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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-K

(MARK ONE)

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<C>        <S>
   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</Table>

                  FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2001
                                       OR

<Table>
<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</Table>

        FOR THE TRANSITION PERIOD FROM ______________ TO ______________

                         COMMISSION FILE NUMBER 1-6817

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                              LEHMAN BROTHERS INC.

             (Exact Name of Registrant as Specified in its Charter)

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<S>                                                      <C>
                DELAWARE                                              13-2518466
    (State or other jurisdiction of                      (I.R.S. Employer Identification No.)
     incorporation or organization)

           745 SEVENTH AVENUE
           NEW YORK, NEW YORK                                           10019
(Address of principal executive offices)                              (Zip code)
</Table>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 526-7000

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

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<Caption>
                                                NAME OF EACH EXCHANGE
            TITLE OF EACH CLASS                  ON WHICH REGISTERED
-------------------------------------------  ---------------------------
<S>                                          <C>
 7 5/8% Senior Subordinated Notes Due 2006     New York Stock Exchange
</Table>

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

    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 / /

    Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.  /X/

    As the Registrant is a wholly-owned subsidiary of Lehman Brothers
Holdings Inc., none of the Registrant's outstanding common equity is held by
non-affiliates of the Registrant. As of February 28, 2001, 1,006 shares of the
Registrant's Common Stock, par value $0.10 per share, were issued and
outstanding.

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

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      NONE

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                                     PART I

ITEM 1. BUSINESS

GENERAL DEVELOPMENT OF BUSINESS

    As used herein, "LBI" or the "Registrant" means Lehman Brothers Inc., a
Delaware corporation, incorporated on January 21, 1965. LBI and its subsidiaries
are collectively referred to as the "Company" or "Lehman Brothers." LBI is a
wholly-owned subsidiary of Lehman Brothers Holdings Inc., a Delaware
corporation, which (together with its subsidiaries, as appropriate) is referred
to herein as "Holdings."

    The Company is one of the leading global investment banks, serving
institutional, corporate, government and high-net-worth individual clients and
customers. Its executive offices are located at 745 Seventh Avenue, New York,
New York 10019, and its telephone number is (212) 526-7000.

FORWARD-LOOKING STATEMENTS

    Some of the statements contained in this report, 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 and liquidity risks include
changes in interest and foreign exchange rates and securities and commodities
valuations, the availability and cost of capital and credit, changes in investor
sentiment, global economic and political trends and industry competition. Legal
risks include legislative and regulatory developments in the United States and
throughout the world. 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, and, accordingly, readers are cautioned
not to place undue reliance on such statements. For more information concerning
the risks and other factors that could affect the Company's future results and
financial condition, see "Management's Analysis of Results of Operations" on
pages 15-24 of this report. The Company undertakes no obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise.

LEHMAN BROTHERS

    Lehman Brothers 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. Affiliates of LBI provide investment
banking and capital markets services in Europe and Asia. The Company is engaged
primarily in providing financial services. Other businesses in which the Company
is engaged represent less than 10 percent of consolidated assets, revenues or
pre-tax income.

    The Company's business includes capital raising for clients through
securities underwriting and direct placements; corporate finance and strategic
advisory services; private equity investments; securities sales and trading;
research; and the trading of foreign exchange and derivative products and
certain commodities. The Company and its affiliates act as market-makers in all
major equity and fixed income products in both the domestic and international
markets. Lehman Brothers is a member of all principal securities and commodities
exchanges in the United States, as well as the National Association of
Securities Dealers, Inc. ("NASD"). Affiliates of LBI hold memberships or
associate memberships on several principal international securities and
commodities exchanges, including the London, Tokyo, Hong Kong, Frankfurt, Paris
and Milan stock exchanges.

    Lehman Brothers and its affiliates provide a full array of capital market
products and advisory services worldwide. Through the Company's investment
banking, research, trading, structuring and distribution
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capabilities of equity and fixed income products the Company continues its focus
of building its client/ customer business model. These "customer flow"
activities represent a majority of the Company's revenues. In addition to its
customer flow activities, the Company also takes proprietary positions, the
success of which is dependent on its ability to anticipate economic and market
trends. The Company believes its customer flow orientation mitigates its overall
revenue volatility.

    The Company operates in three business segments (each of which is described
below): Investment Banking, Capital Markets and Client Services. Financial
information concerning the Company for the fiscal years ended November 30, 2001,
November 30, 2000, and November 30, 1999, including the amount of net revenue
contributed by each segment in such periods, is set forth in the Consolidated
Financial Statements and the Notes thereto on pages F-1 to F-35 hereof.
Information with respect to the Company's operations by segment and by
geographic area is set forth in Note 14 to the Notes to Consolidated Financial
Statements on pages F-33 and F-34 hereof.

EVENTS OF SEPTEMBER 11

    Lehman Brothers' world headquarters and other facilities had occupied space
that was owned and leased in the World Financial Center and the World Trade
Center in downtown New York City. As a result of the terrorist attacks of
September 11, 2001, the World Financial Center offices were damaged and the
World Trade Center space was destroyed. The United States debt and equity
financial markets were temporarily closed. All Lehman Brothers employees
(approximately 6,400 persons) and operations in downtown Manhattan were
displaced. Key business activities and necessary support functions were
relocated to the Company's back-up facilities in Jersey City, New Jersey, and to
various other temporary sites. In November 2001, the Company purchased a new
1,000,000 square-foot office tower at 745 Seventh Avenue in New York, New York,
to serve as the Firm's new world headquarters. The Company began occupying the
new building in January 2002 and expects to have substantially occupied the
space by the summer of 2002. Also in the wake of September 11, the Company
leased additional office and data center space in Manhattan and in Jersey City.

    The Company has been informed that the facilities in the World Financial
Center complex can be repaired; however, the damage to many of the floors at
Three World Financial Center ("3WFC"), which is owned jointly with American
Express Company, is significant. A repair and remediation plan is currently
underway, although a completion date has not been finalized. As a result, the
Company is currently evaluating its space needs and exploring its alternatives
with respect to 3WFC and the other downtown New York facilities. Lehman Brothers
has significant levels of insurance in place to cover losses resulting from the
terrorist attack, including a policy covering damage to the core and shell of
3WFC and a separate policy covering the property damage to the World Trade
Center and World Financial Center facilities, losses resulting from business
interruption and extra expenses associated with the Company's relocation to, and
occupancy of, the temporary facilities.

    During the fourth quarter of fiscal 2001, Lehman Brothers recognized a
pretax special charge of $51 million ($29 million after-tax) associated with the
net losses (after offsetting estimated insurance recoveries) stemming from the
events of September 11. The charge does not reflect any loss resulting from the
damage to the core and shell of 3WFC, as this amount is not yet known. However,
the Company believes that any loss will be fully recoverable under the Company's
insurance policy.

    The displacement and relocation of the Company's New York workforce, the
closure of markets for certain periods following the terrorist attack and other
issues directly related to the September 11 tragedy have negatively impacted the
Company's business. The Company is in the process of pursuing a business
interruption claim with its insurance carriers for lost revenue and related
damages. As of November 30, 2001, the Company has not given any accounting
recognition to the anticipated business interruption recovery.

                                       2
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    For more information concerning the effects of September 11, the special
charge and the Firm's facilities, see Item 2, Properties, on page 9 of this
report; Item 7, "Management's Analysis of Results of Operations" on pages 15-24
of this report; and Note 2 of the Notes to Consolidated Financial Statements on
page F-14 of this report.

INVESTMENT BANKING

    Lehman Brothers' Investment Banking professionals are responsible for
developing and maintaining relationships with issuer clients, gaining a thorough
understanding of their specific needs and bringing together the full resources
of Lehman Brothers and its affiliates to accomplish their financial objectives.
Investment Banking is organized into industry, geographic and product coverage
groups, enabling individual bankers to develop specific expertise in particular
industries and markets. Global industry coverage groups include
Communications & Media, Consumer/Retailing, Financial Institutions, Financial
Sponsors, Healthcare, Industrial, Natural Resources, Power, Real Estate and
Technology. Where appropriate, specialized product groups are partnered with the
global industry and geographic groups to provide tailor-made solutions for
Lehman Brothers' clients. These product groups include Equity Capital Markets,
which consists of equity and equity-related securities and derivatives, Fixed
Income Capital Markets, which incorporates expertise in syndicate, liability
management, derivatives, private placements, high yield debt and bank loan
syndication, and Mergers and Acquisitions/Strategic Advisory Services.
Geographically, Lehman Brothers and its affiliates maintain investment banking
offices in six cities in the U.S. and in twenty-one cities in Europe, the Middle
East, Asia and Latin America. The high degree of integration between the
Company's industry, product and geographic groups has allowed Lehman Brothers to
become a leading source of one-stop financial solutions for its global clients.

    MERGERS AND ACQUISITIONS/STRATEGIC ADVISORY.  Lehman Brothers has a long
history of providing strategic advisory services to corporate, institutional and
government clients around the world on a wide range of financial matters,
including mergers and acquisitions, restructurings and spin-offs, targeted stock
transactions, share repurchase strategies, government privatization programs,
takeover defenses and tax optimization strategies.

    UNDERWRITING.  The Company is a leading underwriter of initial and other
public and private offerings of equity and fixed income securities, including
listed and over-the-counter securities, government and agency securities and
mortgage- and asset-backed securities.

CAPITAL MARKETS

    Lehman Brothers combines the skills from the sales, trading and research
areas of its Equities and Fixed Income Divisions to serve the financial needs of
the Company's clients and customers. This integrated approach enables Lehman
Brothers to structure and execute global transactions for clients and to provide
worldwide liquidity in marketable securities.

    EQUITIES

    The Equities group is responsible for the Company's equity operations and
all dollar and non-dollar equity and equity-related products worldwide. These
products include listed and over-the-counter ("OTC") securities, American
Depositary Receipts, convertibles, options, warrants and derivatives.

    EQUITY CASH PRODUCTS.  Lehman Brothers makes markets in equity and
equity-related securities and executes block trades on behalf of clients and
customers. The Company and its affiliates participate in the global equity and
equity-related markets in all major currencies through their worldwide presence
and membership in major stock exchanges, including, among others, those in New
York, London, Tokyo, Hong Kong, Frankfurt, Paris and Milan.

                                       3
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    EQUITY DERIVATIVES.  Lehman Brothers offers equity derivative capabilities
across a wide spectrum of products and currencies, including domestic and
international portfolio trading, listed options and futures and over-the-counter
derivatives. The Company's equity derivatives business is organized into two
major product areas: a global volatility business, encompassing options-related
products, and a global portfolio trading business that specializes in
agency/risk baskets and other structured products.

    EQUITY FINANCE.  Lehman Brothers maintains an integrated Equity Financing
and Prime Broker business to provide liquidity to its clients and customers and
supply a source of secured financing for the Company. Equity Financing provides
financing in all markets on a margin basis for customer purchases of equities
and other capital markets products as well as securities lending and
short-selling facilitation. The Prime Broker business also engages in full
operations, clearing and processing services for that unit's customers.

    ARBITRAGE.  Lehman Brothers engages in a variety of arbitrage activities
including "riskless" arbitrage, where the Company seeks to benefit from
temporary price discrepancies that occur when a security is traded in two or
more markets and "risk" arbitrage activities, which involve the purchase of
securities at discounts from the expected values that would be realized if
certain proposed or anticipated corporate transactions (such as mergers,
acquisitions, recapitalizations, exchange offers, reorganizations, bankruptcies,
liquidations or spin-offs) were to occur. "Lehman Brothers' arbitrage activities
benefit from the Company's presence in the global capital markets, access to
advanced information technology, in-depth market research, proprietary risk
management tools and general experience in assessing rapidly changing market
conditions.

    FIXED INCOME

    Lehman Brothers actively participates in all key fixed income markets
worldwide and maintains a 24-hour trading presence in global fixed income
securities. The Company is a preeminent market-maker in new issue and other
fixed income securities.

    Fixed Income businesses include the following:

    GOVERNMENT AND AGENCY OBLIGATIONS.  Lehman Brothers is one of the leading
primary dealers in U.S. government securities, as designated by the Federal
Reserve Bank of New York, participating in the underwriting and market-making of
U.S. Treasury bills, notes and bonds, and securities of federal agencies. The
Company and its affiliates are also market-makers in the government securities
of all G7 countries, and participate in other major European and Asian
government bond markets.

    CORPORATE DEBT SECURITIES.  Lehman Brothers makes markets in fixed and
floating rate investment grade debt worldwide. The Company is also a major
participant in the preferred stock market, managing numerous offerings of
long-term and perpetual preferreds and auction rate securities.

    HIGH YIELD SECURITIES AND LEVERAGED BANK LOANS.  The Company also makes
markets in non-investment grade debt securities and bank loans. Lehman Brothers
provides "one-stop" leveraged financing solutions for corporate and financial
acquirers and high yield issuers, including multi-tranche, multi-product
acquisition financing. The Company remains one of the leading investment banks
in the syndication of leveraged loans.

    MONEY MARKET PRODUCTS.  Lehman Brothers holds leading market positions in
the origination and distribution of medium-term notes and commercial paper. The
Company is an appointed dealer or agent for numerous active commercial paper and
medium-term note programs on behalf of companies and government agencies
worldwide.

    MORTGAGE AND ASSET-BACKED SECURITIES.  The Company is a leading underwriter
of and market-maker in residential and commercial mortgage- and asset-backed
securities and is active in all areas of secured

                                       4
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lending, structured finance and securitized products. Lehman Brothers
underwrites and makes markets in the full range of U.S. agency-backed mortgage
products, mortgage-backed securities, asset-backed securities and whole loan
products. It is a leader in the global market for mortgage and asset-backed
securities, leases, mortgages, multi-family financing and commercial loans.

    MUNICIPAL AND TAX-EXEMPT SECURITIES.  Lehman Brothers is a major dealer in
municipal and tax-exempt securities, including general obligation and revenue
bonds, notes issued by states, counties, cities and state and local governmental
agencies, municipal leases, tax-exempt commercial paper and put bonds.

    FINANCING.  The Company's Financing Unit engages in three primary functions:
managing the Company's matched book activities, supplying secured financing to
customers, and providing funding for the Company's activities. Matched book
funding involves borrowing and lending cash on a short-term basis to
institutional customers collateralized by marketable securities, typically
government or government agency securities. The Company enters into these
agreements in various currencies and seeks to generate profits from the
difference between interest earned and interest paid. The Financing Unit works
with the Company's institutional sales force to identify customers that have
cash to invest and/or securities to pledge to meet the financing and investment
objectives of the Company and its customers. Financing also coordinates with the
Company's Treasury area to provide collateralized financing for a large portion
of the Company's securities and other financial instruments owned. In addition
to its activities on behalf of its U.S. clients and customers, the Company and
its affiliates are major participants in the European and Asian repurchase
agreement markets, providing secured financing for the Company's customers in
those regions.

    FIXED INCOME DERIVATIVES.  The Company and its affiliates offer a broad
range of derivative, interest rate and credit products and services. Derivatives
professionals are integrated into all of the Company's fixed income areas in
response to the worldwide convergence of the cash and derivative markets.

    FOREIGN EXCHANGE.  The global foreign exchange operations of Lehman Brothers
and its affiliates provide market access and liquidity in all currencies for
spot, forward and over-the-counter options markets around the clock. Lehman
Brothers offers its customers superior execution, market intelligence, analysis
and hedging capabilities, utilizing foreign exchange as well as foreign exchange
options and derivatives. Lehman Brothers and its affiliates also provide
advisory services to central banks, corporations, and investors worldwide,
structuring innovative products to fit their specific needs. The Company makes
extensive use of its global macroeconomics research to advise clients on the
appropriate strategies to minimize interest rate and currency risk.

    GLOBAL DISTRIBUTION

    Lehman Brothers' institutional sales organizations encompass distinct global
sales forces that have been integrated into the Fixed Income and Equities
businesses to provide investors with the full array of products and research
offered by the Company. Lehman Brothers has a strategic alliance with Fidelity
Investments that provides the Company access to Fidelity's retail brokerage
customers and a distribution channel for new issue and secondary products and
research to individual investors on-line.

    EQUITY SALES.  Lehman Brothers' institutional Equity sales force provides an
extensive range of services to institutional investors. The Equity sales
organization focuses on developing long-term relationships through a
comprehensive understanding of customers' investment objectives, while providing
proficient execution and consistent liquidity in a wide range of global equity
securities and derivatives.

