==========================================================================
                       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 May 31, 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 1-6817

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

                 Delaware                               13-2518466
(State or other jurisdiction of          (I.R.S.Employer Identification No.)
 incorporation 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 July 16, 2001, 1,006 shares of the Registrant's Common Stock, par value
$0.10 per share, were outstanding.


<PAGE>


2

                      LEHMAN BROTHERS INC. and SUBSIDIARIES

                                    FORM 10-Q

                       FOR THE QUARTER ENDED MAY 31, 2001

                                      INDEX


   Part I.      FINANCIAL INFORMATION                                     Page
                                                                         Number
     Item 1.    Financial Statements - (unaudited)

                Consolidated Statement of Income -
                Three and Six Months Ended
                May 31, 2001 and May 31, 2000..................................3

                Consolidated Statement of Financial Condition -
                May 31, 2001 and November 30, 2000.............................5

                Consolidated Statement of Cash Flows -
                Six Months Ended
                May 31, 2001 and May 31, 2000..................................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.............................................21

   Item 6.      Exhibits and Reports on Form 8-K..............................23

   Signature  ................................................................24

EXHIBIT INDEX.................................................................25

   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
                                                          -------------------------------------
                                                              May 31               May 31
                                                               2001                 2000
                                                          ----------------     ----------------
<S>                                                          <C>                  <C>
           Revenues
                Principal transactions                       $    679             $    349
                Investment banking                                426                  282
                Commissions                                       221                  160
                Interest and dividends                          3,616                4,288
                Other                                               6                   17
                                                          ----------------     ----------------
                    Total revenues                              4,948                5,096
           Interest expense                                     3,421                4,185
                                                          ----------------     ----------------
                    Net revenues                                1,527                  911
                                                          ----------------     ----------------
           Non-interest expenses
                Compensation and benefits                         778                  470
                Brokerage and clearance                            57                   50
                Technology and communications                      67                   49
                Business development                               34                   29
                Professional fees                                  19                   22
                Occupancy                                          13                   15
                Management fee                                     20                   34
                Other                                              12                   11
                                                          ----------------     ----------------
                    Total non-interest expenses                 1,000                  680
                                                          ----------------     ----------------
           Income before taxes                                    527                  231
                Provision for income taxes                        155                   69
                                                          ----------------     ----------------

           Net income                                        $    372             $    162
                                                          ================     ================
</TABLE>

          See notes to consolidated financial statements.

                                       3

<PAGE>




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


                                                                    Six months ended
                                                          -------------------------------------
                                                              May 31               May 31
                                                               2001                 2000
                                                          ----------------     ----------------

<S>                                                            <C>                  <C>
           Revenues
                Principal transactions                      $   1,280            $   1,044
                Investment banking                                775                  666
                Commissions                                       438                  327
                Interest and dividends                          8,211                8,053
                Other                                              15                   27
                                                          ----------------     ----------------
                    Total revenues                             10,719               10,117
           Interest expense                                     7,915                7,889
                                                          ----------------     ----------------
                    Net revenues                                2,804                2,228
                                                          ----------------     ----------------
           Non-interest expenses
                Compensation and benefits                       1,429                1,167
                Technology and communications                     122                   98
                Brokerage and clearance                           116                  100
                Business development                               66                   50
                Professional fees                                  38                   40
                Occupancy                                          32                   30
                Management fee                                     35                   56
                Other                                              26                   26
                                                          ----------------     ----------------

                    Total non-interest expenses                 1,864                1,567
                                                          ----------------     ----------------
           Income before taxes                                    940                  661
                Provision for income taxes                        297                  227
                                                          ----------------     ----------------

           Net income                                      $      643           $      434
                                                          ================     ================




</TABLE>
              See notes to consolidated financial statements.

