445                294
Other fixed income securities contracts
   (including options and TBAs)                                  221                165            816                666
Equity contracts (including equity swaps,
   warrants and options)                                         770                805            784                527
                                                         -------------- -- --------------- -------------- --- ---------------
         Total                                               $ 4,962            $ 3,505        $ 5,968            $ 4,254
                                                         -------------- -- --------------- -------------- --- ---------------


                                                                                                  Average Fair Value*
                                                                    Fair Value*                   Twelve Months Ended
                                                                 November 30, 1999                 November 30, 1999
                                                         ---------------------------------- ---------------------------------
(in millions)                                               Assets           Liabilities        Assets         Liabilities
-------------------------------------------------------- -------------- -- ---------------- --------------- - ---------------
Interest rate and currency swaps and options
(including caps, collars and floors)                         $ 3,409            $ 2,738         $ 3,620           $ 2,388
Foreign exchange forward contracts and
   options                                                       650                424             678               582
Other fixed income securities
   contracts (including options and TBAs)                        256                192             243               232
Equity contracts (including equity swaps,
   warrants and options)                                         934                631             459               406
Commodity contracts (including swaps,
   forwards and options)                                                                              3                 1
                                                         -------------- -- ---------------- --------------- - ---------------

         Total                                               $ 5,249            $ 3,985         $ 5,003           $ 3,609
</TABLE>


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

Assets included in the table above represent the Company's unrealized gains, net
of unrealized  losses for  situations in which the Company has a master  netting
agreement. Similarly,  liabilities represent net amounts owed to counterparties.
Therefore, the fair value of assets/liabilities  related to derivative contracts
at  August  31,  2000  represents  the  Company's  net   receivable/payable  for
derivative financial  instruments before  consideration of collateral.  Included
within the  $4,962  million  fair value of assets at August 31,  2000 was $4,245
million  related to swaps and other OTC  contracts  and $717 million  related to
exchange-traded option and warrant contracts. Included within the $5,249 million
fair value of assets at November  30, 1999 was $4,489  million  related to swaps
and other OTC contracts and $760 million related to  exchange-traded  option and
warrant contracts.

                                       10
<PAGE>
                      LEHMAN BROTHERS INC and SUBSIDIARIES
                   NOTES to CONSOLIDATED FINANCIAL STATEMENTS

With respect to OTC contracts,  including swaps, the Company views its net
credit  exposure  to be  $2,895  million  at  August  31,  2000,representing the
fair value of the Company's OTC contracts in an unrealized gain position, after
consideration of amounts due from affiliates of $990 million and collateral of
$360 million.  Presented below is an analysis of the Company's net credit
exposure at August 31, 2000 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.


<TABLE>
<CAPTION>




  Counterparty               S&P/Moody's             Net Credit
  Risk Rating                Equivalent               Exposure
  -----------                ----------               --------
<S>   <C>               <C>                           <C>
       1                       AAA/Aaa                  15%
       2                  AA-/Aa3 or higher             29%
       3                   A-/A3 or higher              31%
       4                 BBB-/Baa3 or higher            20%
       5                  BB-/Ba3 or higher              3%
       6                   B+/B1 or lower                2%
</TABLE>

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,  the exchange  clearinghouse
requires counterparties to futures contracts to post margin upon the origination
of the  contract  and for any changes in the market  value of the  contract 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 "Management's  Discussion and Analysis of Financial  Condition and Results of
Operations - Off-Balance Sheet Financial  Instruments and Derivatives" and 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 $2.6 billion at
August 31, 2000 and $4.2 billion at November 30, 1999. 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.

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 $3.4
billion and $2.8 billion at August 31, 2000 and November 30, 1999,

                                       11
<PAGE>
                      LEHMAN BROTHERS INC and SUBSIDIARIES
                   NOTES to CONSOLIDATED FINANCIAL STATEMENTS


respectively  and has  established  a facility  for third  parties to purchase a
majority  of these  commitments  when  they are  funded.  In  addition,  lending
commitments  to high yield  borrowers  totaled  $732 million and $903 million at
August 31, 2000 and November 30, 1999,  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  commitments  may not be drawn or fully  utilized,  and the
Company will continue to syndicate and/or sell these commitments.