    FIXED INCOME SALES.  The Company's Fixed Income sales force is one of the
most productive in the industry, serving the investing and liquidity needs of
major institutional investors. Employing a relationship management approach that
provides superior information flow and product opportunities for the

                                       5
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Company's customers, the Fixed Income sales organization covers the major share
of the buying power in the global fixed income markets.

    RESEARCH

    EQUITY RESEARCH.  The Equity Research department is integrated with and
supports the Company's sales and trading activities. To ensure in-depth
expertise within various markets, Equity Research has established regional teams
on a worldwide basis that are staffed with industry and strategy specialists.

    FIXED INCOME RESEARCH.  Fixed Income research at Lehman Brothers encompasses
the full range of research disciplines: quantitative, economic, strategic,
credit, portfolio, relative value and market-specific analysis. Fixed Income
research is integrated with the Company's sales and trading activities. The
department's specialists provide expertise in U.S., European and Asian
government and agency securities, derivatives, sovereign issues, corporate
securities, high yield, asset- and mortgage-backed securities, real estate,
emerging market debt and municipal securities.

CLIENT SERVICES

    Client Services includes the Company's Private Client Services group, a
retail-based organization that primarily serves the investment needs of wealthy
individuals, and its Private Equity Division, which manages assets through a
series of private equity funds.

    PRIVATE CLIENT SERVICES

    The Company's Private Client Services group serves the investment needs of
private investors with substantial assets as well as mid-sized institutional
accounts worldwide. Among other services, investment professionals provide their
clients with direct access to fixed income, equity, foreign exchange and
derivative products, as well as the Company's research and execution
capabilities, thereby serving as a valuable extension of the Company's
institutional sales force.

    The Company also provides asset management services, including Investment
Consulting Services, a wrap-fee series of third party managed products,
management of multiple manager funds onshore and offshore and a managed futures
advisory business. The Company also has dealer agreements with a large number of
mutual fund families.

    PRIVATE EQUITY

    The Company and its affiliates currently have over $5.6 billion in Private
Equity assets under management, primarily in three asset classes: Merchant
Banking, Venture Capital and Real Estate. The primary goal of each asset class
is to make investments that provide attractive returns to investors, including
institutions, high-net-worth individuals, the Company and certain employees of
the Company and its affiliates.

    MERCHANT BANKING.  Lehman Brothers' merchant banking activities include
making principal investments in established companies worldwide, often in
partnership with clients of the Company, and managing these investments until
they are realized. Merchant banking seeks to partner with proven operating teams
that have a compelling business strategy or vision, with the aim of creating
long-term value for investors.

    VENTURE CAPITAL.  Lehman Brothers manages investments in venture capital
focused on technology, communications and healthcare companies. The primary
investment objective of the venture capital investment activities is to make
growth-oriented equity or equity-related investments in privately held
companies. Venture capital investments focus on companies capable of turning
innovative technology and management solutions into successful businesses.

                                       6
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    REAL ESTATE.  Lehman Brothers' affiliated Real Estate Fund is focused on
making equity investments in properties, real estate companies and related
service businesses.

    Commitments for all of the private equity funds are raised in private
placements not requiring registration under the Securities Act of 1933.

TECHNOLOGY AND E-COMMERCE

    Lehman Brothers is committed to maintaining a technology platform to deliver
a full range of capital markets information and services to its institutional
and high-net-worth client base. The e-Commerce organization, which brings
together senior management from all of the Company's global business areas, has
developed the Company's overall e-commerce strategy, approves all e-commerce
investments and provides a forum to share e-commerce knowledge and new
developments across the Company's businesses and geographies. The Company's
e-commerce strategy focuses on client and markets connectivity, content and
strategic ventures. Lehman Brothers has an integrated client and employee web
site, LehmanLive, which serves as a complete suite of services, including
pre-trade (research and analytics), trade and post-trade (clearing and
settlement information, risk management and prime brokerage) information and
employee applications. LehmanLive was an important element in the Firm's
recovery after the terrorist attacks of September 11, 2001. Lehman Brothers has
made many strategic investments and is a participant in a number of
institutional trading networks. Notable investments include TradeWeb,
MarketAxess and SecuritiesHub in Fixed Income, and TheMarkets.com, EquiLend,
Redi/Arca and NYFIX Millennium in Equities. Additionally, Lehman Brothers has
supported the global expansion of NASDAQ with an investment in its U.S.,
European and Japanese ventures.

CORPORATE

    The Company's Corporate division provides support to its businesses through
the processing of certain securities and commodities transactions; receipt,
identification and delivery of funds and securities; safeguarding of customers'
securities; risk management; and compliance with regulatory and legal
requirements. In addition, this staff is responsible for technology
infrastructure and systems development, treasury operations, financial control
and analysis, tax planning and compliance, internal audit, expense management,
career development and recruiting and other support functions.

RISK MANAGEMENT

    As a leading global investment banking company, risk is an inherent part of
the Company's businesses. Global markets, by their nature, are prone to
uncertainty and subject participants to a variety of risks. Lehman Brothers has
developed policies and procedures designed to identify, measure and monitor each
of the risks involved in its trading, brokerage and investment banking
activities on a global basis. The principal risks of Lehman Brothers are market,
credit, liquidity, legal and operational risks. As part of the Company's
customer-flow activities, Lehman Brothers takes proprietary positions in
interest rates, foreign exchange and various securities, derivatives and
commodities. Although the Company seeks to mitigate risk associated with such
positions through hedging activities, consistent with its expectations of future
events, it is subject to the risk that actual market events may differ from the
Company's expectations, which may result in losses associated with such
positions.

    Lehman Brothers has developed a control infrastructure to monitor and manage
each type of risk on a global basis throughout the Company. A full description
of the Company's Risk Management procedures is contained in "Management's
Analysis of Results of Operations--Risk Management" on pages 20-23 hereof, and
is incorporated herein by reference.

                                       7
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COMPETITION

    All aspects of the Company's business are highly competitive. The Company
competes in domestic and international markets directly with numerous other
brokers and dealers in securities and commodities, including traditional and
online securities brokerage firms, investment banking firms, investment advisors
and certain commercial banks and, indirectly for investment funds, with
insurance companies and others.

    The financial services industry has become considerably more concentrated as
numerous securities firms have been acquired by or merged into other firms.
These developments have increased competition from other firms, many of which
have significantly greater equity capital than the Company. Legislative and
regulatory changes in the United States allow commercial banks to enter
businesses previously limited to investment banks, and several combinations
between commercial banks and investment banks have occurred, which has further
increased competition.

REGULATION

    The securities industry in the United States is subject to extensive
regulation under both federal and state laws. LBI is registered as a
broker-dealer, and LBI and certain other subsidiaries of Holdings are registered
as investment advisors with the Securities and Exchange Commission (the "SEC")
and as such are subject to regulation by the SEC and by self-regulatory
organizations, principally the NASD, national securities exchanges such as the
New York Stock Exchange (which has been designated by the SEC as LBI's primary
regulator) and the Municipal Securities Rulemaking Board. Securities firms are
also subject to regulation by state securities administrators in those states in
which they conduct business. LBI is a registered broker-dealer in all 50 states,
the District of Columbia and the Commonwealth of Puerto Rico. The SEC,
self-regulatory organizations and state securities commissions may conduct
administrative proceedings, which may result in censure, fine, the issuance of
cease-and-desist orders or suspension or expulsion of a broker-dealer or an
investment advisor, its officers or employees.

    LBI is also registered with the Commodity Futures Trading Commission (the
"CFTC") as a futures commission merchant and is subject to regulation as such by
the CFTC and various domestic boards of trade and other commodity exchanges. The
Company's U.S. commodity futures and options business is also regulated by the
National Futures Association, a not-for-profit membership corporation which has
been designated as a registered futures association by the CFTC.

    The Company believes that it is in material compliance with the regulations
described herein.

CAPITAL REQUIREMENTS

    LBI is subject to various securities, commodities and banking regulations
and capital adequacy requirements promulgated by regulatory and exchange
authorities. Reference is made to Note 6 of Notes to Consolidated Financial
Statements on page F-19 hereof, which is incorporated herein by reference.

EMPLOYEES

    As of November 30, 2001, LBI employed approximately 8,300 persons. The
Company considers its relationship with its employees to be good.

                                       8
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ITEM 2. PROPERTIES

    As a result of the terrorist attacks of September 11, 2001, Lehman Brothers
was forced to relocate its employees and operations from downtown Manhattan. In
November 2001 the Company purchased a new 1,000,000 square-foot office tower at
745 Seventh Avenue in New York City. This building is the Firm's new world
headquarters. The Company began occupying the new building in January 2002 and
expects to have substantially occupied the space by the summer of 2002.

    In October 2001, the Company leased approximately 437,000 square feet of
office space at 399 Park Avenue and 56,000 square feet of data center space at
another location in New York City, each with a term extending until 2016.

    The Company's former world headquarters at Three World Financial Center in
downtown New York City, occupying approximately 1.1 million square feet, which
the Company owns under a tenancy-in-common arrangement with American Express
Company, suffered significant damage in the terrorist attacks. A repair and
remediation plan is currently underway, although a completion date has not been
finalized.

    The Company had leased approximately 160,000 square feet of space at One
World Trade Center in New York City, which was destroyed in the September 11
attacks. The Company exercised its right to terminate this lease effective
February 2002. This lease was due to expire in 2015.

    Lehman Brothers also leases space at One World Financial Center in the same
office complex as Three World Financial Center. This space suffered some damage
in the attacks and is currently unoccupied. Prior to September 11, the Company
had occupied 100,000 square feet of the One World Financial Center space, which
was scheduled ultimately to consist of approximately 715,000 square feet.
Approximately 95,000 square feet were to be occupied during 2001 after
September 11, and 520,000 square feet were to be occupied in stages thereafter.
The lease terms at One World Financial Center expire at various dates from
December 2015 through 2025, with the exception of a lease for 148,000 square
feet, which expires in 2006.

    The Company is currently evaluating its space needs and exploring its
alternatives with respect to its downtown New York City facilities.

    In September 2001, Lehman Brothers assumed a 409,000 square foot lease for
additional office space in Jersey City, New Jersey, with a term extending until
2016. Approximately 256,000 square feet of the premises have been subleased to a
third-party tenant. The Company also leases approximately 400,000 square feet of
office space in a nearby building (the "Operations Center"), of which
approximately 32,000 square feet have been subleased to a third-party tenant.
The Operations Center is used by systems, operations and certain administrative
personnel. The lease term expires in 2011.

    Facilities occupied by the Company and its subsidiaries (or to be occupied
as described above) are believed to be adequate for the purposes for which they
are or are to be used and are well maintained.

ITEM 3. 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
generally 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 it intends to defend vigorously each such case. Based on

                                       9
<Page>
information currently available and established reserves, the Company believes
that the eventual outcome of the actions against it, including the matters
described below, will not, in the aggregate, have a material adverse effect on
the consolidated financial position of the Company but may be material to the
Company's operating results for any particular period, depending on the level of
the Company's income for such period.

LEHMAN BROTHERS COMMERCIAL CORPORATION AND LEHMAN BROTHERS SPECIAL
FINANCING INC. V. MINMETALS INTERNATIONAL NON-FERROUS METALS TRADING COMPANY

    On November 15, 1994, a Holdings subsidiary, Lehman Brothers Commercial
Corporation ("LBCC"), and an LBI subsidiary, Lehman Brothers Special
Financing Inc. ("LBSF"), commenced an action against Minmetals International
Non-Ferrous Metals Trading Company ("Minmetals") and China National Metals and
Minerals Import and Export Company ("CNM") in the United States District Court
for the Southern District of New York alleging breach of contract against
Minmetals and breach of guarantee against CNM. The litigation arose from the
refusal by Minmetals and CNM to honor their obligations with respect to certain
foreign exchange and swap transactions. LBCC and LBSF seek to recover
approximately $52.5 million from Minmetals and/or CNM. Minmetals filed
counterclaims against Lehman entities based on violations of federal securities
and commodities laws and rules and theories of fraud, breach of fiduciary duty
and conversion. A non-jury trial began on December 10, 2001, and testimony was
completed on February 15, 2002. The court has the case under submission.

AIA HOLDING SA ET AL. V. LEHMAN BROTHERS INC. AND BEAR STEARNS & CO., INC.

    On July 9, 1997, LBI was served with a complaint in the United States
District Court for the Southern District of New York in which 277 named
plaintiffs assert 24 causes of action against LBI and Bear Stearns & Co., Inc.
The amount of damages claimed is unspecified. The claims arise from the
activities of an individual named Ahmad Daouk, who was employed by an
introducing broker which introduced accounts to LBI between 1988 and 1992. Daouk
allegedly perpetrated a fraud upon the claimants, who are mostly investors of
Middle Eastern origin, and the complaint alleges that LBI breached various
contractual and common law duties owed to the investors. On March 27, 1998, the
District Court dismissed without prejudice 18 of the 24 counts pleaded in the
complaint. On July 3, 1998, the plaintiffs served their First Amended Complaint
containing 18 causes of action against LBI and/or Bear Stearns. The court has
ordered the plaintiffs divided into 14 groups of 20 for trial purposes. No trial
date has been set.

HAROLD GILLET, ET AL. V. GOLDMAN SACHS & CO., ET AL.; YAKOV PRAGER, ET AL. V.
GOLDMAN, SACHS & CO., ET AL.; DAVID HOLZMAN, ET AL. V. GOLDMAN, SACHS & CO., ET
AL.

    Beginning in November 1998, three class actions were filed in the United
States District Court for the Southern District of New York against in excess of
25 underwriters of initial public offering ("IPO") securities, including LBI.
Plaintiffs, alleged purchasers of securities issued in certain IPOs, seek
compensatory and injunctive relief for alleged violations of the antitrust laws
based on the theory that the defendants fixed and maintained fees for
underwriting certain IPO securities at supra-competitive levels. On March 15,
1999, plaintiffs filed a Consolidated Amended Complaint. On April 29, 1999, LBI
and the other defendants moved to dismiss the Consolidated Amended Complaint. By
order dated November 17, 1999, a fourth purported class action, also brought on
behalf of purchasers, was consolidated with the existing actions.

    By memorandum and order dated February 9, 2001 (the "Order"), the court
granted defendants' motion to dismiss the Consolidated Amended Complaint and
denied plaintiffs' request for leave to file a Second Amended Complaint. In the
Order, the court concluded that the purchaser plaintiffs lacked standing under
the antitrust laws to assert the claims. The court indicated in the Order that
its decision did not apply to any claims brought on behalf of issuers of IPO
securities. The case is on appeal to the U.S. Court of Appeals for the Second
Circuit.

                                       10
<Page>
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.; (2) EQUALNET COMMUNICATIONS CORP. V. GOLDMAN SACHS
GROUP, INC., ET AL.; (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. 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 supra-competitive levels. CHS Electronics voluntarily dismissed
its claims with prejudice in October 2001.

ISLAND VENTURE CORPORATION, ET AL. V. LEHMAN BROTHERS INC. AND LEHMAN BROTHERS
SECURITIES ASIA, LTD.

    On February 9, 2001, Island Venture Corporation, Continental Resources
Corporation, Recola Investment Corporation, Grand Concord Corporation and
Goodwell Industrial Corporation filed a First Amended Complaint in the United
States District Court for the District of New Jersey against LBI and Lehman
Brothers Securities Asia, Ltd. In July 2001, plaintiffs filed a Second Amended
Complaint. 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 contract, breach of fiduciary duty, negligence,
negligent misrepresentation and constructive fraud, as well as asserting claims
under Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act").
The plaintiffs seek to recover damages of approximately $60 million on all the
notes they purchased and the difference between the liquidation price and the
face value of the Basket Note plus lost interest payments.

IPO ALLOCATION CASES

    LBI has been named as a defendant in approximately 192 purported securities
class actions that were filed between March and December 2001 in the United
States District Court for the Southern District of New York. The actions, which
allege improper IPO allocation practices, have been brought by persons who,
either directly or in the aftermarket, purchased IPO securities during the
period between March 1997 and December 2000. The plaintiffs allege that Lehman
and other IPO underwriters required persons receiving allocations of IPO shares
to pay excessive commissions on unrelated trades and to purchase shares in the
aftermarket at specified escalating prices. The plaintiffs, who seek unspecified
compensatory damages, claim that these alleged practices violated various
provisions of the federal securities laws, specifically, sections 11, 12(a)(2)
and 15 of the Securities Act of 1933 (the "Securities Act"), section 10(b) of
the Exchange Act, Rule 10b-5 promulgated thereunder, and section 20(a) of the
Exchange Act. The 192 actions in which LBI was named a defendant have been
consolidated into 83 cases, each involving a distinct offering. Those 83
consolidated cases, and approximately 240 others in which LBI is not named as a
defendant, have been coordinated for pretrial purposes before a single judge.