                                       4

<PAGE>



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


<TABLE>
<CAPTION>
                                                                                    May 31             November 30
                                                                                     2001                  2000
                                                                                ----------------     -----------------
<S>                                                                                <C>                 <C>
ASSETS
Cash and cash equivalents                                                       $        497         $     2,323

Cash and securities segregated and on deposit for regulatory and
other purposes                                                                         2,200               1,988

Securities and other financial instruments owned:
     Governments and agencies                                                         17,161              18,101
     Corporate equities                                                               15,640              21,278
     Mortgages and mortgage-backed                                                     6,133               8,328
     Corporate debt and other                                                          7,949               7,770
     Derivatives and other contractual agreements                                      5,456               5,285
     Certificates of deposit and other money market instruments                        1,978               3,433
                                                                                ----------------     -----------------
                                                                                      54,317              64,195
                                                                                ----------------     -----------------

Collateralized short-term agreements:
     Securities purchased under agreements to resell                                  69,619              77,808
     Securities borrowed                                                              28,866              18,876

Receivables:
     Brokers, dealers and clearing organizations                                       4,511                2,302
     Customers                                                                         4,219                4,302
     Others                                                                           10,363                7,511

Property, equipment and leasehold improvements (net of
   accumulated depreciation and amortization of $408 in 2001
   and $504 in 2000)                                                                     389                 318

Other assets                                                                             416                 417

Excess of cost over fair value of net assets acquired (net of accumulated
   amortization of $127 in 2001 and $122 in 2000)                                        159                 163
                                                                                ----------------     -----------------

     Total assets                                                                  $ 175,556           $ 180,203

</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>

                                                                                        May 31            November 30
                                                                                         2001                 2000
                                                                                    ---------------     -----------------
<S>                                                                                   <C>                 <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Commercial paper and short-term debt                                                 $      702         $        741
Securities and other financial instruments sold but not yet purchased:
     Governments and agencies                                                            11,962               8,542
     Derivatives and other contractual agreements                                         3,976               3,824
     Corporate equities                                                                   2,689               2,159
     Corporate debt and other                                                             3,783               2,909
                                                                                    ---------------     -----------------
                                                                                         22,410              17,434
                                                                                    ---------------     -----------------
Collateralized short-term financing:
     Securities sold under agreements to repurchase                                      83,129             105,611
     Securities loaned                                                                   31,212              24,082
Advances from Holdings and other affiliates                                              19,378              15,045
Payables:
     Brokers, dealers and clearing organizations                                          2,798               3,320
     Customers                                                                            4,307               4,058
Accrued liabilities and other payables                                                    2,345               2,481
Long-term debt:
     Senior notes                                                                         1,848                 207
     Subordinated indebtedness                                                            4,198               3,586
                                                                                    ---------------     -----------------
         Total liabilities                                                              172,327             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                                                        2                   2
Retained earnings                                                                         1,544               1,953
                                                                                                        -----------------
                                                                                    ---------------
         Total stockholder's equity                                                       3,229               3,638
                                                                                    ---------------     -----------------

         Total liabilities and stockholder's equity                                   $ 175,556           $ 180,203
                                                                                    ===============     =================


</TABLE>


             See notes to consolidated financial statements.

                                       6

<PAGE>


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


                                                                                                Six months ended
                                                                                      --------------------------------------
                                                                                           May 31               May 31
                                                                                            2001                 2000
                                                                                      -----------------     ----------------
<S>                                                                                       <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                             $     643          $        434
Adjustments to reconcile net income to net cash provided by
  operating activities:
     Depreciation and amortization                                                            39                    19
     Other adjustments                                                                       (18)                   27
Net change in:
     Cash and securities segregated                                                          (212)                 (781)
     Securities and other financial instruments owned                                       9,960                (5,566)
     Securities borrowed                                                                   (9,990)              (14,211)
     Receivables from brokers, dealers and clearing organizations                          (2,209)                  351
     Receivables from customers                                                                83                (1,729)
     Securities and other financial instruments sold but not yet purchased                  4,976                 6,164
     Securities loaned                                                                      7,130                17,541
     Payables to brokers, dealers and clearing organizations                                 (522)                1,181
     Payables to customers                                                                    249                  (537)
     Other operating assets and liabilities, net                                           (3,004)                 (238)
                                                                                      -----------------     ----------------