At August 31, 2000 and November 30, 1999, the Company had  commitments to invest
up to  $355  million  and  $302  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  addition to these  specific  commitments,  the  Company  had  various  other
commitments of  approximately  $300 million at both August 31, 2000 and November
30, 1999, respectively.

In the normal course of its business,  the Company has been named a defendant in
a number of lawsuits and other legal proceedings. After considering all relevant
facts,  available  insurance coverage and the advice of outside counsel,  in the
opinion of the  Company  such  litigation  will not,  in the  aggregate,  have a
material  adverse  effect on the Company's  consolidated  financial  position or
results of operations.

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, in the Form 10-K.

5.       Segments:

The Company operates in three business segments: Investment Banking, Capital
Markets, and Other.

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.

                                       12
<PAGE>
                      LEHMAN BROTHERS INC and SUBSIDIARIES
                   NOTES to CONSOLIDATED FINANCIAL STATEMENTS


The Capital Markets Division includes the Company's 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. and European equities,  government and
agency  securities,  money market  products,  corporate  high grade,  high yield
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 and
high-net-worth  clients and  customers,  and  provides  secured  funding for the
Company's inventory of equity and fixed income products.

Other consists of the Company's asset management and private equity  businesses,
neither of which  represents  more than 10% of the  Company's  consolidated  net
revenues, earnings before taxes or assets.

The  Company's  segment  information  for the three months and nine months ended
August 31, 2000 and August 31, 1999 is presented below.
<TABLE>
<CAPTION>

                                             Three Months Ended                            Nine Months Ended
                                     -----------------------------------          ------------------------------------
                                        August 31          August 31                 August 31           August 31
                                          2000               1999                      2000                1999
                                     ----------------   ----------------          ----------------    ----------------
<S>                                      <C>                <C>                      <C>                 <C>
Investment Banking:
   Net Revenue                            $  445           $    361                   $ 1,241           $     913
                                     ================   ================          ================    ================
   Earnings before taxes                  $  174           $    123                  $    400           $     315
                                                        ================
                                     ================                             ================    ================
   Segment assets (billions)             $   0.4          $     0.4                 $     0.4          $      0.4
                                     ================   ================          ================    ================

Capital Markets:
   Net Revenue                           $   801           $    531                   $ 2,228            $  1,565
                                     ================   ================          ================    ================
   Earnings before taxes                 $   270           $    101                  $    710           $     358
                                                                                  ================
                                     ================   ================                              ================
   Segment assets (billions)               $ 176.5            $ 147.5                   $ 176.5            $  147.5
                                     ================   ================          ================    ================

Other:
   Net Revenue                        $        8        $        (7)                 $     26         $         1
                                     ================   ================          ================    ================
   Earnings before taxes               $      (6)        $      (15)                 $    (10)          $     (22)
                                     ================   ================          ================    ================
   Segment assets (billions)            $    3.4           $      2.3                $    3.4            $      2.3
                                     ================   ================          ================    ================

Total:
   Net Revenue                           $ 1,254           $    885                   $ 3,495            $  2,479
                                     ================   ================          ================    ================
   Earnings before taxes                $    438           $    209                   $ 1,100           $     651
                                     ================   ================          ================    ================

   Segment assets (billions)             $ 180.3            $ 150.2                  $ 180.3             $  150.2
                                     ================   ================          ================    ================
</TABLE>
                                       13
<PAGE>
                      LEHMAN BROTHERS INC and SUBSIDIARIES
                   NOTES to CONSOLIDATED FINANCIAL STATEMENTS

The following are net revenues by geographic region:
<TABLE>
<CAPTION>

                             Three Months Ended                             Nine Months Ended
                  ------------------------------------------    ------------------------------------------
                      August 31              August 31              August 31              August 31
                         2000                   1999                   2000                   1999
                  -------------------    -------------------    -------------------    -------------------
<S>                     <C>                      <C>                  <C>                    <C>
Americas*               $ 1,190                  $ 825                $ 3,166                $ 2,244
Europe                       31                     57                    193                    186
Asia Pacific                 33                      3                    136                     49
                  -------------------    -------------------    -------------------    -------------------

      Total             $ 1,254                  $ 885                $ 3,495                $ 2,479
                  ===================    ===================    ===================    ===================
</TABLE>

* Includes  non-U.S.  revenues of $7.9  million  and $6.6  million for the three
  months  ended August 31, 2000 and August 31, 1999  respectively,  and includes
  non-U.S. revenues of $27.4 million and $14.1 million for the nine months ended
  August 31, 2000 and August 31, 1999, respectively.