    On January 2, 2002, a separate consolidated class action, entitled IN RE
INITIAL PUBLIC OFFERING ANTITRUST LITIGATION, was filed against LBI, among other
underwriters, alleging violations of federal and state antitrust laws. The
complaint alleges that the underwriter defendants conspired to require customers
who wanted IPO allocations to pay back to the underwriters a percentage of their
IPO profits in the form of commissions on unrelated trades, to purchase other,
less attractive securities and to buy shares in the aftermarket at predetermined
escalating prices. Originally filed as twelve separate class actions in three
different courts, the consolidated antitrust action is now pending before a
single judge--different from the

                                       11
<Page>
one hearing the securities cases--in the United States District Court for the
Southern District of New York. The antitrust plaintiffs seek unspecified treble
damages.

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. Pursuant to a Stipulation and Order of Dismissal, agreed to by the
parties and approved by the court, the case was dismissed without prejudice in
November 2001.

YOUNG, ET AL. V. DREISBACH, ET AL.

    On November 1, 2001, this purported class action was filed in the United
States District Court for the Northern District of California. The action is
brought on behalf of a purported class of investors who purchased the common
stock of Metricom, Inc., during the period from June 21, 1999, to July 2, 2001.
Plaintiffs name various officers, directors and selling shareholders of
Metricom, along with LBI and the four other co-managing underwriters of an
offering of Metricom common stock on February 3, 2000. Prior to the commencement
of this action, Metricom filed for protection under the federal bankruptcy code.
The February 2000 offering raised approximately $500 million. Against the
underwriters, plaintiffs allege violations of Sections 11 and 12(2) of the
Securities Act and of Section 10(b) of the Exchange Act. The complaint alleges
that the prospectus and registration statement for the offering failed to
disclose material facts concerning, among other things, Metricom's flawed
business plan and marketing strategy. The complaint seeks class action status,
damages and "statutory compensation", and attorneys' fees and other costs.

ACTIONS REGARDING FRANK GRUTTADAURIA

    The Company discovered in January 2002 that Frank Gruttadauria, the former
branch manager of the Company's Cleveland office, which was acquired in
October 2000 from SG Cowen Securities Corporation ("SG Cowen") as part of the
purchase by the Company of certain accounts and related assets belonging to SG
Cowen's private client group, has apparently been involved in creating false
account statements for clients of that office and may have caused unauthorized
transfers of funds from client accounts. This conduct has allegedly taken place
for a number of years and began well prior to the acquisition of this office by
Lehman Brothers. Lehman Brothers continues to investigate the situation and
cooperate with law enforcement authorities. Under the terms of the purchase
agreement, SG Cowen retained liability for activities arising out of the conduct
or operation of the business while owned by SG Cowen.

    ROBERT FAZIO ET AL. V. FRANK GRUTTADAURIA, LEHMAN BROTHERS INC., LEHMAN
BROTHERS HOLDINGS INC. ET AL. In February 2002, LBI and Holdings were served
with an amended complaint in the United States District Court for the Northern
District of Ohio, Eastern Division. The amended complaint alleges violations of
section 10(b) of the Exchange Act and Rule 10b-5 thereunder; violations of
various NASD and New York Stock Exchange rules; violations of the Racketeer
Influenced and Corrupt Organizations Act (RICO); violations of Ohio laws; common
law fraud; breach of fiduciary duty; failure to supervise and respondeat
superior liability. Plaintiffs seek the amounts in their accounts from various
times, alleged as approximately $18.5 million, plus appreciation on that amount,
plus all income taxes plaintiffs paid on any non-existent gains; treble damages
on the foregoing amounts; statutory relief; punitive damages; pre- and
post-judgment interest; attorneys fees and costs and any other relief the court
deems appropriate.

                                       12
<Page>
    EUNICE POST MELTZER V. LEHMAN BROTHERS INC. AND SG COWEN SECURITIES
CORPORATION.  In January 2002, LBI was served with a complaint in the United
States District Court for the Northern District of Illinois, Eastern Division.
The complaint alleges theft, embezzlement and negligent and reckless failure to
supervise and that plaintiff has been damaged in excess of $1 million. Plaintiff
seeks delivery of all assets allegedly stolen plus interest and dividends,
punitive damages, attorneys fees and costs and any other relief the court deems
appropriate.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    Pursuant to General Instruction I of Form 10-K, the information required by
Item 4 is omitted.

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
       STOCKHOLDER MATTERS

    All of the outstanding Common Stock, par value $0.10 per share, of the
Company is owned by Holdings. For information on payment of dividends by the
Company during the two most recent fiscal years, see Note 13 of Notes to
Consolidated Financial Statements on pages F-32 and F-33 hereof, which
information is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

    Pursuant to General Instruction I of Form 10-K, the information required by
Item 6 is omitted.

ITEM 7. MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS

    Pursuant to General Instruction I of Form 10-K, set forth on the following
pages is Management's Analysis of Results of Operations for the twelve months
ended November 30, 2001, November 30, 2000, and November 30, 1999. Such
information should be read in conjunction with the Consolidated Financial
Statements of the Registrant and its Subsidiaries together with the Notes
thereto contained on pages F-1 to F-35 hereof.

                                       13
<Page>
                 MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                PAGE
                                                              --------
<S>                                                           <C>
RESULTS OF OPERATIONS.......................................     15

  Net Revenues..............................................     15
  Non-Interest Expenses.....................................     18
  Income Taxes..............................................     19

SUMMARY OF CONTRACTUAL OBLIGATIONS..........................     19

RISK MANAGEMENT.............................................     20
  Credit Risk...............................................     21
  Market Risk...............................................     21
  Value-at-Risk.............................................     22

SIGNIFICANT ACCOUNTING POLICIES.............................     23

NEW ACCOUNTING DEVELOPMENTS.................................     24

EFFECTS OF INFLATION........................................     24
</Table>

                                       14
<Page>
                 MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

    The Company reported net income of $855 million in 2001, $1,134 million in
2000 and $696 million in 1999. The Company's results in 2001 include the impact
of a $51 million pretax special charge stemming from the events of
September 11, which resulted in the displacement and relocation of the Company's
New York employees located in lower Manhattan, as well as the difficult market
environment experience during 2001. (Additional information about the special
charge can be found in Note 2 to the Consolidated Financial Statements.)

NET REVENUES

    Net revenues were $4,094 million in 2001, $4,735 million in 2000 and $3,478
in 1999. This performance, in an extremely difficult market environment and
coupled with the direct effects of September 11 terrorist attack, demonstrates
the depth and resiliency of the Company's franchise.

    The Company is segregated into the following three business segments (each
of which are described below): Investment Banking, Capital Markets and Client
Services. Each segment represents a grouping 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 all
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.)

TWELVE MONTHS ENDED NOVEMBER 30, 2001
(IN MILLIONS)

<Table>
<Caption>
                                            PRINCIPAL TRANSACTIONS,
                                                COMMISSIONS AND
                                                 NET INTEREST         INVESTMENT BANKING    OTHER      TOTAL
                                            -----------------------   ------------------   --------   --------
<S>                                         <C>                       <C>                  <C>        <C>
Investment Banking........................           $   --                 $1,484           $--       $1,484
Capital Markets...........................            1,858                                   20        1,878
Client Services...........................              684                     24            24          732
                                                     ------                 ------           ---       ------
Total.....................................           $2,542                 $1,508           $44       $4,094
                                                     ======                 ======           ===       ======
</Table>

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

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 AND LIQUIDITY RISKS INCLUDE CHANGES IN INTEREST AND FOREIGN EXCHANGE
RATES AND SECURITIES AND COMMODITIES VALUATIONS, THE AVAILABILITY AND COST OF
CAPITAL AND CREDIT, CHANGES IN INVESTOR SENTIMENT, GLOBAL ECONOMIC AND POLITICAL
TRENDS AND INDUSTRY COMPETITION. LEGAL RISKS INCLUDE LEGISLATIVE AND REGULATORY
DEVELOPMENTS IN THE U.S. AND THROUGHOUT THE WORLD. 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 AND,
ACCORDINGLY, READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH
STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

                                       15
<Page>
TWELVE MONTHS ENDED NOVEMBER 30, 2000
(IN MILLIONS)

<Table>
<Caption>
                                            PRINCIPAL TRANSACTIONS,
                                                COMMISSIONS AND
                                                 NET INTEREST         INVESTMENT BANKING    OTHER      TOTAL
                                            -----------------------   ------------------   --------   --------
<S>                                         <C>                       <C>                  <C>        <C>
Investment Banking........................           $   --                 $1,609           $--       $1,609
Capital Markets...........................            2,441                                   23        2,464
Client Services...........................              625                      5            32          662
                                                     ------                 ------           ---       ------
Total.....................................           $3,066                 $1,614           $55       $4,735
                                                     ======                 ======           ===       ======
</Table>

TWELVE MONTHS ENDED NOVEMBER 30, 1999
(IN MILLIONS)

<Table>
<Caption>
                                            PRINCIPAL TRANSACTIONS,
                                                COMMISSIONS AND
                                                 NET INTEREST         INVESTMENT BANKING    OTHER      TOTAL
                                            -----------------------   ------------------   --------   --------
<S>                                         <C>                       <C>                  <C>        <C>
Investment Banking........................           $   --                 $1,135           $--       $1,135
Capital Markets...........................            1,894                                    5        1,899
Client Services...........................              439                     (7)           12          444
                                                     ------                 ------           ---       ------
Total.....................................           $2,333                 $1,128           $17       $3,478
                                                     ======                 ======           ===       ======
</Table>

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

    INVESTMENT BANKING

    This segment's net revenues result from fees earned by the Company for
underwriting public and private offerings of fixed income and equity securities,
and advising clients on merger and acquisition activities and other services.
Investment Banking's net revenues decreased 8% in 2001 to $1,484 million from
$1,609 million in 2000, as record debt underwriting activity was more than
offset by declines in both equity underwriting and merger and acquisition fees
due to industry-wide decreases in volume. In 2000, Investment Banking net
revenues increased 42% from $1,135 million in 1999.

INVESTMENT BANKING NET REVENUES:
(IN MILLIONS)

<Table>
<Caption>
                                                                2001       2000       1999
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Debt Underwriting...........................................   $  812     $  481     $  527
Equity Underwriting.........................................      291        557        286
Merger and Acquisition Advisory.............................      381        571        322
                                                               ------     ------     ------
                                                               $1,484     $1,609     $1,135
                                                               ======     ======     ======
</Table>

    Debt underwriting net revenues increased 69% to a record $812 million in
2001, as issuers continued to take advantage of lower interest rates to raise
long-term debt and replace short-term financings. Contributing to these results
was an increase in the Company's global market share for debt origination, which
grew to 6.6% in 2001 from 5.8% for 2000, according to Thomson Financial
Securities Data Corp ("TFSD"). In 2000, debt underwriting net revenues decreased
9% from $527 million in 1999.

    Equity origination net revenues were down 48% compared to a year ago, as
industry-wide equity underwriting declined significantly during the year.
However, the Company continued to grow its equity

                                       16
<Page>
underwriting market share during the year. The Company's global equity
origination volume share increased over 41% to 4.8% compared to 2000 as the
value of lead managed deals increased to $15.9 billion, according to TFSD.
Equity origination net revenues increased 95% in 2000 from $286 million in 1999.

    Merger and acquisition advisory fees decreased 33% compared to last year's
record results as industry-wide volumes for completed deals decreased 33%,
according to TFSD. For the year, the Company improved its market share in U.S.
announced mergers and acquisition transactions. Merger and acquisition advisory
fees increased 77% in 2000 from $322 million in 1999.

    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
$1,878 million for 2001, $2,464 million for 2000 and $1,899 million for 1999.
The 24% decrease in net revenues in 2001 is primarily attributable to declining
global equity markets during 2001.

CAPITAL MARKETS NET REVENUES:
(IN MILLIONS)

<Table>
<Caption>
                                                                2001       2000       1999
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Fixed Income................................................   $1,075     $1,104     $1,108
Equities....................................................      803      1,360        791
                                                               ------     ------     ------
                                                               $1,878     $2,464     $1,899
                                                               ======     ======     ======
</Table>

    Net revenues from the fixed income component of Capital Markets decreased 3%
to $1,075 million, as strong institutional customer flow activity was offset by
a weak contribution from the high yield market, due to a deteriorating credit
environment. In 2000, fixed income net revenues remained relatively unchanged
compared to 1999.

    Net revenues from the equity component of Capital Markets decreased 41% to
$803 million in 2001. Declining global equity markets resulted in less equity
origination activity, which in turn resulted in less secondary activity. This
factor, combined with a significant decrease in market volatility levels and
spread compression beginning in the second quarter of 2001 from NASDAQ
decimalization, and declines in revenues from both private equity and risk
arbitrage activities led to the decrease in 2001 net revenues. In 2000, net
revenues from the equities component of Capital Markets increased 72% from
$791 million in 1999.

    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, where the Company strives to add value to its client base of
high-net-worth individuals and mid-sized institutional investors. Private Equity
net revenues include the management and incentive fees earned in the Company's
role as general partner for private equity banking partnerships.

                                       17
<Page>
CLIENT SERVICES NET REVENUES:
(IN MILLIONS)

<Table>
<Caption>
                                                                2001       2000       1999
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Private Client..............................................    $706       $651       $449
Private Equity..............................................      26         11         (5)
                                                                ----       ----       ----
                                                                $732       $662       $444
                                                                ====       ====       ====
</Table>

    Client Services' net revenues for 2001 were $732 million compared to
$662 million for 2000 and $444 million for 1999. The 8% increase in Private
Client in 2001 was driven by strong production results from the Company's
high-net-worth sales force despite the weak equity market environment. The
Company has been able to establish a consistent flow of revenues from the
high-net-worth sector, as these investors actively rebalance their portfolios to
adjust for market conditions.

    Private Equity net revenues increased to $26 million from $11 million in
2000, primarily due to a $20 million incentive fee recognized from an individual
Merchant Banking investment through the Company's role as general partner.

NON-INTEREST EXPENSES

    Non-interest expenses in 2001 totaled $2,965 million, down 5% from 2000's
non-interest expenses of $3,118 million, as a decrease in compensation and
benefits was partially offset by an increase in nonpersonnel expenses. 2001
total non-interest expenses included a special charge of $51 million related to
the events of September 11. Excluding the special charge, non-interest expenses
were down 7% from 2000. The decrease in non-interest expenses highlights the
Company's continued disciplined approach to expense management. This ongoing
focus on expenses is a key attribute of the Company's strategic objectives.

<Table>
<Caption>
                                                                   TWELVE MONTHS ENDED
                                                                       NOVEMBER 30
                                                              ------------------------------
                                                                2001       2000       1999
(IN MILLIONS)                                                 --------   --------   --------
<S>                                                           <C>        <C>        <C>
Compensation and benefits...................................   $2,088     $2,304     $1,764
Nonpersonnel................................................      826        814        701
Special charge..............................................       51         --         --
                                                               ------     ------     ------
Total non-interest expenses.................................   $2,965     $3,118     $2,465
                                                               ======     ======     ======
</Table>

    Compensation and benefits expense as a percentage of net revenues increased
to 51.0% from 48.7% in 2000 and 50.7% in 1999. Compensation and benefits expense
includes the cost of salaries, incentive compensation and employee benefit plans
as well as the amortization of deferred stock compensation awards.

    Nonpersonnel expenses increased slightly in 2001 compared to 2000, as
increases in technology and communications expenses and brokerage and clearance
fees were offset by reductions in other expense items, as the Company focused on
reducing discretionary items during the year. In 2000, total non-interest
expenses increased 26% from 1999. This increase was driven by higher
compensation costs as a result of increased revenues, as well as an increase in
nonpersonnel expenses as the Company invested in technology capabilities.