         Net cash provided by operating activities                                          7,125                 2,655
                                                                                      -----------------     ----------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior notes                                                      1,765                     -
Principal payments of senior notes                                                           (207)                    -
Proceeds from issuance of subordinated indebtedness                                           800                     -
Principal payments of subordinated indebtedness                                              (194)                    -
Net proceeds from (payments for) commercial paper and short-term debt                         (39)                  399
Resale agreements net of repurchase agreements                                            (14,293)               (3,438)
Increase (decrease) in advances from Holdings and other affiliates                          4,333                  (628)
Dividends paid                                                                             (1,060)                  (65)
                                                                                      -----------------     ----------------
                                                                                      -----------------     ----------------
         Net cash used in financing activities                                             (8,895)               (3,732)
                                                                                      -----------------     ----------------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold improvements                                   (56)                  (13)
                                                                                      -----------------     ----------------
         Net cash used in investing activities                                                (56)                  (13)
                                                                                      -----------------     ----------------
         Net change in cash and cash equivalents                                           (1,826)               (1,090)
                                                                                      -----------------     ----------------
Cash and cash equivalents, beginning of period                                              2,323                 1,384
                                                                                      -----------------     ----------------
         Cash and cash equivalents, end of period                                     $       497           $        294
                                                                                      =================     ================
</TABLE>

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (in millions)

Interest paid totaled $7,969 and $7,883 for the six months ended May 31, 2001
and May 31, 2000, respectively. Income taxes paid totaled $524 and $413 for the
six months ended May 31, 2001 and May 31, 2000.


                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, 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 May 31, 2001, LBI's regulatory net capital,
as defined, of $1,886 million exceeded the minimum requirement by $1,753
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 May 31, 2001, the Company had a reserve requirement for PAIB of
$6 million. Additionally, the Company had $56 million of qualified securities or
cash on deposit in a Special Reserve Bank Account as of May 31, 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 May 31, 2001, LBFP and LBDP each had capital
which exceeded the requirement of the most stringent rating agency by
approximately $46 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 investments 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:

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, as of
December 1, 2000, 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 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 not material
to the Company's results for the three and six months ended May 31, 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*
                                                                   May 31, 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)                       $ 4,157            $ 2,498        $ 3,918            $ 2,331
Foreign exchange forward contracts and options                   407                118            305                285
Other fixed income securities contracts
  (including options and TBAs)                                   284                612            412                415
Equity contracts (including equity swaps,
  warrants and options)                                          608                748            650                793
                                                         -------------- -- --------------- -------------- --- ---------------

         Total                                               $ 5,456            $ 3,976        $ 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.

                                       9
<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 $5,456 million fair value of assets at May 31,
2001 was $4,849 million related to swaps and other OTC contracts and $607
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 be $3,739 million at May 31, 2001, representing the fair value of
the Company's OTC contracts in an unrealized gain position, after consideration
of amounts due from affiliates of $321 million and collateral of $789 million.
Presented below is an analysis of the Company's net credit exposure at May 31,
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                         22%
       2                   AA-/Aa3 or higher                    25%
       3                    A-/A3 or higher                     28%
       4                  BBB-/Baa3 or higher                   21%
       5                   BB-/Ba3 or higher                     3%
       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.       Securitizations

The Company is a market leader in the mortgage- and asset-backed securitization
market. In connection with these activities, the Company securitizes commercial
and residential mortgages, home equity loans, government and corporate bonds,
and lease and trade receivables. Lehman Brothers may retain an interest in the
financial assets it securitizes ("Retained Interests") which may include assets
in the form of residual interests or one or more subordinate tranches. The
Company records its Securities and Other Financial Instruments Owned, including
Retained Interests, at fair value with changes in fair value reported in
earnings. Fair value is determined based upon listed market prices, if
available. Where listed market prices are not available, fair value is
determined based on other relevant factors, including broker or dealer price
quotations and valuation pricing models which take into account time value and
volatility factors underlying the financial instruments among other factors.
Retained interests in securitized assets were not material as of May 31, 2001.
During the second quarter of 2001, the Company securitized approximately $10.4
billion of financial assets.
                                       10
<PAGE>