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.

During the nine months  ended August 31,  2000,  the Company  paid  dividends to
Holdings of $65 million.

                                       14
<PAGE>


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



Results of Operations
For the Three Months Ended August 31, 2000 and August 31, 1999

The Company  reported  net income of $304  million for the third  quarter  ended
August 31, 2000, compared to $139 million for the third quarter ended August 31,
1999.

Net revenues  increased 42% in the third quarter of 2000 to $1,254  million from
$885 million in the third quarter of 1999. The increase in net revenues reflects
the  continued  execution of the  Company's  growth  strategy into higher margin
businesses such as investment banking and equities.

The  Company's  results  have been  segregated  into  three  business  segments:
Investment  Banking,  Capital Markets and Other. Each segment represents a group
of  activities  and  products  with  similar  characteristics.   These  business
activities  result  in  revenues  from  both  institutional  clients  as well as
high-net worth retail clients and are  recognized  within the different  revenue
categories in the Company's  Consolidated  Statement of Income.  Net revenues by
segment contain certain internal allocations, including funding costs, which are
centrally managed.

Three Months Ended August 31, 2000 and August 31, 1999


(in millions)
-----------------------------------------------------------------------------
                                  Three Months Ended
                           ----------------------------------
                             August 31          August 31
                                2000               1999
                           ---------------    ---------------
Investment Banking          $    445              $ 361
Capital Markets                  801                531
Other                              8                 (7)
                           ---------------    ---------------
Total                        $ 1,254              $ 885
                           ===============    ===============
                                       15
<PAGE>
                      LEHMAN BROTHERS INC. and SUBSIDIARIES
                 MANAGEMENT'S ANALYSIS of RESULTS of OPERATIONS


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,
raising   capital   and   advising   clients   on  merger  and
acquisition   activities   and  other   services.   Investment
Banking's  net revenues  increased 23% to $445 million for the
third quarter of 2000 from $361

           Investment Banking Net Revenues
 ---------------------- ------------------------------
 (in millions)               Three Months Ended
                          August 31       August 31
                             2000           1999
 ---------------------- --------------- --------------
 Equity Underwriting        $ 147            $ 71
 Debt Underwriting            127             187
 Financial Advisory           171             103
 ---------------------- --------------- --------------
                            $ 445           $ 361
 ---------------------- --------------- --------------

million in the prior  period.  This increase was  principally  as a result of an
increase in financial  advisory  and equity  underwriting  activities  partially
offset by a decrease in debt underwriting activities.

Equity underwriting revenues increased 107% to $147 million in the third quarter
of 2000 from $71 million in the third quarter of 1999, as the markets  recovered
from the April/May sell-off and deal flow remained strong through mid-August.

Debt underwriting revenues decreased 32% from the third quarter of 1999, as debt
underwriting volumes lagged 1999 levels due to continued nervousness surrounding
interest  rates.  High yield and  mortgage  backed  products  were  particularly
impacted.  However,  debt underwriting revenue increased  approximately 11% from
the  second  quarter  of 2000,  as market  conditions  started  to  become  more
favorable.

Financial  advisory revenues increased 66% in the third quarter of 2000 compared
to the third  quarter of 1999.  The  Company's  market share for  completed  M&A
transactions  increased to 8.9% on a calendar  year-to-date  basis from 7.7% for
calendar year 1999.