    During the fourth quarter of 2001, the Company recorded a $51 million
special charge relating to the events of September 11. This charge reflects all
costs and asset write-offs associated with these events, net of related
estimated insurance recoveries. The Company is pursuing a claim with its
insurance carriers for the property damage, incremental costs and lost revenues
from the business interruption from these

                                       18
<Page>
events. (Additional information about the special charge can be found in Note 2
to the Consolidated Financial Statements.)

INCOME TAXES

    The Company's 2001 income tax provision of $274 million represented an
effective tax rate of 24.3%. Excluding the impact of the special charge, the
effective tax rate for 2001 was 25.2%. In 2000 and 1999, the income tax
provision was $483 million and $317 million, respectively, resulting in
effective tax rates of 29.9% and 31.3%. The decrease in the effective tax rate
in 2001 was primarily due to a greater impact of permanent differences due to a
decrease in the level of pretax income and an increase in tax-exempt income.
Additional information about the Company's income taxes can be found in Note 8
to the Consolidated Financial Statements.

SUMMARY OF CONTRACTUAL OBLIGATIONS

    As of November 30, 2001 and 2000, the Company was contingently liable for
$0.9 billion and $1.5 billion, respectively, of letters of credit, primarily
used to provide collateral for securities and commodities borrowed and to
satisfy margin deposits at option and commodity exchanges, and other guarantees.

    In connection with its secured financing activities, the Company had
outstanding commitments under certain secured lending arrangements of
approximately $1.5 billion and $3.0 billion, at November 30, 2001 and 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. At
November 30, 2001 the Company had commitments to enter into forward starting
secured resale and repurchase agreements of $43.6 billion and $21.5 billion,
respectively, as compared to $47.6 billion and $14.5 billion, respectively, at
November 30, 2000.

    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. The Company utilizes various hedging and funding
strategies to actively manage its market, credit and liquidity exposures on
these commitments. In addition, total commitments are not indicative of actual
risk or funding requirements, as the commitments may not be drawn or fully
utilized. These commitments and any related draw downs of these facilities
typically have fixed maturity dates and are contingent upon certain
representations, warranties and contractual conditions applicable to the
borrower.

    At November 30, 2001 and 2000, the Company had net lending commitments to
investment grade borrowers of $2.1 billion (gross commitments of $3.2 billion
less $1.1 billion of associated hedges) and $2.5 billion ($2.6 billion of gross
commitments and $0.1 billion of associated hedges), respectively. Lending
commitments to non-investment grade borrowers totaled $1.0 billion and
$0.9 billion at November 30, 2001 and 2000, respectively. In addition, the
Company has pre-arranged funding facilities with third party lenders of
$2.9 billion at both November 30, 2001 and November 30, 2000, available to it to
fund draw downs against these commitments. These funding facilities contain
limits for certain concentrations of counterparty, industry or credit ratings of
the underlying loans.

    As of November 30, 2001 and 2000, the Company had commitments to invest up
to $169 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.

                                       19
<Page>
    Aggregate contractual obligations and other commitments as of November 30,
2001 by maturity are as follows:

<Table>
<Caption>
                                                                 AMOUNT OF COMMITMENT EXPIRATION PER
                                                                                PERIOD
                                                   TOTAL      ------------------------------------------
(IN MILLIONS)                                   CONTRACTUAL   LESS THAN     1-3        4-5      AFTER 5
NOVEMBER 30, 2001                                 AMOUNT       1 YEAR      YEARS      YEARS      YEARS
-----------------                               -----------   ---------   --------   --------   --------
<S>                                             <C>           <C>         <C>        <C>        <C>
Lending commitments:
  High grade..................................    $ 2,130      $ 1,491    $   440     $  199    $    --
  High yield..................................      1,045          165        406        287        187
  Secured lending transactions, including
    forward starting resale and repurchase
    agreements................................     66,647       22,994     18,730      7,056     17,867
Standby letters of credit.....................        891           --        891         --         --
Private equity investments....................        169           --        169         --         --
Operating lease obligations...................      1,065           39        118         70        838
Long-term debt maturities.....................      6,127        1,225      3,383        659        860
Short-term debt maturities....................      1,038        1,038         --         --         --
</Table>

    For additional information on contractual obligations see Note 12 to the
Consolidated Financial Statements.

RISK MANAGEMENT

    As a leading global investment banking company, risk is an inherent part of
the Company's businesses. Global markets, by their nature, are prone to
uncertainty and subject participants to a variety of risks. The Company has
developed policies and procedures to identify, measure and monitor each of the
risks involved in its trading, brokerage and investment banking activities on a
global basis. The principal risks of Lehman Brothers are market, credit,
liquidity, legal and operational risks. Risk Management is considered to be of
paramount importance. Consequently, the Company devotes significant resources
across all of its worldwide trading operations to the measurement, management
and analysis of risk, including investments in personnel and technology.

    The Company seeks to reduce risk through the diversification of its
businesses, counterparties and activities in geographic regions. The Company
accomplishes this objective by allocating the usage of capital to each of its
businesses, establishing trading limits for individual products and traders and
setting credit limits for individual counterparties, including regional
concentrations. The Company seeks to achieve adequate returns from each of its
businesses commensurate with the risks that they assume.

    Overall risk management policy is established by a Risk Management Committee
(the "Committee") comprised of the Chief Executive Officer, the Global Risk
Manager, the Chief Financial Officer, the Chief Administrative Officer and the
Heads of Capital Markets and Investment Banking. The Committee brings together
senior management with the sole intent of discussing risk-related issues and
provides an effective forum for managing risk at the highest levels within the
Company. The Committee meets on a weekly basis, or more frequently if required,
to discuss, among other matters, significant exposures, concentrations of
positions (e.g., counterparty, market risk), potential new transactions or
positions and risk limit exceptions.

    The Global Risk Management Group (the "Group") supports the Committee, is
independent of the trading areas and reports directly to the Chief Executive
Officer. The Group combines two departments, credit risk management and market
risk management, into one unit. This facilitates the analysis of counterparty
credit and market risk exposures and leverages personnel and information
technology resources in a cost-efficient manner. The Group maintains staff in
each of the Company's regional trading centers and has daily contact with
trading staff at all levels within the Company. These discussions include a
review of trading positions and risk exposures.

                                       20
<Page>
CREDIT RISK

    Credit risk represents the possibility that a counterparty will be unable to
honor its contractual obligations to the Company. Credit risk management is
therefore an integral component of the Company's overall risk management
framework. The Credit Risk Management Department ("CRM Department") has global
responsibility for implementing the Company's overall credit risk management
framework.

    The CRM Department manages the credit exposure related to trading activities
by giving initial credit approval for counterparties, establishing credit limits
by counterparty, country and industry group and by requiring collateral in
appropriate circumstances. In addition, the CRM Department strives to ensure
that master netting agreements are obtained whenever possible. The CRM
Department also considers the duration of transactions in making its credit
decisions, along with the potential credit exposure for complex derivative
transactions. The CRM Department is responsible for the continuous monitoring
and review of counterparty credit exposure and creditworthiness and recommending
valuation adjustments where appropriate. Credit limits are reviewed periodically
to ensure that they remain appropriate in light of market events or the
counterparty's financial condition.

MARKET RISK

    Market risk represents the potential change in value of a portfolio of
financial instruments due to changes in market rates, prices and volatilities.
Market risk management also is an essential component of the Company's overall
risk management framework. The Market Risk Management Department ("MRM
Department") has global responsibility for implementing the Company's overall
market risk management framework. It is responsible for the preparation and
dissemination of risk reports, developing and implementing the firmwide Risk
Management Guidelines and evaluating adherence to these guidelines. These
guidelines provide a clear framework for risk management decision-making. To
that end the MRM Department identifies and quantifies risk exposures, develops
limits, and reports and monitors these risks with respect to the approved
limits. The identification of material market risks inherent in positions
includes, but is not limited to, interest rate, equity and foreign exchange risk
exposures. In addition to these risks, the MRM Department also evaluates
liquidity risks, credit and sovereign concentrations.

    The MRM Department utilizes qualitative as well as quantitative information
in managing trading risk, believing that a combination of the two approaches
results in a more robust and complete approach to the management of trading
risk. Quantitative information is developed from a variety of risk methodologies
based upon established statistical principles. To ensure high standards of
qualitative analysis, the MRM Department has retained seasoned risk managers
with the requisite experience and academic and professional credentials.

    Market risk is present in cash products, derivatives and contingent claim
structures that exhibit linear as well as non-linear profit and loss
sensitivity. The Company's exposure to market risk varies in accordance with the
volume of client driven market-making transactions, the size of the Company's
proprietary and arbitrage positions and the volatility of financial instruments
traded. The Company seeks to mitigate, whenever possible, excess market risk
exposures through the use of futures and option contracts and offsetting cash
market instruments.

    The Company participates globally in interest rate, equity and foreign
exchange markets. The Company's Fixed Income division has a broadly diversified
market presence in U.S. and foreign government bond trading, emerging market
securities, corporate debt (investment and non-investment grade), money market
instruments, mortgages and mortgage-backed securities, asset-backed securities,
municipal bonds and interest rate derivatives. The Company's Equities division
facilitates domestic and foreign trading in equity instruments, indices and
related derivatives. The Company's foreign exchange businesses are involved in
trading currencies on a spot and forward basis as well as through derivative
products and contracts.

                                       21
<Page>
    The Company incurs short-term interest rate risk when facilitating the
orderly flow of customer transactions through the maintenance of government and
high-grade corporate bond inventories. Market-making in high yield instruments
exposes the Company to additional risk due to potential variations in credit
spreads. Trading in international markets exposes the Company to spread risk
between the term structure of interest rates in differing countries. Mortgages
and mortgage-related securities are subject to prepayment risk and changes in
the level of interest rates. Trading in derivatives and structured products
exposes the Company to changes in the level and volatility of interest rates.
The Company actively manages interest rate risk through the use of interest rate
futures, options, swaps, forwards and offsetting cash market instruments.
Inventory holdings, concentrations and agings are monitored closely and used by
management to selectively hedge or liquidate undesirable exposures.

    The Company is a significant intermediary in the global equity markets
through its market-making in U.S. and non-U.S. equity securities, including
common stock, convertible debt, exchange-traded and OTC equity options, equity
swaps and warrants. These activities expose the Company to market risk as a
result of price and volatility changes in its equity inventory. Inventory
holdings are also subject to market risk resulting from concentrations and
liquidity that may adversely impact market valuation. Equity market risk is
actively managed through the use of index futures, exchange-traded and OTC
options, swaps and cash instruments.

    The Company enters into foreign exchange transactions in order to facilitate
the purchase and sale of non-dollar instruments, including equity and interest
rate securities. The Company is exposed to foreign exchange risk on its holdings
of non-dollar assets and liabilities. The Company is active in many foreign
exchange markets and has exposure to the euro, Japanese yen, British pound,
Swiss franc and Canadian dollar as well as a variety of developed and emerging
market currencies. The Company hedges its risk exposures primarily through the
use of currency forwards, swaps, futures and options.

VALUE-AT-RISK

    For purposes of Securities and Exchange Commission ("SEC") risk disclosure
requirements, the Company discloses an entity-wide value-at-risk for virtually
all of its trading activities. In general, value-at-risk measures potential loss
of revenues at a given confidence level over a specified time horizon.
Value-at-risk over a one-day holding period measured at a 95% confidence level
implies that potential loss of daily trading revenue will be at least as large
as the value-at-risk amount on one out of every 20 trading days.

    The Company's methodology estimates a reporting day value-at-risk using
actual daily trading revenues over the previous 250 trading days. This estimate
is measured as the loss, relative to the median daily trading revenue. The
Company also estimates an average value-at-risk measure over 250 rolling
reporting days, thus looking back a total of 500 trading days.

                                       22
<Page>
    The following table sets forth the daily value-at-risk for each component of
market risk as well as total value-at-risk:

<Table>
<Caption>
                                                                               YEAR ENDED NOVEMBER 30,
                                                             AS OF                       2001
                                                      -------------------   ------------------------------
                                                      NOV. 30    NOV. 30
                                                        2001       2000     AVERAGE      HIGH       LOW
                                                      --------   --------   --------   --------   --------
<S>                                                   <C>        <C>        <C>        <C>        <C>
Interest rate risk..................................   $ 10.0     $ 10.5     $  9.2     $ 10.5     $  8.2
Equity price risk...................................      8.4       10.8        9.5       12.0        8.2
Foreign exchange risk...............................      0.9        0.6        0.8        0.9        0.6
Diversification benefit.............................     (5.6)      (7.8)      (5.8)      (7.7)      (5.2)
                                                       ------     ------     ------     ------     ------
    Total Company...................................   $ 13.7     $ 14.1     $ 13.7     $ 15.7     $ 11.8
                                                       ======     ======     ======     ======     ======
</Table>

    Value-at-risk is one measure of potential loss in trading revenues that may
result from adverse market movements over a specified period of time with a
selected likelihood of occurrence. As with all measures of value-at-risk, the
Company's estimate has substantial limitations due to its reliance on historical
performance, which is not necessarily a predictor of the future. Consequently,
this value-at-risk estimate is only one of a number of tools the Company
utilizes in its daily risk management activities.

SIGNIFICANT ACCOUNTING POLICIES

    The Company's financial statements are prepared in conformity with generally
accepted accounting principles many of which require the use of management
estimates and assumptions. Management believes that the estimates utilized in
preparing its financial statements are reasonable and prudent. Actual results
could differ from these estimates.

FAIR VALUE

    The Company records its inventory positions including Securities and Other
Financial Instruments Owned and Securities Sold but not yet Purchased at fair
value with unrealized gains and losses reflected in Principal transactions in
the Consolidated Statement of Income. Market value is generally based on listed
prices. If listed market prices are not available, or if liquidating the
Company's position is reasonably expected to affect market prices, fair value is
either determined based on internal valuation pricing models which take into
account time value and volatility factors underlying the financial instruments,
or management's estimate of the amounts that could be realized under current
market conditions, assuming an orderly liquidation over a reasonable period of
time.

TRANSFERS OF FINANCIAL ASSETS

    The Company accounts for the transfer of financial assets in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities--a replacement of FASB No. 125" ("SFAS No. 140"). This statement
requires that the transfer of financial assets be accounted for as a sale when
control over the asset has been relinquished. Control is deemed to be
relinquished when the following conditions are met: i.) the assets have been
isolated from the transferor (even in bankruptcy or other receivership),
ii.) the transferee has the right to pledge or exchange the assets received and
iii.) the transferor has not maintained effective control over the transferred
assets. The Company is a market leader in mortgage- and asset-backed
securitizations and other structured financing arrangements. In connection with
these activities, the Company utilizes special purposes entities principally for
(but not limited to) the securitization of commercial and residential mortgages,
home equity loans, government and corporate bonds, and lease and trade
receivables. The Company derecognizes financial assets transferred in
securitizations provided that the Company has relinquished control over such
assets.

                                       23
<Page>
    The Company may retain an interest in the financial assets it securitizes
("Retained Interests") which may include assets in the form of residual
interests in the special purpose entities established to facilitate the
securitization. Any Retained Interests are included in Securities and Other
Financial Instruments Owned within the Company's Statement of Financial
Condition. The Company records its Securities and Other Financial Instruments
Owned, including Retained Interests, at fair value with changes in fair value
reported in earnings.

    For additional information on the Company's significant accounting policies
see Note 1 to the Consolidated Financial Statements.

NEW ACCOUNTING DEVELOPMENTS

    Effective December 1, 2000, the Company adopted 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"
(collectively, "SFAS 133"), which requires that all derivative instruments be
reported on the Consolidated Statement of Financial Condition at fair value.
SFAS 133 changed the Company's accounting methodology applied to its end-user
derivative activities, however, the adoption of SFAS 133 had an immaterial
effect on the Company as the majority of the Company's derivatives are trading
related and were already recorded on a fair value basis.

    In addition, the Company adopted SFAS No. 140, which carries over the
fundamental control premise of SFAS 125, that requires an entity to recognize
only assets it controls and derecognize assets only when control has been
surrendered.

    SFAS 140 also changed the accounting for collateral. SFAS 140 no longer
requires entities to recognize controlled collateral as an asset on the balance
sheet. Rather, SFAS 140 requires entities to separately classify financial
assets owned and pledged. The adoption of SFAS 140 did not have a material
impact to the Company's financial position or results of operations.