5.     Other Commitments and Contingencies:

In connection with its financing activities, the Company had outstanding
commitments under certain collateralized lending arrangements of approximately
$3.1 billion and $3.0 billion at May 31, 2001 and November 30, 2000,
respectively. 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 $3.2 billion, $3.0 billion and $2.7 billion at May 31, 2001, February 28,
2001 and November 30, 2000, respectively. In addition, lending commitments to
high yield borrowers totaled $918 million, $767 million and $935 million at May
31, 2001, 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 commitments may not be drawn or fully utilized,
and the Company will continue to syndicate and/or sell these commitments.

At May 31, 2001 and November 30, 2000, the Company had commitments to invest up
to $369 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, 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.

At May 31, 2001, the net fair value of securities received as collateral that
have not been sold or repledged totaled approximately $10 billion. The gross
fair value of securities received as collateral where the Company was permitted
to sell or repledge the securities was approximately $150 billion. Of this
collateral, approximately $140 billion has been sold or repledged, generally as
collateral under repurchase agreements or to cover securities and other
financial instruments sold but not yet purchased.

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.


                                       11
<PAGE>

6.       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. 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 derivative
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
businesses manage the Company's equity and fixed income matched book activities,
supply secured financing to institutional clients and customers, and provide
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.

The Company's segment information for the three and six months ended May 31,
2001 and May 31, 2000 is presented below and was developed consistent with the
accounting policies used to prepare the Company's consolidated financial
statements.

                                       12
<PAGE>

<TABLE>
<CAPTION>



                                             Three Months Ended                            Six Months Ended
                                     -----------------------------------          ------------------------------------
                                         May 31             May 31                    May 31              May 31
(in millions)                             2001               2000                      2001                2000
                                     ----------------   ----------------          ----------------    ----------------
<S>                                     <C>                <C>                       <C>                 <C>
Investment Banking:
   Net Revenue                        $     426         $      282                $     773          $       665
                                     ================   ================          ================    ================
   Earnings before taxes              $      93         $      100                $     152          $       225

                                     ================    ================         ================    ================
   Segment assets (billions)          $     0.8         $      0.4               $      0.8         $        0.4
                                     ================   ================          ================    ================

Capital Markets:
   Net Revenue                        $     918          $     457                 $  1,659           $    1,216
                                     ================   ================          ================    ================
   Earnings before taxes              $     387          $     132                 $    683          $       441

                                     ================   ================          ================   ================
   Segment assets (billions)          $   170.8           $  175.5                $   170.8           $    175.5
                                     ================   ================          ================    ================

Client Services:
   Net Revenue                        $     183          $     172                 $    372          $       347
                                     ================   ================          ================    ================
   Earnings before taxes              $      47         $       (1)               $     105          $        (5)
                                     ================   ================          ================    ================
   Segment assets (billions)          $     4.0         $      4.4                $     4.0         $        4.4
                                     ================   ================          ================    ================

Total:
   Net Revenue                        $    1,527        $      911                $   2,804           $     2,228
                                     ================   ================          ================    ================
   Earnings before taxes              $      527        $      231                $     940          $        661
                                     ================   ================          ================    ================

   Segment assets (billions)          $    175.6        $    180.3                $   175.6           $     180.3
                                     ================   ================          ================    ================
</TABLE>

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

                          Three Months Ended                        Six Months Ended
                     ------------------------------          --------------------------------
                        May 31           May 31                 May 31            May 31
(in millions)            2001             2000                   2001              2000
<S>                    <C>                <C>                   <C>               <C>
Americas               $ 1,378            $ 808                 $ 2,494           $ 1,952
Europe                     135               46                     283               174
Asia Pacific                14               57                      27               102
                     -------------    -------------          -------------    ---------------

      Total            $ 1,527            $ 911                 $ 2,804           $ 2,228
                     =============    =============          =============    ===============
</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.