Capital Markets This segment's net revenues  reflect  institutional  and private
client flow activities and secondary trading and financing activities related to
a broad spectrum of fixed income and equity  products.  These  products  include
dollar  and  non-dollar   government   securities,   mortgages,   mortgage-  and
asset-backed securities, money market products, dollar and non-

             Capital Markets Net Revenues
    ------------------ ---------------------------------
    (in millions)             Three Months Ended
                         August 31        August 31
                            2000             1999
    ------------------ --------------- -----------------
    Equities               $ 471             $ 314
    Fixed Income             330               217
    ------------------ --------------- -----------------
                           $ 801             $ 531
    ------------------ --------------- -----------------
dollar corporate debt securities,  municipal securities, foreign exchange, fixed
income and equity  related  derivatives,  convertible  securities and common and
preferred equity securities.

Net revenues from the equity component of Capital Markets  increased 50% to $471
million in the third  quarter of 2000 from $314 million in the third  quarter of
1999 from continued strong  institutional  customer flow and trading volumes.
An unrealized gain of  approximately  $100

                                       16
<PAGE>
                      LEHMAN BROTHERS INC. and SUBSIDIARIES
                 MANAGEMENT'S ANALYSIS of RESULTS of OPERATIONS


million from a direct  investment in the Company's  private  equity  portfolio
also  significantly  contributed  to  the increase.

Net revenues from the fixed income component of Capital Markets increased 52% to
$330 million in the third quarter of 2000 from $217 million in the third quarter
of 1999. Market conditions improved during the quarter as interest rate concerns
subsided and institutional flow increased across most fixed income products.

Other Other revenues reflect fees earned from the Company's asset management and
private equity  businesses.  Other revenues increased to $8 million in the third
quarter of 2000 from $(7) million in the third quarter of 1999.

Non-Interest  Expenses  Non-interest  expenses  were $816  million for the third
quarter of 2000 and $676 million for the third quarter of 1999. Compensation and
benefits  expense as a  percentage  of net  revenues  increased to 52.0% for the
quarter compared to the prior year's ratio of 50.4%.  Nonpersonnel expenses were
$164  million  for the  third  quarter  of 2000 and $230  million  for the third
quarter of 1999, a decrease of 29%. The decrease was due to lower net management
fees paid from LBI to its affiliates. This reflects reduced affiliate activities
on  behalf  of  LBI as  well  as  increased  Company  activities  on  behalf  of
affiliates, partially offset by the increased spending in LBI on personnel, real
estate and technology initiatives.

Income Taxes The  Company's  income tax provision was $134 million for the third
quarter of 2000  compared  to $70  million  for the third  quarter of 1999.  The
effective  tax rate was 30.6% for the  third  quarter  of 2000 and 33.5% for the
third  quarter  of 1999.  The lower  effective  tax rate is the result of a more
favorable mix of earnings,  which reduced the state and local provision,  and an
increase in tax  benefits  attributable  to income and  transactions  subject to
preferential tax treatment.

                                       17
<PAGE>
                      LEHMAN BROTHERS INC. and SUBSIDIARIES
                 MANAGEMENT'S ANALYSIS of RESULTS of OPERATIONS


Results of Operations
For the Nine Months Ended August 31, 2000 and August 31, 1999

The Company reported record net income of $738 million for the nine months ended
August 31, 2000, representing an increase of 63% from net income of $452 million
for the nine months ended August 31, 1999.

Net Revenues increased to $3,495 million or 41% for the nine months of 2000 from
$2,479 million for the nine months of 1999  reflecting  the Company's  continued
emphasis on high margin businesses.

Nine Months Ended August 31, 2000 and August 31, 1999

(in millions)
                                         Nine Months Ended
                                  ---------------------------------
                                    August 31         August 31
                                       2000              1999
                                  ---------------   ---------------
Investment Banking                   $  1,241          $    913
Capital Markets                         2,228             1,565
Other                                      26                 1
                                  ---------------   ---------------
Total                                 $ 3,495           $ 2,479
                                  ===============   ===============

-------------------------------------------------------------------------------

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

Investment  Banking  Investment  Banking's net revenues  increased 36% to $1,241
million in the nine months of 2000 from $913  million in the prior  period.  The
increase  was  principally  a  result  of  a  significant   increase  in  equity
underwriting and financial advisory revenues partially offset  by  difficult
conditions  in  the  debt  underwriting market.  Equity underwriting  revenues
increased 140% to $479 Investment Banking Net  Revenues  million in the nine
months of 2000 from $200 million in the prior year. The results in equity
underwriting were driven by increased  issuances in the  communications/media
and technology  sector and an increase in convertible
offerings.