    In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS 141 requires all business combinations initiated after
June 30, 2001 to be accounted for using the purchase method. Under SFAS 142,
intangible assets with indefinite lives and goodwill will no longer be required
to be amortized. Instead, these assets will be evaluated annually for
impairment. The Company will adopt the provisions of SFAS 142 at the beginning
of fiscal year 2002 and does not expect the adoption to have a material impact
to the Company's financial position or its results of operations.

EFFECTS OF INFLATION

    Because the Company's assets are, to a large extent, liquid in nature, they
are not significantly affected by inflation. However, the rate of inflation
affects the Company's expenses, such as employee compensation, office space
leasing costs and communications charges, which may not be readily recoverable
in the price of services offered by the Company. To the extent inflation results
in rising interest rates and has other adverse effects upon the securities
markets, it may adversely affect the Company's financial position and results of
operations in certain businesses.

                                       24
<Page>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The information under the caption "Management's Analysis of Results of
Operations--Risk Management" on pages 20-23 hereof is incorporated herein by
reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The financial statements and supplementary financial information required by
this Item, included in this Report beginning on page F-1, are listed in the
Index to Financial Statements and Schedules appearing on page F-l and are
incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

    None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    Pursuant to General Instruction I of Form 10-K, the information required by
Item 10 is omitted.

ITEM 11. EXECUTIVE COMPENSATION

    Pursuant to General Instruction I of Form 10-K, the information required by
Item 11 is omitted.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    Pursuant to General Instruction I of Form 10-K, the information required by
Item 12 is omitted.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Pursuant to General Instruction I of Form 10-K, the information required by
Item 13 is omitted.

                                       25
<Page>
                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1.  Financial Statements:

           See Index to Financial Statements and Schedules appearing on
       page F-l.

    2.  Financial Statement Schedules:

           Schedules are omitted since they are not required or are not
       applicable.

    3.  Exhibits:

<Table>
<Caption>
     EXHIBIT NO.
---------------------
<C>                     <S>
         3.01           Restated Certificate of Incorporation of the Registrant
                        dated September 3, 1981*
         3.02           Certificate of Amendment to Restated Certificate of
                        Incorporation of the Registrant dated May 11, 1984*
         3.03           Certificate of Amendment to Restated Certificate of
                        Incorporation of the Registrant, dated March 6, 1985*
         3.04           Certificate of Amendment to Restated Certificate of
                        Incorporation of the Registrant, dated August 31, 1987*
         3.05           Certificate of Amendment to Restated Certificate of
                        Incorporation of the Registrant, dated January 28, 1988*
         3.06           Certificate of Amendment to Restated Certificate of
                        Incorporation of the Registrant, dated July 19, 1990*
         3.07           Certificate of Amendment to Restated Certificate of
                        Incorporation of the Registrant, dated August 2, 1993*
         3.08           Certificate of Designations of Floating Rate Preferred
                        Stock, filed April 30, 1996 (incorporated by reference to
                        Exhibit 3.8 to the Registrant's Annual Report on Form 10-K
                        for the year ended December 31, 1996)
         3.09           By-Laws of the Registrant, amended as of January 30, 1997
                        (incorporated by reference to Exhibit 3.9 to the
                        Registrant's Annual Report on Form 10-K for the year ended
                        December 31, 1996)
         4              The instruments defining the rights of holders of the
                        long-term debt securities of the Registrant and its
                        subsidiaries are omitted pursuant to
                        section (b)(4) (iii) (A) of Item 601 of Regulation S-K. The
                        Registrant hereby agrees to furnish copies of these
                        instruments to the Securities and Exchange Commission upon
                        request.
        10.01           Agreement of Tenants-In-Common by and among American Express
                        Company, American Express Bank Ltd., American Express Travel
                        Related Services Company, Inc., Shearson Lehman Brothers
                        Inc., Shearson Lehman Government Securities, Inc. and
                        Shearson Lehman Commercial Paper Incorporated (incorporated
                        by reference to Exhibit 10.1 of Lehman Brothers Holdings
                        Inc.'s Transition Report on Form 10-K for the eleven months
                        ended November 30, 1994.)
        12              Computation in support of ratio of earnings to fixed
                        charges*
        21              Pursuant to General Instruction I of Form 10-K, the list of
                        the Registrant's Subsidiaries is omitted.
        23              Consent of Ernst & Young LLP*
        24              Powers of Attorney*
</Table>

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

*   Filed herewith.

(b) Reports on Form 8-K.

    None

                                       26
<Page>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.

<Table>
<S>                                                    <C>  <C>
                                                       LEHMAN BROTHERS INC.
                                                       (Registrant)

                                                       By:              /s/ DAVID GOLDFARB
                                                            -----------------------------------------
                                                                          David Goldfarb
February 28, 2002                                                    CHIEF FINANCIAL OFFICER
</Table>

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                          <C>
                                                       Chief Executive Officer and
              /s/ RICHARD S. FULD, JR.                   Chairman of the Board of
     -------------------------------------------         Directors                  February 28, 2002
                Richard S. Fuld, Jr.                     (principal executive
                                                         officer)

                 /s/ DAVID GOLDFARB                    Chief Financial Officer
     -------------------------------------------         (principal financial and   February 28, 2002
                   David Goldfarb                        accounting officer)

                /s/ ROGER S. BERLIND
     -------------------------------------------       Director                     February 28, 2002
                  Roger S. Berlind

              /s/ HOWARD L. CLARK, JR.
     -------------------------------------------       Director                     February 28, 2002
                Howard L. Clark, Jr.

                 /s/ FREDERICK FRANK
     -------------------------------------------       Director                     February 28, 2002
                   Frederick Frank

                /s/ HARVEY M. KRUEGER
     -------------------------------------------       Director                     February 28, 2002
                  Harvey M. Krueger

              /s/ SHERMAN R. LEWIS, JR.
     -------------------------------------------       Director                     February 28, 2002
                Sherman R. Lewis, Jr.
</Table>

                                       27
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<Caption>
                                                                PAGE
                                                              --------
<S>                                                           <C>
Report of Independent Auditors..............................     F-2

Consolidated Statement of Income for the Twelve Months Ended
  November 30, 2001,
  November 30, 2000, and November 30, 1999..................     F-3

Consolidated Statement of Financial Condition at November
  30, 2001 and November 30, 2000............................     F-4

Consolidated Statement of Changes in Stockholder's Equity
  for the Twelve Months Ended November 30, 2001, November
  30, 2000, and November 30, 1999...........................     F-6

Consolidated Statement of Cash Flows for the Twelve Months
  Ended November 30, 2001, November 30, 2000, and November
  30, 1999..................................................     F-7

Notes to Consolidated Financial Statements..................     F-8
</Table>

                                      F-1
<Page>
                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholder of
Lehman Brothers Inc.

    We have audited the accompanying consolidated statement of financial
condition of Lehman Brothers Inc. and Subsidiaries (the "Company") as of
November 30, 2001 and 2000, and the related consolidated statements of income,
changes in stockholder's equity, and cash flows for each of the three years in
the period ended November 30, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Lehman
Brothers Inc. and Subsidiaries at November 30, 2001 and 2000, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended November 30, 2001, in conformity with accounting
principles generally accepted in the United States.

                                          ERNST & YOUNG LLP

New York, New York
January 4, 2002

                                      F-2
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENT OF INCOME

                                 (IN MILLIONS)

<Table>
<Caption>
                                                                   TWELVE MONTHS ENDED
                                                                       NOVEMBER 30
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
REVENUES
  Principal transactions....................................  $   903    $ 1,938    $ 1,487
  Investment banking........................................    1,508      1,614      1,128
  Commissions...............................................      848        686        477
  Interest and dividends....................................   14,276     16,501     12,904
  Other.....................................................       44         55         17
                                                              -------    -------    -------
      Total revenues........................................   17,579     20,794     16,013
  Interest expense..........................................   13,485     16,059     12,535
                                                              -------    -------    -------
      Net revenues..........................................    4,094      4,735      3,478
                                                              -------    -------    -------
NON-INTEREST EXPENSES
  Compensation and benefits.................................    2,088      2,304      1,764
  Technology and communications.............................      265        192        162
  Brokerage and clearance...................................      238        212        183
  Business development......................................      121        120         80
  Professional fees.........................................       69         90         58
  Occupancy.................................................       55         57         40
  Other.....................................................       55         55         57
  Management fees...........................................       23         88        121
  Special charge............................................       51         --         --
                                                              -------    -------    -------
      Total non-interest expenses...........................    2,965      3,118      2,465
                                                              -------    -------    -------
Income before taxes.........................................    1,129      1,617      1,013
  Provision for income taxes................................      274        483        317
                                                              -------    -------    -------
Net income..................................................  $   855    $ 1,134    $   696
                                                              =======    =======    =======
</Table>

                See Notes to Consolidated Financial Statements.

                                      F-3
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

                                 (IN MILLIONS)

<Table>
<Caption>
                                                                   NOVEMBER 30
                                                              ---------------------
                                                                 2001        2000
                                                              ----------   --------
<S>                                                           <C>          <C>
ASSETS
Cash and cash equivalents...................................   $    648    $  2,323

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

Securities and other financial instruments owned:
  Governments and agencies..................................     17,299      18,101
  Corporate debt and other..................................      9,423       7,770
  Mortgages and mortgage-backed.............................      8,079       8,328
  Derivatives and other contractual agreements..............      6,727       5,285
  Corporate equities........................................      4,597      21,278
  Certificates of deposit and other money market
    instruments.............................................      2,437       3,433
                                                               --------    --------
  Subtotal..................................................     48,562      64,195
  Securities pledged as collateral..........................     19,105          --
                                                               --------    --------
                                                                 67,667      64,195
                                                               --------    --------
Collateralized short-term agreements:
  Securities purchased under agreements to resell...........     75,185      77,808
  Securities borrowed.......................................     22,467      18,876

Receivables:
  Brokers, dealers and clearing organizations...............      4,209       2,302
  Customers.................................................      7,284       4,302
  Others....................................................      9,846       7,511

Property, equipment and leasehold improvements (net of
  accumulated depreciation and amortization
  of $140 in 2001 and $504 in 2000)........................         273         318

Other assets................................................        412         417

Excess of cost over fair value of net assets acquired (net
  of accumulated amortization of $131 in 2001 and $122 in
  2000).....................................................        154         163
                                                               --------    --------
      Total assets..........................................   $190,938    $180,203
                                                               ========    ========
</Table>

                See Notes to Consolidated Financial Statements.

                                      F-4
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENT OF FINANCIAL CONDITION--(CONTINUED)

                        (IN MILLIONS, EXCEPT SHARE DATA)

<Table>
<Caption>
                                                                  NOVEMBER 30
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Short-term debt.............................................  $  1,038   $    741
Securities and other financial instruments sold but not yet
  purchased:
  Governments and agencies..................................    19,294      8,542
  Derivatives and other contractual agreements..............     5,958      3,824
  Corporate debt and other..................................     4,342      2,159
  Corporate equities........................................     3,376      2,909
                                                              --------   --------
                                                                32,970     17,434
                                                              --------   --------
Collateralized short-term financing:
  Securities sold under agreements to repurchase............    86,201    105,611
  Securities loaned.........................................    26,535     24,082
Advances from Holdings and other affiliates.................    21,487     15,045
Payables:
  Brokers, dealers and clearing organizations...............     3,599      3,320
  Customers.................................................     7,004      4,058
Accrued liabilities and other payables......................     2,537      2,481
Long-term debt:
  Senior notes..............................................     1,930        207
  Subordinated indebtedness.................................     4,197      3,586
                                                              --------   --------
      Total liabilities.....................................   187,498    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................................     1,682      1,683
  Accumulated other comprehensive income....................         2          2
  Retained earnings.........................................     1,756      1,953
                                                              --------   --------
      Total stockholder's equity............................     3,440      3,638
                                                              --------   --------
      Total liabilities and stockholder's equity............  $190,938   $180,203
                                                              ========   ========
</Table>

                See Notes to Consolidated Financial Statements.

                                      F-5
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY

                                 (IN MILLIONS)

<Table>
<Caption>
                                                                   TWELVE MONTHS ENDED
                                                                       NOVEMBER 30
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Additional paid-in capital
  Beginning balance.........................................  $ 1,683     $1,684     $1,759
  Capital distributions.....................................       (1)        (1)       (75)
                                                              -------     ------     ------
Ending balance..............................................    1,682      1,683      1,684
                                                              -------     ------     ------
Accumulated other comprehensive income
  Beginning balance.........................................        2          2          3
  Foreign currency translation..............................                             (1)
                                                              -------     ------     ------
Ending balance..............................................        2          2          2
                                                              -------     ------     ------
Retained earnings
  Beginning balance.........................................    1,953      1,417        766
  Net income................................................      855      1,134        696
  Dividends.................................................   (1,052)      (598)       (45)
                                                              -------     ------     ------
Ending balance..............................................    1,756      1,953      1,417
                                                              -------     ------     ------
Total stockholder's equity..................................  $ 3,440     $3,638     $3,103
                                                              =======     ======     ======
</Table>

                See Notes to Consolidated Financial Statements.

                                      F-6
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                                 (IN MILLIONS)

<Table>
<Caption>
                                                                   TWELVE MONTHS ENDED
                                                                       NOVEMBER 30
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................  $   855    $ 1,134     $  696
Adjustments to reconcile net income to net cash provided by
(used in)
operating activities:
  Depreciation and amortization.............................       70         39         37
  Deferred tax provision (benefit)..........................     (193)       (83)      (150)
  Special charge............................................      230         --         --
  Other adjustments.........................................      (31)        49         72
Net change in:
  Cash and securities segregated and on deposit.............     (805)      (554)      (525)
  Securities and other financial instruments owned..........   (3,308)   (12,288)    (5,962)
  Securities borrowed.......................................   (3,591)    (7,633)     3,517
  Receivables from brokers, dealers and clearing
    organizations...........................................   (1,907)        44       (192)
  Receivables from customers................................   (2,982)    (1,380)       226
  Securities and other financial instruments sold but not
    yet purchased...........................................   15,536     (1,213)      (386)
  Securities loaned.........................................    2,453     14,273      4,335
  Payables to brokers, dealers and clearing organizations...      279        835        255
  Payables to customers.....................................    2,946     (1,477)       995
  Accrued liabilities and other payables....................       27        135        624
  Other operating assets and liabilities, net...............   (2,234)    (1,675)      (886)
                                                              -------    -------     ------
      Net cash provided by (used in) operating activities...   (7,345)    (9,794)     2,656
                                                              -------    -------     ------

  CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of senior notes....................    1,765         --         --
  Principal payments of senior notes........................      (43)        --         (1)
  Proceeds from issuance of subordinated indebtedness.......      800         --        200
  Principal payments of subordinated indebtedness...........     (194)      (192)      (559)
  Net proceeds from (payments for) short-term debt..........      297        126         (1)
  Resale agreements net of repurchase agreements............  (16,787)    12,581      4,230
  Increase (decrease) in advances from Holdings and other
    affiliates..............................................    6,442     (1,073)    (5,442)
  Dividends and capital distributions paid..................   (1,052)      (598)      (120)
                                                              -------    -------     ------
  Net cash provided by (used in) financing activities.......   (8,772)    10,844     (1,693)
                                                              -------    -------     ------
  CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property, equipment and leasehold
    improvements, net.......................................     (248)       (70)       (39)
  Acquisition, net of cash acquired.........................       --        (41)        --
                                                              -------    -------     ------
  Net cash used in investing activities.....................     (248)      (111)       (39)
                                                              -------    -------     ------
  Net change in cash and cash equivalents...................   (1,675)       939        924
                                                              -------    -------     ------
  Cash and cash equivalents, beginning of period............    2,323      1,384        460
                                                              -------    -------     ------
  Cash and cash equivalents, end of period..................  $   648    $ 2,323     $1,384
                                                              =======    =======     ======
</Table>

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN MILLIONS)

Interest paid totaled $13,653 in 2001, $16,048 in 2000 and $12,516 in 1999.

Income taxes paid totaled $648 in 2001, $516 in 2000 and $143 in 1999.

                See Notes to Consolidated Financial Statements.