                                       13
<PAGE>



7.       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.

                                       14

<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 May 31, 2001 and May 31, 2000

The Company reported net income of $372 million for the quarter ended May 31,
2001, more than double last year's second quarter's net income of $162 million.
These strong results in a very difficult market environment demonstrate the
growing breadth and depth of the franchise.

The Company continues to maintain its discipline toward managing expenses, risk
and liquidity as well as capital deployment and utilization. For the quarter,
non-personnel expenses increased only 4% from the first quarter of 2001 versus a
20% increase in net revenues over the same period.

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 May 31, 2001 and May 31, 2000

(in millions)                                   Net Revenues
                                                   for the
                                             Three Months Ended
                                      ----------------------------------
                                          May 31             May 31
                                            2001               2000
                                      ---------------    ---------------
Investment Banking                         $ 426              $ 282
Capital Markets                              918                457
Client Services                              183                172
                                      ---------------    ---------------
Total                                     $1,527              $ 911
                                      ===============    ===============

                                     15
<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  increased 51% during the second quarter
to $426 million from $282 million in the second quarter of 2000, as fixed income
underwriting  activity reached record levels and merger and acquisition advisory
fees increased.

                   INVESTMENT BANKING NET REVENUES
      --------------------------------------------------------
      (in millions)                      Three Months Ended
                                         May 31      May 31
                                          2001        2000
      -------------------------------- ----------- -----------
      Equity Underwriting                 $ 127       $ 119
      Debt Underwriting                     217          96
      Merger and Acquisition Advisory        82          67
      -------------------------------- ----------- -----------
                                          $ 426       $ 282
      -------------------------------- ----------- -----------

Equity origination revenues were up 7% compared to the year-ago period. The
Company continued to grow its equity underwriting business as evidenced by a
higher global equity origination volume share which has increased significantly
since year-end.

Debt underwriting revenues totaled $217 million for the second quarter of 2001,
more than double last year's second quarter fees, as high grade and high yield
origination activity rose significantly. Fixed income origination benefited this
quarter as issuers moved to raise lower-coupon long-term debt to replace
short-term debt. This activity was prompted by low interest rates, tightening
credit and swap spreads and a steepening of the yield curve to a more normal
share. Also, contributing to these results was an increase in the Company's
global market share for debt originations, particularly in high yield
underwriting.

Merger and acquisition advisory revenues increased $15 million to $82 million
during the second quarter of 2001.

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 $918 million for the second  quarter of
2001,  more than double last year's  second  quarter  results.  The  increase is
attributable to strong institutional  customer flow activity across a wide range
of products.  This customer flow business provides the Company with a relatively
stable form of revenues as  customers  continually  rebalance  their  portfolios
across  market  cycles with the full array of capital  market  products that are
provided by the Company.

              CAPITAL MARKETS NET REVENUES
  --------------------------------------------------------
  (in millions)                      Three Months Ended
                                     May 31      May 31
                                      2001        2000
  -------------------------------- ----------- -----------
  Equities                            $ 373       $ 152
  Fixed Income                          545         305
  -------------------------------- ----------- -----------
                                      $ 918       $ 457
  -------------------------------- ----------- -----------

Net revenues from the fixed income component of Capital Markets increased 79%
from the second quarter of 2000, driven by record levels of institutional
customer flow activity. Central bank easings prompted lower rates, a steeper
yield curve and tighter credit spreads, which lead to high volumes across almost
all fixed income products. Areas that benefited the most from the strength in
institutional customer flow included mortgages, governments, high grade debt,
structured credit products and derivatives.