               Investment Banking Net Revenues
   ---------------------- -------------------------------
   (in millions)                Nine Months Ended
                            August 31       August 31
                               2000            1999
   ---------------------- --------------- ---------------
   Equity Underwriting     $    479             $ 200
   Debt Underwriting            361               447
   Financial Advisory           401               266
   ---------------------- --------------- ---------------
                            $ 1,241             $ 913
   ---------------------- --------------- ---------------

Debt underwriting  revenues  decreased 19% to $361 million in the nine months of
2000 from $447 million in the nine months of 1999.  The decrease  resulted  from
challenging  market  conditions  as  rising  interest  rates  led  to  decreased
underwriting  volume.  Financial advisory revenues increased 51% to $401 million
in the nine months of 2000 from $266 million in the prior  year's  period as the
Company  continued  its  expansion  in the  investment  banking  segment and the
overall M&A market remained robust.
                                       18
<PAGE>
                      LEHMAN BROTHERS INC. and SUBSIDIARIES
                 MANAGEMENT'S ANALYSIS of RESULTS of OPERATIONS


Capital   Markets   This   segment's   net   revenues   reflect
institutional  and private  client flow  activities  and  secondary  trading and
financing  activities  related to a broad  spectrum  of fixed  income and equity
products.  These products include dollar and non-dollar  government  securities,
mortgages, mortgage- and asset-backed

              Capital Markets Net Revenues
         -------- ---------------------------------
        (in millions)            Nine Months Ended
                            August 31        August 31
                               2000             1999
        ----------------- --------------- -----------------
        Equities            $ 1,274          $    715
        Fixed Income            954               850
        ----------------- --------------- -----------------
                            $ 2,228           $ 1,565
        ----------------- --------------- -----------------

securities,   money  market  products,  dollar  and  non-dollar  corporate  debt
securities,  municipal  securities,  foreign  exchange,  fixed income and equity
related  derivatives,  convertible  securities  and common and preferred  equity
securities.

Net revenues from the equity  component of Capital  Markets  increased to $1,274
million  in the nine  months of 2000 from $714  million in the  comparable  1999
period. Customer flow sales and trading volumes continued to increase at healthy
rates, significantly contributing to this increase.

Net revenues  from the fixed income  component of Capital  Markets  increased to
$954  million in the nine  months of 2000 from $850  million  in the  comparable
period last year. This was a result of increased  institutional flow across most
fixed income products.

Other Other revenues reflect fees earned from the Company's asset management and
private equity businesses.

Non-Interest  Expenses  Non-interest  expenses were $2,395  million for the nine
months  of  2000  and  $1,828  million  for  the  comparable   period  in  1999.
Compensation and benefits  expense as a percentage of net revenues  increased to
52.0% for the nine months of 2000  compared to 50.7% in the nine months of 1999.
This  increase  reflects the  Company's  continued  expansion of its  investment
banking and equities  franchise as well as its  investments  in  technology  and
e-commerce capabilities. Nonpersonnel expenses increased to $576 million for the
nine months of 2000 from $572 million for the nine months of 1999.

Income Taxes The  Company's  income tax  provision was $362 million for the nine
months  of 2000  compared  to $199  million  for the nine  months  of 1999.  The
effective tax rate was 32.9% for the nine months of 2000 and 30.6% for the prior
year's  period.  The  increase  reflected  the overall  increase in the level of
pre-tax  income,  which  lessened the relative  impact of certain tax preference
revenues, partially offset by more favorable geographic mix of earnings.