                                      F-7
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                          PAGE
                                                                        --------
<S>       <C>                                                           <C>
Note 1.   Summary of Significant Accounting Policies..................  F-9

Note 2.   Special Charge..............................................  F-14

Note 3.   Short-term Financings.......................................  F-15

Note 4.   Long-term Debt..............................................  F-16

Note 5.   Holdings' Incentive Plans...................................  F-18

Note 6.   Capital Requirements........................................  F-19

Note 7.   Holdings' Employee Benefit Plans............................  F-20

Note 8.   Income Taxes................................................  F-22

Note 9.   Securities Pledged as Collateral............................  F-23

Note 10.  Derivative Financial Instruments............................  F-24

Note 11.  Fair Value of Financial Instruments.........................  F-29

Note 12.  Other Commitments and Contingencies.........................  F-30

Note 13.  Related Party Transactions..................................  F-32

Note 14.  Segments....................................................  F-33

Note 15.  Quarterly Information (Unaudited)...........................  F-35
</Table>

                                      F-8
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 consolidated financial statements are prepared in conformity with
generally accepted accounting principles which require management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Management estimates are required to be
utilized in determining the valuation of trading inventory particularly in the
area of OTC derivatives and private equity securities. Additionally, management
estimates are required in assessing the realizability of deferred tax assets,
the outcome of litigation and determining the components of the 2001 special
charge. Management believes that the estimates utilized in preparing its
financial statements are reasonable and prudent. Actual results could differ
from these estimates.

    The Company uses the trade date basis of accounting for securities
transactions.

    Certain prior period amounts reflect reclassifications to conform to the
current year's presentation.

SECURITIES AND OTHER FINANCIAL INSTRUMENTS

    Securities and other financial instruments owned and securities and other
financial instruments sold but not yet purchased are valued at market or fair
value, as appropriate, with unrealized gains and losses reflected in Principal
transactions in the Consolidated Statement of Income. Market value is generally
based on listed market prices. If listed market prices are not available, or if
liquidating the Company's position is reasonably expected to affect market
prices, fair value is either determined based on internal valuation pricing
models which take into account time value and volatility factors underlying the
financial instrument, or management's estimate of the amounts that could be
realized under current market conditions, assuming an orderly liquidation over a
reasonable period of time.

    As of November 30, 2001, all firm-owned securities pledged to counterparties
where the counterparty has the right, by contract or custom, to sell or repledge
the securities are classified as Securities Pledged as Collateral as required by
Statement of Financial Accounting Standard ("SFAS") No. 140, "Accounting for
Transfer and Servicing of Financial Assets and Extinguishment of Liabilities."
SFAS No. 140 does not require the restatement of prior year balances, therefore,
such securities as of November 30, 2000 are classified as trading assets.

DERIVATIVE FINANCIAL INSTRUMENTS

    A derivative is typically defined as an instrument whose value is "derived"
from an underlying instrument, index or rate, such as a future, forward, swap,
or option contract, or other financial instrument with similar characteristics.
A derivative contract generally represents future commitments to exchange
interest payment streams or currencies based on the contract or notional amount
or to purchase or sell other financial instruments at specified terms on a
specified date.

                                      F-9
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    Derivatives utilized for trading purposes are recorded at market or fair
value in the Consolidated Statement of Financial Condition on a net by
counterparty basis where a legal right of set-off exists and are netted across
products when such provisions are stated in the master netting agreement.
Derivatives are often referred to as off-balance-sheet instruments since neither
their notional amounts nor the underlying instruments are reflected as assets or
liabilities of the Company. Instead, the market or fair value of the derivative
transactions is reported in the Consolidated Statement of Financial Condition as
an asset or liability in Derivatives and other contractual agreements, as
applicable. Margin on futures contracts is included in receivables and payables
from/to brokers, dealers and clearing organizations, as applicable. Changes in
fair values of derivatives are recorded as principal transactions revenues in
the current period. 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.

    As an end-user, the Company primarily utilizes derivatives to modify the
interest rate characteristics of its long-term debt and secured financing
activities. The Company also utilizes equity derivatives to hedge its exposure
to equity price risk embedded in certain of its debt obligations and foreign
exchange forwards to manage the currency exposure related to its net monetary
investment in non-U.S. dollar functional currency operations (collectively
"end-user derivative activities").

    Effective December 1, 2000, the Company adopted 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"
(collectively "SFAS 133"), which requires that all derivative instruments be
reported on the consolidated statement of financial condition at fair value.
SFAS 133 changed the Company's accounting methodology applied to its end-user
derivative activities, however the adoption of SFAS 133 had no effect on the
accounting for the Company's trading-related derivative activities, as such
derivatives were already recorded on a fair value basis.

    Under SFAS 133 the accounting for end-user derivative activities is
dependent upon the nature of the hedging relationship. In certain hedging
relationships, both the derivative and the hedged item will be marked-to-market
through earnings for changes in fair value ("fair value hedge"). In many
instances the hedge relationship is fully effective so that the mark-to-market
on the derivative and the hedged item will offset. In other hedging
relationships, the derivative will be marked-to-market with the offsetting gains
or losses recorded in Accumulated Other Comprehensive Income, a component of
Stockholder's Equity, until the hedged item is realized in earnings ("cash flow
hedge"). SFAS 133 also requires certain derivatives embedded in long-term debt
to be bifurcated and marked-to-market through earnings.

    SFAS 133 changed the accounting treatment for the hedged item in a fair
value hedge (e.g. long-term debt or secured financing activities) from what was
an accrual basis to a modified mark-to-market value. The hedged item's carrying
value may differ from a full mark-to-market value since SFAS 133 requires that
the hedged item be adjusted only for changes in fair value associated with the
designated risks being hedged during the hedge period.

                                      F-10
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    The Company principally utilizes fair value hedges to convert a substantial
portion of the Company's fixed rate debt and certain long-term secured financing
activities to floating interest rates. Any hedge ineffectiveness in these
relationships is recorded as a component of interest expense on the Company's
Statement of Income. Gains or losses from revaluing foreign exchange contracts
associated with hedging the Company's net investments in foreign affiliates are
reported within Accumulated Other Comprehensive Income in Stockholder's Equity.
Unrealized receivables/payables resulting from the mark-to-market on end-user
derivatives are included in Securities and Other Financial Instruments Owned or
Sold but Not Yet Purchased.

    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, as most of the Company's derivative transactions
are entered into for trading-related activities for which the adoption of
SFAS 133 had no impact. Prior year amounts have not be restated to conform with
the current SFAS 133 accounting treatment. Therefore, end-user derivative
activities for all periods prior to December 1, 2001 are recorded on an accrual
basis provided that the derivative was designated and deemed to be a highly
effective hedge. For periods prior to 2001, realized gains or losses on early
terminations of derivatives that were designated as hedges were deferred and
amortized to interest income or interest expense over the remaining life of the
instrument being hedged

SECURED FINANCING ACTIVITIES

    REPURCHASE AND RESALE AGREEMENTS  Securities purchased under agreements to
resell and securities sold under agreements to repurchase, which are treated as
financing transactions for financial reporting purposes, are collateralized
primarily by government and government agency securities and are carried net by
counterparty, when permitted, at the amounts at which the securities will be
subsequently resold or repurchased plus accrued interest. It is the policy of
the Company to take possession of securities purchased under agreements to
resell. The Company monitors the market value of the underlying positions on a
daily basis as compared to the related receivable or payable balances, including
accrued interest. The Company requires counterparties to deposit additional
collateral or return collateral pledged as necessary, to ensure that the market
value of the underlying collateral remains sufficient. Securities and other
financial instruments owned that are financed under repurchase agreements are
carried at market value with changes in market value reflected in the
Consolidated Statement of Income.

    The Company utilizes interest rate swaps as an end-user to modify the
interest rate exposure associated on certain fixed rate resale and repurchase
agreements. In 2001, and in accordance with SFAS No. 133, the Company adjusted
the carrying value of these secured financing transactions that had been
designated as the hedge.

    SECURITIES BORROWED AND LOANED  Securities borrowed and securities loaned
are carried at the amount of cash collateral advanced or received plus accrued
interest. It is the Company's policy to value the securities borrowed and loaned
on a daily basis, and to obtain additional cash as necessary to ensure such
transactions are adequately collateralized.

                                      F-11
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRIVATE EQUITY INVESTMENTS

    The Company carries its private equity investments, including its
partnership interests, at fair value based upon the Company's assessment of each
investment. As the general partner in its private equity funds, the Company may
be entitled to receive a preferred distribution of realized profits.

INVESTMENT BANKING

    Underwriting revenues and fees for merger and acquisition advisory services
are recognized when services for the transactions are determined to be
completed. Underwriting expenses are deferred and recognized at the time the
related revenues are recorded.

INCOME TAXES

    The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." The Company recognizes the current and deferred
tax consequences of all transactions that have been recognized in the financial
statements using the provisions of the enacted tax laws.

    In this regard, deferred tax assets are recognized for temporary differences
that will result in deductible amounts in future years and for tax loss
carry-forwards, if in the opinion of management, it is more likely than not that
the deferred tax asset will be realized. SFAS 109 requires companies to set up a
valuation allowance for that component of net deferred tax assets which does not
meet the "more likely than not" criterion for realization. Deferred tax
liabilities are recognized for temporary differences that will result in taxable
income in future years.

SECURITIZATIONS

    The Company is a market leader in the mortgage- and asset-backed
securitizations and other structured financing arrangements. In connection with
these activities, the Company utilizes special purpose entities principally for
(but not limited to) the securitization of commercial and residential mortgages,
home equity loans, government and corporate bonds, and lease and trade
receivables. The Company derecognizes financial assets transferred in
securitizations provided that the Company has relinquished control over such
assets. The Company may retain an interest in the financial assets it
securitizes ("Retained Interests") which may include assets in the form of
residual interests in the special purpose entities established to facilitate the
securitization. Any Retained Interests are included in Securities and Other
Financial Instruments Owned within the Company's Statement of Financial
Condition. 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. When 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.
During the fiscal year-ended 2001, the Company securitized approximately
$105 billion of financial assets.

                                      F-12
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

    As of November 30, 2001, the Company had approximately $1.5 billion of
non-investment grade retained interests from its securitization activities. The
Company records its Retained Interests at fair value and actively manages market
risk exposures associated with Retained Interests.

TRANSLATION OF FOREIGN CURRENCIES

    Assets and liabilities of foreign subsidiaries having non-U.S. dollar
functional currencies are translated at exchange rates at the statement of
financial condition date. Revenues and expenses are translated at average
exchange rates during the period. The gains or losses resulting from translating
foreign currency financial statements into U.S. dollars, net of hedging gains or
losses and taxes, are included in Accumulated Other Comprehensive Income, a
separate component of Stockholder's Equity. Gains or losses resulting from
foreign currency transactions are included in the Consolidated Statement of
Income.

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

    Property, equipment and leasehold improvements are recorded at historical
cost, net of accumulated depreciation and amortization. Depreciation is
recognized on a straight-line basis over the estimated useful lives of the
related assets. Leasehold improvements are amortized over the lesser of their
economic useful lives or the terms of the underlying leases. Internal use
software which qualifies for capitalization under AICPA Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," is capitalized and subsequently amortized over the estimated
useful life of the software.

GOODWILL

    Excess of cost over fair value of net assets acquired ("goodwill") is
amortized using the straight-line method over periods not exceeding 35 years.
Goodwill is evaluated periodically for impairment and also is reduced upon the
recognition of certain acquired net operating loss carryforward benefits.

STOCK-BASED AWARDS

    The Company's employees participate in Holdings' stock-based incentive
plans. Holdings accounts for these awards on a consolidated basis in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and its related interpretations. The Company records as
compensation and benefits the allocated share of Holdings' stock-based
compensation cost.

STATEMENT OF CASH FLOWS

    For purposes of the Consolidated Statement of Cash Flows, the Company
defines cash equivalents as highly liquid investments with original maturities
of three months or less, other than those held for sale in the ordinary course
of business.

                                      F-13
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2. SPECIAL CHARGE

    As a result of the September 11, 2001 terrorist attack, the Company's leased
facilities in the World Trade Center were destroyed and its leased and owned
facilities in the World Financial Center ("WFC") complex (including the 3 World
Financial Center building owned jointly with Holdings and American Express) were
significantly damaged. All employees and operations in the downtown New York
area were displaced. Key business activities and necessary support functions
were quickly relocated to the Company's back-up facilities in New Jersey and to
various other temporary sites.

    Holdings and the Company have been informed that the facilities in the World
Financial Center complex can be repaired, however, the damage to many of the
floors that had been occupied by the Company at the 3 WFC location is
significant. A repair and remediation plan is currently underway although a
completion date has not been finalized. Consequently, Holdings purchased a new
one-million-square-foot building at 745 Seventh Avenue in New York City during
the fourth quarter and is relocating its principal executive and operating
offices to this site in 2002. New long-term lease agreements were also executed
for other space in midtown Manhattan. As a result, the Company is currently
evaluating its space needs and exploring alternatives with respect to 3 WFC and
the other downtown New York facilities.

    The Company has significant levels of insurance in place to cover the losses
resulting from the terrorist attack including a policy covering damage to the
core and shell of the 3 WFC building and a separate policy covering the property
damage of the WFC facilities, losses resulting from business interruption and
extra expenses associated with the Company's relocation to, and occupancy of,
the temporary facilities.

    During the fourth quarter, the Company recognized a pre-tax special charge
of $51 million ($29 million after-tax) associated with the net losses stemming
from the events of September 11, 2001. These losses and costs include the
write-off of property damaged, destroyed or abandoned at the Company's downtown
facilities (approximately $214 million), compensation paid to employees in lieu
of utilizing external consultants for business recovery efforts and to employees
for the time they were idled (approximately $61 million) and costs incurred to
maintain the facilities while they are unusable (approximately $16 million). The
losses and costs were offset by estimated insurance recoveries of $240 million.
All expenses associated with the Company's use of temporary facilities during
this period have been reflected as part of occupancy or technology and
communications expenses in the accompanying consolidated statement of income.

    The charge does not reflect any loss resulting from the damage to the core
and shell of the Company's 3 WFC facility, as this amount is not yet known.
However, the Company believes that any loss will be fully recoverable under the
Company's building core and shell insurance policy.

    The insurance recovery recorded through November 30, 2001 has been limited
to the net historical book value of assets believed damaged, destroyed or
abandoned and the out-of-pocket costs for certain extra expenses incurred during
the period.

    The displacement and relocation of the Company's New York workforce, the
closure of certain markets for certain periods following the terrorists attack
and other issues directly related to the September 11 tragedy have negatively
impacted the Company's business. The Company is in the process of pursing a
business interruption claim with its insurance carriers for lost revenue and
related damages. As of November 30, 2001, the Company has not given any
accounting recognition to the anticipated business interruption recovery.

                                      F-14
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3. SHORT-TERM FINANCINGS

    The Company obtains short-term financing on both a secured and unsecured
basis. The secured financing is obtained through the use of repurchase
agreements and securities loaned agreements, which are primarily collateralized
by government, agency and equity securities. The unsecured financing is
generally obtained through short-term debt and the issuance of commercial paper.

    The Company's short-term debt financing is comprised of the following:

<Table>
<Caption>
                                                                  NOVEMBER 30
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                 (IN MILLIONS)
<S>                                                           <C>        <C>
Short-term debt
  Payables to banks.........................................   $  522      $402
  Master notes..............................................       16        89
  Secured bank loans........................................      500       250
                                                               ------      ----
Total.......................................................   $1,038      $741
                                                               ======      ====
</Table>

    The Company's weighted-average interest rates were as follows:

<Table>
<Caption>
                                                                  NOVEMBER 30
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Short-term debt(1)..........................................    3.0%       6.2%
Securities sold under agreements to repurchase..............    2.2%       6.3%
</Table>

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

(1) Includes $13 million and $51 million of short-term debt with
    weighted-average interest rates of less than 0.1% and 0.4% as of
    November 30, 2001 and 2000, respectively, related to non-U.S. dollar
    obligations.