Net revenues from the equity component of Capital Markets were $373 million in
the second quarter of 2001, up over a hundred percent from the second quarter of
2000. Despite significant volatility in the

                                       16
<PAGE>

major  market  indices,  strong  institutional  market  volumes  in equity  cash
businesses in the U.S. and convertible and equity  derivative  activities led to
higher revenues.

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 $183 million in the second  quarter of
2001 compared to $172 million in the second  quarter of 2000.  Client  Services'
results  increased  6%  primarily  due to strong  fixed  income  activity as the
Company's  high-net-worth  investors adjusted their portfolios to compensate for
the volatile equity market environment.

             CLIENT SERVICES NET REVENUES
  --------------------------------------------------------
  (in millions)                      Three Months Ended
                                     May 31      May 31
                                      2001        2000
  -------------------------------- ----------- -----------
  Private Client                      $ 183       $ 171
  Private Equity                          -           1
  -------------------------------- ----------- -----------
                                      $ 183       $ 172
  -------------------------------- ----------- -----------

Non-Interest Expenses Non-interest expenses were $1,000 million for the second
quarter of 2001 compared to $680 million for the second quarter of 2000.
Compensation and benefits expense as a percentage of net revenues was 51% for
the quarter. The compensation accrual percentage is consistent with the
Company's fiscal 2000 level and reflects the Company's continued expansion of
its investment banking and equities franchises. Non-personnel expenses were $222
million for the second quarter of 2001 compared to $210 million for the second
quarter of 2000. The increase in non-personnel expenses 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 $155 million for the second
quarter of 2001 versus $69 million for the second quarter of 2000. The effective
tax rate was 29.4% for the second quarter of 2001, relatively consistent with
the second quarter of 2000 tax rate of 29.9%.

                                       17
<PAGE>



Results of Operations
For the Six Months Ended May 31, 2001 and May 31, 2000

The Company reported net income of $643 million for the quarter ended May 31,
2001, an increase of 48% from the six months ended May 31, 2000.

The results reflect the Company's continued ability to execute its strategy of
growing its high margin investment banking and equities businesses while at the
same time maintaining a strict discipline with regard to its expenses, all
during an extremely difficult market environment. Net revenues were $2,804
million for the first six months of 2001, an increase of 26% from the first six
months of 2000, as revenues in each of the Company's three segments increased.

In the following tables, the Company's results have been segregated into three
business segments: 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 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.)

Six Months Ended May 31, 2001 and May 31, 2000



(in millions)                         Net Revenues
                                         for the
                                    Six Months Ended
                            ----------------------------------
                                May 31             May 31
                                  2001               2000
                            ---------------    ---------------
Investment Banking            $    773           $    665
Capital Markets                  1,659              1,216
Client Services                    372                347
                            ---------------    ---------------
Total                          $ 2,804            $ 2,228
                            ===============    ===============



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 of $773 million increased 16% in the
first six months of 2001 when compared to $665 million for the first six months
of 2000. The increase in investment banking revenues was primarily due to strong
results in debt underwriting, partially offset by a decrease in equity
underwriting. Merger and acquisition advisory fees were unchanged from the first
six months of 2000.

Equity  underwriting  revenues  were $194 million in the first half of 2001
compared to $278  million  for the first half of 2000.  Although  the  Company's
market share volume increased during the first half of 2001,  results  decreased
as industry-wide equity underwriting activity was down significantly.

                   INVESTMENT BANKING NET REVENUES
         --------------------------------------------------------
         (in millions)                       Six Months Ended
                                            May 31      May 31
                                             2001        2000
         -------------------------------- ----------- -----------
         Equity Underwriting                 $ 194       $ 278
         Debt Underwriting                     399         207
         Merger and Acquisition Advisory       180         180
         -------------------------------- ----------- -----------
                                             $ 773       $ 665
         -------------------------------- ----------- -----------

                                       18
<PAGE>



Debt underwriting revenues increased 93% to $399 million in the first six months
of 2001 from $207 million for the first six months of 2000. The increase was
primarily due to an industry-wide increase in fixed income issuances combined
with a significant increase in the Company's market volume.