                                       19
<PAGE>
                      LEHMAN BROTHERS INC. and SUBSIDIARIES
                 MANAGEMENT'S ANALYSIS of RESULTS of OPERATIONS

New Accounting Developments

In September 1999, the FASB issued an Exposure Draft, "Business Combinations and
Intangible   Assets."   The   proposal   would   eliminate   the   use   of  the
pooling-of-interests  method  and  require  that all  business  combinations  be
accounted for using the purchase  method.  The  provisions of the Exposure Draft
related to  business  combinations  are  expected  to be applied  only for those
business  combinations  initiated  after  the  issuance  of a  final  statement,
projected to be in the first quarter of 2001.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities" ("SFAS 133"), which requires all derivatives
to be  recorded  on the  balance  sheet at fair  value.  In June 1999,  the FASB
extended the implementation date of SFAS 133 by one year. In June 2000, the FASB
issued SFAS No. 138,  which amended SFAS 133. The Company will adopt SFAS 133 as
amended on December 1, 2000 (Fiscal Year 2001).

SFAS 133 will not affect the accounting for Lehman's Trading-Related  Derivative
Activities as such derivatives are already recognized on a mark-to-market  basis
through  earnings.  Rather,  SFAS 133 will affect the accounting for derivatives
utilized as hedging  instruments as part of Lehman's end user activities.  As an
end user,  Lehman  primarily  utilizes  derivatives  to modify the interest rate
characteristics  of its long-term debt and secured  financing  activities  ("End
User Derivative  Activities").  The Company currently  accounts for its End-User
Derivative activities on an accrual basis provided that the derivative is deemed
a highly  effective  hedge.  SFAS 133 generally will require Lehman to recognize
its end  user  derivatives  at  fair  value  through  earnings,  with an  offset
recognized  through  earnings  for changes in the fair value of the hedged item.
Any ineffectiveness in a hedging  relationship  generally will require immediate
earnings  recognition.  In addition to these  changes,  SFAS 133, will result in
certain  derivatives no longer qualifying for hedge  accounting,  requiring such
derivatives to be marked to market through earnings without offset.  Derivatives
not likely to qualify for hedge  accounting  under SFAS 133 include U.S.  dollar
and foreign currency basis swaps.

The Company has devoted significant resources preparing for the adoption of SFAS
133. While the impact of adopting SFAS 133 will be ultimately dependent upon the
fair value of the end user  derivatives  portfolio at December 1, 2000 and their
related hedge  designations,  the Company  expects  adoption will not materially
impact the Company's  stockholders' equity, results of operations,  or statement
of financial condition.

                                       20
<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 meritorious  defenses 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 its
business or consolidated financial condition.

Lehman Brothers  Commercial  Corporation and Lehman Brothers  Special  Financing
Inc. v. Minmetals International  Non-Ferrous Metals Trading Company (Reported in
LBI's 1999 Annual Report on Form 10-K)

     On August 10,  2000,  the Court  denied both  parties'  motions for summary
judgment. A trial date has not yet been scheduled.

AIA Holdings SA et al. v. Lehman  Brothers  Inc.  and Bear  Stearns & Co.,  Inc.
(Reported in LBI's 1999 Annual Report on Form 10-K)

     The first trial is now scheduled to commence in mid-2001.

Actions Relating to Bre-X Minerals Ltd.

McNamara et al. v. Bre-X  Minerals  Ltd. et al.  (Reported  in LBI's 1999 Annual
Report on Form 10-K and Quarterly  Report on Form 10-Q for the quarter ended May
31, 2000)

     On July 14, 2000, LBI moved to dismiss the Fourth Amended Complaint.

                                       21
<PAGE>

                      LEHMAN BROTHERS INC. and SUBSIDIARIES

                           PART II - OTHER INFORMATION


ITEM 1   Legal Proceedings - continued

Harold  Gillet,  et al. v.  Goldman  Sachs & Co, et al.  (Reported in LBI's 1999
Annual Report on Form 10-K)

     On April  29,  1999,  LBI and the other  defendants  moved to  dismiss  the
Consolidated Amended Complaint.  On July 21, 2000, plaintiffs moved for leave to
file a Second  Amended  Complaint  that added a new  plaintiff  and new  factual
allegations.  LBI and the other  defendants have jointly opposed the plaintiffs'
motion to amend the complaint.  Both the  defendants'  motion to dismiss and the
plaintiffs' motion to amend are pending before the Court.