                                      F-15
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4. LONG-TERM DEBT

<Table>
<Caption>
                                                                  U.S. DOLLAR
                                                              -------------------       NOVEMBER 30
                                                               FIXED     FLOATING   -------------------
                                                                RATE       RATE       2001       2000
                                                              --------   --------   --------   --------
                                                                            (IN MILLIONS)
<S>                                                           <C>        <C>        <C>        <C>
SENIOR NOTES
Maturing in Fiscal 2001.....................................                                    $  206
Maturing in Fiscal 2002.....................................   $   14                $   14          1
Maturing in Fiscal 2003.....................................       32                    32
Maturing in Fiscal 2004.....................................    1,778                 1,778
Maturing in Fiscal 2005.....................................       13                    13
Maturing in Fiscal 2006.....................................       30                    30
December 1, 2006 and thereafter.............................       63                    63
                                                               ------     ------     ------     ------
    Senior Notes............................................    1,930                 1,930        207
                                                               ------     ------     ------     ------
SUBORDINATED INDEBTEDNESS
Maturing in Fiscal 2001.....................................                                       551
Maturing in Fiscal 2002.....................................      451     $  760      1,211        855
Maturing in Fiscal 2003.....................................      475        800      1,275        475
Maturing in Fiscal 2004.....................................      191                   191        191
Maturing in Fiscal 2005.....................................       94                    94         94
Maturing in Fiscal 2006.....................................      300                   300        300
December 1, 2006 and thereafter.............................    1,019        107      1,126      1,120
                                                               ------     ------     ------     ------
    Subordinated Indebtedness...............................    2,530      1,667      4,197      3,586
                                                               ------     ------     ------     ------
LONG-TERM DEBT..............................................   $4,460     $1,667     $6,127     $3,793
                                                               ======     ======     ======     ======
</Table>

    Of the Company's long-term debt outstanding as of November 30, 2001,
$200 million is repayable prior to maturity at the option of the holder, at par
value. These obligations are reflected in the above table as maturing at their
put dates of fiscal 2003, rather than at their contractual maturities of 2026.

END-USER DERIVATIVE ACTIVITIES

    The Company utilizes interest rate swaps as an end-user to modify the
interest rate characteristics of its long-term debt portfolio and certain
secured financing activities. Effective 2001, the Company adopted SFAS No. 133,
and as such all end-user derivatives at November 30, 2001 are recorded at fair
value on the balance sheet (see Note 1. Derivative Financial Instruments). The
Company adjusted the carrying value of its hedged fixed rate debt to a modified
mark-to-market value in accordance with SFAS No. 133, as such debt was
designated as the hedged item of a fair value hedge.

                                      F-16
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4. LONG-TERM DEBT (CONTINUED)
    At November 30, 2001 and 2000, the notional amounts of the Company's
interest rate swaps related to its long-term debt obligations were approximately
$2.4 billion and $2.6 billion, respectively. In terms of notional amounts
outstanding, these derivative products mature as follows:

<Table>
<Caption>
                                                                FAIR VALUE
                                                                  HEDGE            NOVEMBER 30
                                                              FIXED TO FLOAT     2001       2000
                                                              --------------   --------   --------
                                                                         (IN MILLIONS)
<S>                                                           <C>              <C>        <C>
Maturing in Fiscal 2001.....................................                               $  194
Maturing in Fiscal 2002.....................................      $  451        $  451        450
Maturing in Fiscal 2003.....................................         475           475        475
Maturing in Fiscal 2004.....................................         191           191        191
Maturing in Fiscal 2005.....................................          94            94         94
Maturing in Fiscal 2006.....................................         300           300        300
December 1, 2006 and thereafter.............................         899           899        899
                                                                  ------        ------     ------
Total.......................................................      $2,410        $2,410     $2,603
                                                                  ======        ======     ======
</Table>

<Table>
<S>                                                           <C>          <C>        <C>
Weighted-average interest rate at November 30:
Receive rate................................................      7.35%       7.35%      7.25%
Pay rate....................................................      2.97%       2.97%      7.43%
</Table>

    In addition, the Company's end-user derivative activities resulted in the
following changes to the Company's mix of fixed and floating rate debt and
effective weighted-average rates of interest:

<Table>
<Caption>
                                                                      NOVEMBER 30, 2001
                                                   --------------------------------------------------------
                                                       LONG-TERM DEBT               WEIGHTED-AVERAGE
                                                   -----------------------   ------------------------------
                                                     BEFORE       AFTER                      EFFECTIVE RATE
                                                    END-USER     END-USER     CONTRACTUAL    AFTER END-USER
                                                   ACTIVITIES   ACTIVITIES   INTEREST RATE     ACTIVITIES
                                                   ----------   ----------   -------------   --------------
                                                        (IN MILLIONS)
<S>                                                <C>          <C>          <C>             <C>
USD Obligations
  Fixed rate.....................................    $4,460       $1,894
  Floating rate..................................     1,667        4,233
                                                     ------       ------
Total............................................    $6,127       $6,127          6.44%           4.73%
                                                     ======       ======          ====            ====
</Table>

<Table>
<Caption>
                                                                      NOVEMBER 30, 2000
                                                   --------------------------------------------------------
                                                       LONG-TERM DEBT               WEIGHTED-AVERAGE
                                                   -----------------------   ------------------------------
                                                     BEFORE       AFTER                      EFFECTIVE RATE
                                                    END-USER     END-USER     CONTRACTUAL    AFTER END-USER
                                                   ACTIVITIES   ACTIVITIES   INTEREST RATE     ACTIVITIES
                                                   ----------   ----------   -------------   --------------
                                                        (IN MILLIONS)
<S>                                                <C>          <C>          <C>             <C>
USD Obligations
  Fixed rate.....................................    $2,928       $  324
  Floating rate..................................       865        3,469
                                                     ------       ------
Total............................................    $3,793       $3,793          7.63%           7.76%
                                                     ======       ======          ====            ====
</Table>

                                      F-17
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5. HOLDINGS' INCENTIVE PLANS

    The Company's employees participate in Holdings' various incentive plans.
The Company records its allocated share of Holdings' stock-based compensation
cost. Holdings' stock-based compensation cost was $544 million, $520 million and
$363 million for the years ended November 30, 2001, 2000 and 1999, respectively.
The Company's allocated cost was $330 million, $319 million and $236 million for
the years ended November 30, 2001, 2000 and 1999, respectively. Holdings
recognizes its stock based compensation costs in accordance with APB 25. The
following is a description of Holdings' various incentive plans.

EMPLOYEE STOCK PURCHASE PLAN

    Holdings' Employee Stock Purchase Plan (the "ESPP") allows employees to
purchase Common Stock at a 15% discount from market value, with a maximum of
$25,000 in annual aggregate purchases by any one individual. The number of
shares of Common Stock authorized for purchase by eligible employees is
12.0 million. As of November 30, 2001 and 2000, 5.5 million shares and
5.2 million shares, respectively, of Common Stock had been cumulatively
purchased by eligible employees through the ESPP.

1994 INCENTIVE PLANS

    Holdings' 1994 Management Replacement Plan (the "Replacement Plan") provided
awards similar to the American Express common shares granted to Company
employees which were canceled as of the date of the spin-off from American
Express. Through November 30, 2001, a total of 3.9 million awards had been
granted under the Replacement Plan, including both stock options and restricted
stock; 0.1 million shares were outstanding at November 30, 2001. No future
awards will be granted under this plan.

    Holdings' 1994 Management Ownership Plan (the "1994 Plan") provides for the
issuance of restricted stock units ("RSUs"), performance stock units ("PSUs"),
stock options and other equity awards for a period of up to ten years to
eligible employees. A total of 33.3 million shares of Common Stock may be
granted under the 1994 Plan. At November 30, 2001, RSU, PSU and stock option
awards with respect to 31.1 million shares of Common Stock have been made under
the 1994 Plan of which 1.5 million are outstanding and 29.6 million have been
converted to freely transferable Common Stock. The Company will utilize the
remaining authorization of 2.2 million shares to satisfy dividend reinvestment
requirements for outstanding awards and to fund the annual RSU awards for the
Company's non-employee directors.

1996 MANAGEMENT OWNERSHIP PLAN

    During 1996, Holdings' stockholders approved the 1996 Management Ownership
Plan (the "1996 Plan") under which awards similar to those of the 1994 Plan may
be granted, and under which up to 42.0 million shares of Common Stock may be
subject to awards. At November 30, 2001, RSU, PSU and stock option awards with
respect to 31.4 million shares of Common Stock have been made under the 1996
Plan of which 18.9 million are outstanding, and 12.5 million have been converted
to freely transferable Common Stock.

EMPLOYEE INCENTIVE PLAN

    Holdings' Employee Incentive Plan ("EIP") has provisions similar to the 1994
Plan and the 1996 Plan, and authorization from the Board of Directors for the
issuance of up to 196.0 million shares of Common Stock which may be subject to
awards. At November 30, 2001, awards with respect to 157.8 million shares of
Common Stock had been made under the EIP of which 124.3 million are outstanding
and 33.5 million have been converted to freely transferable Common Stock.

                                      F-18
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6. CAPITAL REQUIREMENTS

    As a registered broker-dealer, LBI is subject to the Securities and Exchange
Commission ("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
November 30, 2001, LBI's regulatory net capital, as defined, of $1,771 million
exceeded the minimum requirement by $1,589 million.

    As a clearing broker-dealer, the Company has elected to compute a reserve
requirement for Proprietary Accounts of Introducing Broker-Dealers ("PAIB
calculation"), as defined. 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
correspondents' net capital calculation. At November 30, 2001, the Company had a
reserve requirement for PAIB of $6 million. Additionally, the Company had
$55 million of qualified securities or cash on deposit in a Special Reserve Bank
Account as of November 30, 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 November 30, 2001, LBFP and LBDP each
had capital which exceeded the requirement of the most stringent rating agency
by approximately $68 million and $27 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. At November 30, 2001, $2,963 million of net assets of the
Company were restricted as to the payment of dividends, principally as a result
of regulations of the SEC and other regulatory agencies. In addition, certain
covenants governing the indebtedness of LBI contractually limit its ability to
pay dividends.

                                      F-19
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7. HOLDINGS' EMPLOYEE BENEFIT PLANS

    Holdings provides various pension plans for the majority of its employees
worldwide. In addition, Holdings provides certain other postretirement benefits,
primarily health care and life insurance, to eligible employees. The Company
records as compensation and benefits its allocated share of the cost of these
plans. The following summarizes Holdings' domestic employee benefit plans in
which the Company's employees participate:

<Table>
<Caption>
                                                     PENSION BENEFITS      POSTRETIREMENT BENEFITS
                                                        NOVEMBER 30              NOVEMBER 30
                                                   ---------------------   -----------------------
                                                     2001        2000         2001         2000
                                                   ---------   ---------   ----------   ----------
                                                     (IN MILLIONS, EXCEPT FOR WEIGHTED-AVERAGE)
<S>                                                <C>         <C>         <C>          <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..........   $  506      $  479       $  50        $  47
Service cost before expenses.....................       11          10           1            1
Interest cost....................................       38          36           3            4
Actuarial (gain) loss............................       --          --          --            1
Plan amendment...................................        4          --          --           --
Change due to interest rate assumption...........       36          --           3           --
Benefits paid....................................      (20)        (19)         (4)          (3)
                                                    ------      ------       -----        -----
Benefit obligation at end of year................   $  575      $  506       $  53        $  50
                                                    ======      ======       =====        =====
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year...   $  750      $  750
Actual return on plan assets.....................      (77)         19
Benefits paid....................................      (20)        (19)
                                                    ------      ------
Fair value of plan assets at end of year.........   $  653      $  750
                                                    ======      ======

Funded (underfunded) status......................   $   78      $  244       $ (53)       $ (50)
Unrecognized net actuarial (gain) loss...........      209          13         (19)         (22)
Unrecognized prior service cost (credit).........       18          15          (4)          (5)
                                                    ------      ------       -----        -----
Prepaid (accrued) benefit cost...................   $  305      $  272       $ (76)       $ (77)
                                                    ======      ======       =====        =====
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate....................................     7.00%       7.75%       7.25%        7.75%
Expected return on plan assets...................    11.25%      11.25%
Rate of compensation increase....................     5.00%       5.00%       5.00%        5.00%
</Table>

                                      F-20
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7. HOLDINGS' EMPLOYEE BENEFIT PLANS (CONTINUED)

<Table>
<Caption>
                                                                                                     POSTRETIREMENT
                                                                PENSION BENEFITS                        BENEFITS
                                                              TWELVE MONTHS ENDED                 TWELVE MONTHS ENDED
                                                                  NOVEMBER 30                         NOVEMBER 30
                                                         ------------------------------   ------------------------------------
                                                           2001       2000       1999       2001          2000          1999
                                                         --------   --------   --------   --------      --------      --------
                                                                                     (IN MILLIONS)
<S>                                                      <C>        <C>        <C>        <C>           <C>           <C>
COMPONENTS OF NET PERIODIC BENEFIT (INCOME) COST
Service cost...........................................    $ 11       $ 10       $ 12       $ 1           $ 1           $ 1
Interest cost..........................................      38         36         35         3             4             3
Expected return on plan assets.........................     (82)       (82)       (62)
Recognized net actuarial (gain) loss...................       1          1          1        (1)           (2)           (1)
                                                           ----       ----       ----       ---           ---           ---
Net periodic benefit (income) cost.....................    $(32)      $(35)      $(14)      $ 3           $ 3           $ 3
                                                           ====       ====       ====       ===           ===           ===
</Table>

    For measurement purposes, the annual health care cost trend rate was assumed
to be 6.5% for the year ended November 30, 2002. The rate was assumed to
decrease 0.5% per year to 5.5% in the year ended November 30, 2004 and remain at
that level thereafter.

    Assumed health care cost trend rates have an effect on the amount reported
for postretirement benefits. A one-percentage-point change in assumed health
care cost trend rates would have the following effects:

<Table>
<Caption>
                                                              1% POINT INCREASE   1% POINT DECREASE
                                                              -----------------   -----------------
                                                                          (IN MILLIONS)
<S>                                                           <C>                 <C>
Effect on total service and interest cost components in
  fiscal 2001...............................................         $0.3               $(0.3)
Effect on postretirement benefit obligation at November 30,
  2001......................................................         $3.4               $(3.4)
</Table>

                                      F-21
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8. INCOME TAXES

    The Company's income is included in the consolidated U.S. federal income tax
return of Holdings and its subsidiaries. The income tax provision for the
Company is computed in accordance with the tax sharing agreement between
Holdings and its subsidiaries. In accordance with this agreement, the balances
due to Holdings at November 30, 2001 and 2000 were $343 million and
$531 million, respectively.

    The provision for income taxes consists of the following:

<Table>
<Caption>
                                                                   TWELVE MONTHS ENDED
                                                                       NOVEMBER 30
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
                                                                      (IN MILLIONS)
<S>                                                           <C>        <C>        <C>
CURRENT
  Federal...................................................   $ 174      $ 300      $ 264
  State.....................................................     140        142        135
  Foreign...................................................     153        124         68
                                                               -----      -----      -----
                                                                 467        566        467
                                                               -----      -----      -----
DEFERRED
  Federal...................................................    (131)       (47)       (96)
  State.....................................................     (62)       (36)       (54)
                                                               -----      -----      -----
                                                                (193)       (83)      (150)
                                                               -----      -----      -----
Provision for Income Taxes..................................   $ 274      $ 483      $ 317
                                                               =====      =====      =====
</Table>

    Income before taxes (excluded) included $(17) million, $26 million and
$35 million that has also been subject to income taxes of foreign jurisdictions
for 2001, 2000 and 1999, respectively.

    The income tax provision (benefit) differs from that computed by using the
statutory federal income tax rate for the reasons shown below:

<Table>
<Caption>
                                                                   TWELVE MONTHS ENDED
                                                                       NOVEMBER 30
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
                                                                      (IN MILLIONS)
<S>                                                           <C>        <C>        <C>
Federal income taxes at statutory rate......................   $ 394      $ 566      $ 354
State and local taxes.......................................      51         69         53
Tax-exempt income...........................................    (176)      (130)       (95)
Amortization of goodwill....................................       2          2          3
Other, net..................................................       3        (24)         2
                                                               -----      -----      -----
Income Tax Provision........................................   $ 274      $ 483      $ 317
                                                               =====      =====      =====
</Table>

    Deferred income taxes are provided for the differences between the tax basis
of assets and liabilities and their reported amounts in the consolidated
financial statements. These temporary differences will result in future income
or deductions for income tax purposes and are measured using the enacted tax
rates that will be in effect when such items are expected to reverse. The
Company provides for deferred income taxes on undistributed earnings of foreign
subsidiaries.

                                      F-22
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8. INCOME TAXES (CONTINUED)
    At November 30, 2001 and 2000 the deferred tax assets and liabilities
consisted of the following:

<Table>
<Caption>
                                                                  NOVEMBER 30
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                 (IN MILLIONS)
<S>                                                           <C>        <C>
DEFERRED TAX ASSETS:
Unrealized trading and investment activity..................    $104       $140
Other.......................................................      17         20
                                                                ----       ----
Deferred tax assets.........................................     121        160
Deferred tax liabilities....................................      (1)        (1)
                                                                ----       ----
Net deferred tax assets.....................................    $120       $159
                                                                ====       ====
</Table>

    The net deferred tax assets are included in Other Assets in the accompanying
Consolidated Statement of Financial Condition. It is anticipated that the
Company's net deferred tax assets will be realized, therefore no valuation
allowance has been recorded against deferred tax assets.