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 $1,659 million for the  second quarter of
2001, up 36% from the first six months of 2000 as strong convertible, municipal,
high grade credit and mortgage activity contributed to these improved results.

                 CAPITAL MARKETS NETREVENUES
   --------------------------------------------------------
   (in millions)                       Six Months Ended
                                      May 31      May 31
                                        2001        2000
   -------------------------------- ----------- -----------
   Equities                         $    711    $    646
   Fixed Income                          948         570
   -------------------------------- ----------- -----------
                                     $ 1,659     $ 1,216
   -------------------------------- ----------- -----------
Net revenues from the fixed income component of Capital Markets increased to
$948 million in the six months of 2001 from $570 million in the comparable
period last year. These record results were driven by strong institutional
customer flow activity as clients moved into interest-rate based products.

Net revenues from the equity component of Capital Markets increased 10% to $711
million in the first half of 2001 from $646 million in the comparable 2000
period. The increase in revenues was attributable to strong institutional
customer flow activity across a wide range of products.

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 in
its private equity partnerships.

Client  Services' net revenues were $372 million in the first six months of
2001 compared to $347 million for the first six months of 2000. Client Services'
results improved  primarily due to strong fixed income activity as the Company's
high-net-worth  investors  adjusted  their  portfolios  to  compensate  for  the
volatile equity market environment.

              CLIENT SERVICES NET REVENUES
  --------------------------------------------------------
  (in millions)                       Six Months Ended
                                     May 31      May 31
                                       2001        2000
  -------------------------------- ----------- -----------
  Private Client                      $ 370       $ 345
  Private Equity                          2           2
  -------------------------------- ----------- -----------
                                      $ 372       $ 347
  -------------------------------- ----------- -----------

Non-Interest Expenses Non-interest expenses were $1,864 million for the first
six months of 2001 and $1,567 million for the comparable period of 2000.
Compensation and benefits expense as a percentage of net revenues decreased to
51%, which is consistent with the Company's fiscal 2000 level . Non-personnel
expenses were $435 million for the first six months of 2001 and $400 million for
the first six months of 2000, an increase of 9%, reflecting the Company's
strategic growth plan, and less than the 26% increase in net revenues over the
same period.

Income Taxes The Company's income tax provision was $297 million for the six
months of 2001 compared to $227 million for the six months of 2000. The
effective tax rate was 31.6% for the first half of 2001, lower than the
Company's tax rate of 34.3% for the first half of 2000. The decrease in the
effective tax rate was primarily due to the impact of certain tax preferenced
revenues.

                                       19
<PAGE>


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 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 began on March 31, 2001 and the collateral disclosure rules
began this quarter. The collateral accounting rules will be effective for the
Company's year-end financial statements. The adoption of SFAS 140 is not
expected to have a material impact to the Company's financial position or
results of operations.

                                       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 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, 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.

IPO Allocation Cases

     Beginning in late March 2001 and continuing until the date of this report,
numerous purported class actions have been filed in the United States District
Court for the Southern District of New York on behalf of groups of investors
against numerous leading national and regional underwriters, as well as issuers
of initial public offerings ("IPOs") and the issuers' officers and/or directors.
Some of these actions name LBI as a defendant. The class of investors on whose
behalf the actions are purportedly brought is those individuals and entities who
purchased securities after an IPO made during the period of March 1997 through
December 2000. In certain cases, the class period may be narrower because it is
limited to investors in particular IPOs.

     The actions all essentially allege that the underwriter defendants
conspired to require customers who wanted large allocations of IPO shares to pay
undisclosed, excessive commissions in the form of rebates of up to one-third of
their profits from the resale of the shares. The underwriter defendants also
allegedly required customers to agree to buy shares offered in the IPOs after
the IPOs were completed at prices higher than the IPO price as a condition to
receiving their requested IPO allocation and to make such purchases at specified
escalating price levels designed to increase stock prices in the secondary
market, in a practice referred to as "laddering a stock."