CHS Electronics, Inc. v. Credit Suisse First Boston Corp., et al.

     On August 3, 2000, a class action was filed in the United  States  District
Court for the  Southern  District  of  Florida  against 18  underwriters  of IPO
securities,  including LBI.  Plaintiffs seek  compensatory and injunctive relief
for  alleged  violations  of the  antitrust  laws based on the  theory  that the
defendant  underwriters  fixed and maintained fees for underwriting  certain IPO
securities at  supra-competitive  levels.  On October 2, 2000, LBI and the other
defendants jointly moved to transfer this action to the Southern District of New
York, where the Gillet case (see above) is pending,  and to stay all proceedings
in the Southern District of Florida pending the Court's resolution of the motion
to transfer.

Corporacion Nacional del Cobre de Chile v. Lehman Brothers Inc., Lehman Brothers
Commercial Corp., Lehman Brothers  Commodities Ltd. and Lehman Brothers Holdings
Inc. (Reported in LBI's 1999 Annual Report on Form 10-K)

     On August 31,  2000,  the  parties  settled  the matter and  dismissed  the
arbitration.

Pamahi  Investment  Corp., et al. v. Lehman  Brothers Inc., et al.  (Reported in
LBI's 1999 Annual Report on Form 10-K and Quarterly  Report on Form 10-Q for the
quarter ended February 29, 2000)

     On August 7,  2000,  the  parties  settled  the matter  and  dismissed  the
arbitration.

Bowser v. First Alliance Mortgage  Company,  et al. (Reported in LBI's Quarterly
Report on Form 10-Q for the quarter ended May 31, 2000)

     On August 15,  2000,  the United  States  Bankruptcy  Court for the Central
District of California  entered an order  dismissing with prejudice  plaintiffs'
claims against Holdings.

                                       22
<PAGE>



                      LEHMAN BROTHERS INC. and SUBSIDIARIES

                           PART II - OTHER INFORMATION


ITEM 1   Legal Proceedings - continued

Island Venture  Corporation,  et al. v. Lehman Brothers Inc. and Lehman Brothers
Securities Asia, Ltd.

     On  August 3,  2000,  Island  Venture  Corporation,  Continental  Resources
Corporation, Recola Investment Corporation, Grand Concord Corporation,  Goodwell
Industrial  Corporation,  and Capital Pacific Corporation filed a lawsuit in the
United  States  District  Court for the  District of New Jersey  against LBI and
Lehman Brothers  Securities  Asia, Ltd. The complaint  arises in connection with
the  plaintiffs'  purchase  of various  promissory  notes  issued by  Indonesian
companies  in 1997 and upon which the issuers  have  defaulted.  It also asserts
claims relating to an alleged unauthorized liquidation for $8.5 million of a $10
million Asia  Investment  Grade  Default Note  ("Basket  Note") issued by Lehman
Brothers  Holdings PLC. The complaint seeks rescission and damages under various
common law theories of mutual mistake,  breach of fiduciary duty, negligence and
constructive  fraud,  as well as asserting  claims under the New Jersey Blue Sky
Laws and Section 10(b) of the  Securities  Exchange Act of 1934.  The plaintiffs
seek to recover damages in the face amount of  approximately  $66 million on all
the notes they purchased and difference  between the  liquidation  price and the
face value of the Basket Note plus lost coupon payments. The plaintiffs have not
yet served the complaint.

                                       23
<PAGE>



                      LEHMAN BROTHERS INC. and SUBSIDIARIES


                           PART II - OTHER INFORMATION


ITEM 6   Exhibits and Reports on Form 8-K

The  following  exhibits  and  reports  on Form  8-K are  filed  as part of this
Quarterly  Report,  or where  indicated,  were  heretofore  filed and are hereby
incorporated by reference:

(a)      Exhibits:

         12       Computation in Support of Ratio of Earnings to Fixed Charges

         27       Financial Data Schedule

(b)      Reports on Form 8-K:

         None

                                       24
<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:    October 16, 2000                 By:     /s/ David Goldfarb
                                        ----------------------------------------
                                                   Chief Financial Officer

                                       25
<PAGE>



                                  EXHIBIT INDEX



Exhibit No.        Exhibit

Exhibit 12         Computation in Support of Ratio of Earnings to Fixed Charges

Exhibit 27         Financial Data Schedule

                                       26
<PAGE>

                                                                   Exhibit 12

                      LEHMAN BROTHERS INC. and SUBSIDIARIES
               COMPUTATION of RATIOS of EARNINGS to FIXED CHARGES
                              (Dollars in millions)
                                   (Unaudited)

<TABLE>
<CAPTION>


                                   For the          For the           For the        For the          For the           For the
                                    Twelve           Twelve            Twelve        Twelve            Twelve            Nine
                                    Months           Months            Months        Months            Months        Months Ended
                                    Ended            Ended             Ended          Ended            Ended           August 31
                                 November 30      November 30       November 30    November 30      November 30          2000
                                     1995             1996              1997          1998              1999
                                 -------------    -------------     ------------- --------------    -------------    --------------
<S>                                   <C>             <C>               <C>            <C>              <C>               <C>
Pre-tax earnings from continuing
operations                               $ 78           $  309            $  593         $  847          $ 1,013           $ 1,100

Add:   Fixed charges (excluding
capitalized interest)                   9,980           10,140            12,233         14,746           12,552            11,931
                                 -------------    -------------     ------------- --------------    -------------    --------------

Pre-tax earnings before fixed
charges                                10,058           10,449            12,826         15,593           13,565            13,031
                                 =============    =============     ============= ==============    =============    ==============

Fixed charges:
       Interest                         9,954           10,121            12,216         14,730           12,535            11,917
       Other(a)                            27               25                19             20               17                13
                                 -------------    -------------     ------------- --------------    -------------    --------------


       Total fixed charges            $ 9,981         $ 10,146          $ 12,235       $ 14,750         $ 12,552          $ 11,930
                                 =============    =============     ============= ==============    =============    ==============


RATIO OF EARNINGS TO FIXED
CHARGES                                  1.01             1.03              1.05           1.06             1.08              1.09

</TABLE>


(a)  Other fixed charges consist of the interest factor in rentals and
     capitalized interest.


<PAGE>

                                                                    Exhibit 27

                      LEHMAN BROTHERS INC. and SUBSIDIARIES

This  schedule  contains  summary  financial   information  extracted  from  the
Company's  Consolidated  Statement  of  Financial  Condition  at August 31, 2000
(Unaudited) and the  Consolidated  Statement of Income for the nine months ended
August 31, 2000  (Unaudited)  and is  qualified  in its entirety by reference to
such financial statements.

1,000,000

PERIOD TYPE                               9 MOS
FISCAL YEAR END                           NOV-30-2000
PERIOD START                              DEC-01-1999
PERIOD END                                AUGUST-31-2000
CASH                                              2,728
RECEIVABLES                                      13,379
SECURITIES-RESALE                                73,535
SECURITIES BORROWED                              22,424
INSTRUMENTS OWNED                                67,543
PP&E                                                296
TOTAL ASSETS                                    180,297
SHORT TERM                                          836
PAYABLES                                          8,517
REPOS SOLD                                       92,487
SECURITIES LOANED                                26,165
INSTRUMENTS SOLD                                 24,541
LONG-TERM                                         3,982
PREFERRED-MANDATORY                                   0
PREFERRED                                             0
COMMON                                                0
OTHER SE                                          3,775
TOTAL LIABILITY AND EQUITY                      180,297
TRADING REVENUE                                   1,453
INTEREST AND DIVIDENDS                           12,187
COMMISSIONS                                         492
INVESTMENT BANKING                                1,244
FEE REVENUE                                           0
INTEREST EXPENSE                                 11,918
COMPENSATION                                      1,819
INCOME-PRETAX                                     1,100
INCOME PRE-EXTRAORDINARY                            738
EXTRAORDINARY                                         0
CHANGES                                               0
NET INCOME                                          738
EPS-BASIC                                             0
EPS-DILUTED                                           0