     The actions assert claims based on federal securities law violations,
federal antitrust violations and/or state antitrust violations. In general, the
actions are either for federal securities law violations (in which case they
tend to name the underwriters of the IPO(s) at issue, along with the issuer and
its officers and/or directors) or federal antitrust violations (in which case
they tend to name only the underwriter defendants). However, certain actions
have been filed which combine those theories of recovery, and some other actions
have been filed which substitute state antitrust claims for federal antitrust
claims. In addition, one case has been brought as a purported derivative action
for the benefit of Holdings and its shareholders, based on the alleged improper
IPO allocation practices. (See the Kaufman case below.) The alleged damage to
the class is that investors paid more for securities than they otherwise would
have in the absence of the alleged conspiracy regarding IPO allocations. The
actions seek unspecified compensatory damages and injunctive relief.

                                     21
<PAGE>

Fred Kaufman v. Roger S. Berlind, et al.

     In June 2001 a  shareholder  of Holdings  filed a derivative  action in the
United  States  District  Court for the  Southern  District of New York  against
Holdings and Holdings' board of directors for the purported  benefit of Holdings
and its  shareholders.  The action alleges that the board members breached their
fiduciary  duties of loyalty and good faith and failed to exercise  their duties
of due care and due  diligence  by failing to maintain  systems to alert them to
the alleged improper IPO allocation  practices  challenged in the IPO Allocation
Cases (see above) and by failing to become  informed  of the alleged  practices.
The action seeks unspecified  compensatory  damages based on the alleged damages
that  Holdings  may suffer if it is found  liable in the pending IPO  Allocation
Cases.

In Re Issuer Plaintiff Initial Public Offering Fee Antitrust Litigation

     By order dated April 10, 2001,  the United  States  District  Court for the
Southern District of New York consolidated four actions pending before the court
brought by bankrupt  issuers of IPO securities  against more than 20 underwriter
defendants  (including  LBI): (1) CHS  Electronics,  Inc. v. Credit Suisse First
Boston Corp.,  et al.  (reported in LBI's 2000 Annual Report on Form 10-K);  (2)
Equalnet  Communications Corp. v. Goldman Sachs Group, Inc., et al. (reported in
LBI's First Quarter 2001 Quarterly Report on Form 10-Q); (3) MDCM Holdings, Inc.
f/k/a  Mortgage.Com,  Inc.  by Lewis B.  Freeman,  Assignee  for the  Benefit of
Creditors;  and (4) Jeffrey A. Weinman,  as Trustee of the Bankruptcy  Estate of
Western Pacific Airlines v. Salomon Smith Barney Inc., et al. (reported in LBI's
2000  Annual  Report on Form  10-K).  On July 6, 2001,  the  plaintiffs  filed a
consolidated class action complaint seeking unspecified compensatory damages 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 super-competitive levels.

Lehman Brothers Commercial Corporation and Lehman Brother Special Financing
Inc. v. Minmetals International Non-Ferrous Metals Trading Company
(Reported in LBI's 2000 Annual Report on Form 10-K)

     A trial date of October 29, 2001, has been set.

Mexpo,  S.A. v. Lehman Brothers Inc., et al. (Reported in LBI's 2000 Annual
Report on Form 10-K)

     The parties settled the case on June 22, 2001.


                                       22
<PAGE>



                 LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES

                           PART II - OTHER INFORMATION


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

                                       23
<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:    July 16, 2001                     By:        /s/ David Goldfarb
                                          -------------------------------------
                                                   Chief Financial Officer
                                                  (Principal Financial Officer)


                                       24
<PAGE>





                                  EXHIBIT INDEX



Exhibit No.                Exhibit

Exhibit 12                 Computation of Ratio of Earnings to Fixed Charges


                                       25