    For tax return purposes, the Company has approximately $150 million of NOL
carryforwards, substantially all of which are attributable to 2001. For book
purposes, the NOL carryforward has been transferred to Holdings in accordance
with the tax sharing agreement.

    In accordance with the tax sharing agreement with Holdings, LBI was
reimbursed for $230 million and $47 million of net deferred tax assets in 2001
and 2000, respectively.

NOTE 9. SECURITIES PLEDGED AS COLLATERAL

    The Company enters into secured borrowing and lending transactions to
finance trading inventory positions, obtain securities for settlement, and meet
customers' needs. The company primarily receives collateral in connection with
resale agreements, securities borrowed transactions, customer margin loans and
other loans. The Company is generally permitted to sell or repledge these
securities held as collateral and use the securities to secure repurchase
agreements, enter into securities lending transactions or deliver to
counterparties to cover short positions. The Company carries secured financing
agreements for financial reporting purposes on a net basis when permitted under
the provisions of Financial Accounting Standards Board Interpretations No. 41
("FIN 41"). At November 30, 2001, the fair value of securities received as
collateral that have not been sold or repledged totaled approximately
$7 billion. The gross fair value of securities received as collateral where the
Company was permitted to sell or repledge the securities was approximately
$190 billion. Of this collateral, approximately $183 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.

                                      F-23
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9. SECURITIES PLEDGED AS COLLATERAL (CONTINUED)
    Securities owned pledged as collateral at November 30, 2001 for which the
counterparty has the right to sell or repledge are comprised of the following
amounts:

<Table>
<Caption>
                                                               NOVEMBER 30
                                                                  2001
                                                              -------------
                                                              (IN MILLIONS)
<S>                                                           <C>
Securities and other financial instruments owned:
  Corporate equities........................................     $15,836
  Government and agencies...................................       2,569
  Certificate of deposit and other money market
  instruments...............................................         700
                                                                 -------
Total.......................................................     $19,105
                                                                 =======
</Table>

    The carrying value of securities and other financial instruments owned that
have been pledged to counterparties where those counterparties do not have the
right to sell or repledge at year-end 2001 are as follows:

<Table>
<Caption>
                                                               NOVEMBER 30
                                                                  2001
                                                              -------------
                                                              (IN MILLIONS)
<S>                                                           <C>
Securities and other financial instruments owned:
  Government and agencies...................................     $17,272
  Corporate debt and other..................................       9,411
  Mortgage and mortgage-backed..............................       6,940
  Corporate equities........................................       4,098
  Certificate of deposit and other money market
  instruments...............................................       2,172
                                                                 -------
Total.......................................................     $39,893
                                                                 =======
</Table>

NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS

    Derivatives are financial instruments whose value is based upon an
underlying asset (e.g., Treasury Bond), index (e.g., S&P 500) or reference rate
(e.g., LIBOR). Over-the-counter ("OTC") derivative products are privately
negotiated contractual agreements that can be tailored to meet individual client
needs and include forwards, swaps and certain options including caps, collars
and floors. Exchange-traded derivative products are standardized contracts
transacted through regulated exchanges and include futures and certain option
contracts listed on an exchange.

    In the normal course of business, the Company enters into derivative
transactions both in a trading capacity and as an end-user. Acting in a trading
capacity, 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
risks resulting from its trading activities (collectively, "Trading-Related
Derivative Activities"). As an end-user, the Company primarily enters into
interest rate swap and option contracts to adjust the interest rate nature of
its funding sources from fixed to floating rates, and to change the index upon
which floating interest rates are based (e.g., Prime to LIBOR) (collectively,
"End-User Derivative Activities"). There is an extensive range of derivative
products available in the marketplace, which can vary from a simple forward
foreign exchange contract to a complex derivative instrument with multiple risk
characteristics involving the aggregation of the risk characteristics of a
number of derivative product types including swap products,

                                      F-24
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
options and forwards. Listed below are examples of various derivative product
types along with a brief discussion of the performance mechanics of certain
specific derivative instruments.

SWAP PRODUCTS

    Interest rate swap products include interest rate and currency swaps,
leveraged swaps, swap options, other interest rate option products including
caps, collars and floors, and credit default swaps. An interest rate swap is a
negotiated OTC contract in which two parties agree to exchange periodic interest
payments for a defined period, calculated based upon a predetermined notional
amount. Interest payments are usually exchanged on a net basis throughout the
duration of the swap contract. A currency swap is an OTC agreement to exchange a
fixed amount of one currency for a specified amount of a second currency at the
outset and completion of the swap term. Leveraged swaps involve the
multiplication of the interest rate factor upon which the interest payment
streams are based (e.g., Party A pays three times the six-month LIBOR). Caps are
contractual commitments that require the writer to pay the purchaser the amount
by which an interest reference rate exceeds a defined contractual rate, if any,
at specified times during the contract. Conversely, a floor is a contractual
commitment that requires the writer to pay the amount by which a defined
contractual rate exceeds an interest reference rate at specified times over the
life of the contract, if any. Equity swaps are contractual agreements whereby
one party agrees to receive the appreciation (or depreciation) value over a
strike price on an equity investment in return for paying another rate, which is
usually based upon equity index movements or interest rates. Commodity swaps are
contractual commitments to exchange the fixed price of a commodity for a
floating price (which is usually the prevailing spot price) throughout the swap
term. Credit derivatives are contractual agreements that provide insurance
against a credit event of one or more referenced credits. The nature of the
credit event is established by the buyer and seller at the inception of the
transaction, and such events include bankruptcy, insolvency, rating agency
downgrade and failure to meet payment obligations when due. The buyer of the
credit derivative pays a periodic fee in return for a contingent payment by the
seller (insurer) following a credit event. The Company acts as both a buyer and
seller of credit derivatives.

OPTIONS

    Option contracts provide the option purchaser (holder) with the right but
not the obligation to buy or sell a financial instrument, commodity or currency
at a predetermined exercise price (strike price) during a defined period
(American Option) or at a specified date (European Option). The option purchaser
pays a premium to the option seller (writer) for the right to exercise the
option. The option seller is obligated to buy (put) or sell (call) the item
underlying the contract at a set price, if the option purchaser chooses to
exercise. Option contracts also exist for various indices and are similar to
options on a security or other instrument except that, rather than physical
settling with delivery of the underlying instrument, they are cash settled. As a
purchaser of an option contract, the Company is subject to credit risk, since
the counterparty is obligated to make payments under the terms of the option
contract, if the Company exercises the option. As the writer of an option
contract, the Company is not subject to credit risk but is subject to market
risk, since the Company is obligated to make payments under the terms of the
option contract if exercised.

    Option contracts may be exchange-traded or OTC. Exchange-traded options are
the obligations of the exchange and generally have standardized terms and
performance mechanics. In contrast, all of the terms of an OTC option including
the method of settlement, term, strike price, premium and security are
determined by negotiation of the parties.

                                      F-25
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
FUTURES AND FORWARDS

    Futures contracts are exchange-traded contractual commitments to either
receive (purchase) or deliver (sell) a standard amount or value of a financial
instrument or commodity at a specified future date and price. Maintaining a
futures contract requires the Company to deposit with the exchange an amount of
cash or other specified assets as security for its obligation. Additionally,
futures exchanges generally require the daily cash settlement of unrealized
gains/losses on open contracts with the futures exchange. Therefore, futures
contracts provide a reduced funding alternative to purchasing the underlying
cash position in the marketplace. Futures contracts may be settled by physical
delivery of the underlying asset or cash settlement (for index futures) on the
settlement date or by entering into an offsetting futures contract with the
futures exchange prior to the settlement date.

    Forwards are OTC contractual commitments to purchase or sell a specified
amount of a financial instrument, foreign currency or commodity on a future date
at a predetermined price. TBAs are forward contracts which give the
purchaser/seller an obligation to obtain/deliver mortgage securities in the
future. Therefore, TBAs subject the holder to both interest rate risk and
principal prepayment risk.

TRADING-RELATED DERIVATIVE ACTIVITIES

    Derivatives are subject to various risks similar to other financial
instruments including market, credit and operational risk. In addition, the
Company may be exposed to legal risks related to its derivative activities
including the possibility that a transaction may be unenforceable under
applicable law. The risks of derivatives should not be viewed in isolation, but
rather should be considered on an aggregate basis along with the Company's other
trading-related activities. The Company manages the risks associated with
derivatives on an aggregate basis along with the risks associated with its
proprietary trading and market-making activities in cash instruments as part of
its firmwide risk management policies.

    Derivatives are generally based upon notional amounts. Notional amounts are
not recorded on-balance sheet, but rather are utilized solely as a basis for
determining future cash flows to be exchanged. Therefore, notional amounts
provide a measure of the Company's involvement with such instruments, but are
not indicative of actual or potential risk.

    As of November 30, 2001 and 2000, the Company had total notional/contract
amounts of $4,679 billion and $2,963 billion, respectively. Of the total
notional amounts approximately $4,302 billion and $2,741 billion are
over-the-counter and $377 billion and $222 billion are exchange-traded as of
November 30, 2001 and 2000, respectively. The total weighted-average maturity at
November 30, 2001, for over-the-counter and exchange-traded contracts was
4.87 years and 0.76 years, respectively. Approximately $1,221 billion of the
notional/contract amount of the Company's Trading-Related Derivative activities
mature within the year ended November 30, 2002, of which approximately 47% have
maturities of less than one month.

    The Company records its Trading-Related Derivative Activities on a
mark-to-market basis with realized and unrealized gains and losses recognized
currently in Principal transactions in the Consolidated Statement of Income.
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. The Company offers equity, fixed income and foreign exchange products
to its customers. Because of the integrated nature of the market for such
products, each product area trades cash instruments as well as derivative
products.

                                      F-26
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
    Listed in the following table is the fair value of the Company's
Trading-Related Derivative Activities as of November 30, 2001 and 2000. Assets
and liabilities represent net unrealized gains (amounts receivable from
counterparties) and net unrealized losses (amounts payable to counterparties),
respectively.

FAIR VALUE OF TRADING-RELATED DERIVATIVE FINANCIAL INSTRUMENTS

<Table>
<Caption>
                                                                  FAIR VALUE*                 FAIR VALUE*
                                                              NOVEMBER 30, 2001**          NOVEMBER 30, 2000
                                                           -------------------------   -------------------------
                                                            ASSETS       LIABILITIES    ASSETS       LIABILITIES
                                                           --------      -----------   --------      -----------
                                                                               (IN MILLIONS)
<S>                                                        <C>           <C>           <C>           <C>
Interest rate and currency swaps and options (including
  caps, collars and floors)..............................   $5,474         $5,025       $3,918         $2,331
Foreign exchange forward contracts and options...........      240            197          305            285
Other fixed income securities contracts (including
  options and TBAs)......................................      476            226          412            415
Equity contracts (including equity swaps, warrants and
  options)...............................................      537            510          650            793
                                                            ------         ------       ------         ------
Total....................................................   $6,727         $5,958       $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.

**  2001 information includes end-user derivative activity on a mark-to-market
    basis in accordance with SFAS No. 133.

    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 November 30, 2001 and 2000 represents the Company's net
receivable/payable for derivative financial instruments before consideration of
collateral. Included within the $6,727 million fair value of assets at
November 30, 2001 was $6,239 million related to swaps and other OTC contracts
and $488 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.

    The primary difference in risks related to OTC and exchange-traded contracts
is credit risk. OTC contracts contain credit risk for unrealized gains from
various counterparties for the duration of the contract, net of collateral. With
respect to OTC contracts, including swaps, the Company views its net credit
exposure to third-parties to be $4,683 million at November 30, 2001,
representing the fair value of the Company's OTC contracts in an unrealized gain
position, after consideration of amounts due from affiliates of $640 million and
collateral of $916 million.

    Counterparties to the Company's OTC derivative products are primarily
financial intermediaries (U.S. and foreign banks), securities firms,
corporations, governments and their agencies, finance companies, insurance
companies, investment companies and pension funds. Collateral held related to
OTC contracts generally includes U.S. government and federal agency securities.
Presented below is an analysis of the Company's net credit exposure at
November 30, 2001 for OTC contracts based upon actual

                                      F-27
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
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>
          1                                    AAA/Aaa                              27%
          2                               AA-/Aa3 or higher                         25%
          3                                A-/A3 or higher                          27%
          4                              BBB-/Baa3 or higher                        18%
          5                               BB-/Ba3 or higher                          2%
          6                                 B+/B1 or lower                           1%
</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, 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.

END-USER DERIVATIVE ACTIVITIES

    The Company utilizes a variety of derivative products for non-trading
purposes as an end user to modify the interest rate characteristics of its
long-term debt portfolio and certain secured financing activities. 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 twelve months ended November 30,
2001. At November 30, 2001 and 2000, the notional amounts of the Company's end
user activities related to its long-term debt obligations were approximately
$2.8 billion and $2.6 billion, respectively. (For a further discussion of the
Company's long-term debt related end user derivative activities see Note 4.)

    The Company also utilizes derivative products as an end user to modify its
interest rate exposure associated with its secured financing activities,
including securities purchased under agreements to resell, securities borrowed,
securities sold under agreements to repurchase and securities loaned. At
November 30, 2001 and 2000, the Company had $210 billion and $226 billion,
respectively, of such secured financing activities. As with the Company's
long-term debt, its secured financing activities expose the Company to interest
rate risk. The Company, as an end user, manages the interest rate risk related
to these activities by utilizing derivative financial instruments, including
interest rate swaps and purchase options. The Company designates certain
specific derivative transactions against specific assets and liabilities with
matching maturities. At November 30, 2001 and 2000, the Company, as an end user,
utilized derivative financial instruments with an aggregate notional amount of
$8.8 billion and $8.5 billion, respectively, to modify the interest rate
characteristics of its secured financing activities.   The total notional amount
of these agreements had a weighted-average maturity of 5.1 years and 3.5 years
as of November 30, 2001 and 2000, respectively. On an overall basis, the
Company's secured financing end user derivative activities increased (decreased)
net revenues by approximately $0.3 million, $(14) million and $(13) million for
2001, 2000 and 1999.

                                      F-28
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS

    SFAS No. 107 "Disclosures about Fair Value of Financial Instruments"
requires the Company to report the fair value of financial instruments, as
defined. Assets and liabilities that are carried at fair value include all of
the Company's trading assets and liabilities including derivative financial
instruments used for trading purposes as described in Note 1, which are recorded
as securities and other financial instruments owned and securities and other
financial instruments sold but not yet purchased.

    Assets and liabilities, which are recorded at contractual amounts that
approximate market or fair value include cash and cash equivalents, cash and
securities segregated and on deposit for regulatory and other purposes,
receivables, certain other assets, commercial paper and short-term debt, and
payables. The market value of such items are not materially sensitive to shifts
in market interest rates because of the limited term to maturity of these
instruments and their variable interest rates.

    In 2001, the Company's long-term debt is recorded at historical amounts,
unless designated as the hedged item in a fair value hedge under SFAS 133. The
Company carries such hedged debt on a modified mark-to-market basis, which
amount could differ from fair value. In 2000, the Company's long-term debt is
recorded at contractual rates.

    The following table provides a summary of the fair value of the Company's
long-term debt and related end user derivative activities. The fair value of the
Company's long-term debt was estimated using either quoted market prices or
discounted cash flow analyses based on the Company's current borrowing rates for
similar types of borrowing arrangements.

<Table>
<Caption>
                                                                  NOVEMBER 30
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                 (IN MILLIONS)
<S>                                                           <C>        <C>
Carrying value of long-term debt............................   $6,127     $3,793
Fair value of long-term debt................................    6,105      3,784
                                                               ------     ------
Unrecognized net gain on long-term debt.....................   $   22     $    9
                                                               ======     ======
</Table>

    The Company carries its secured financing activities, including securities
purchased under agreements to resell, securities borrowed, securities sold under
agreements to repurchase, and securities loaned, at their original contract
amount plus accrued interest. As the majority of such financing activities are
short-term in nature, carrying value approximates fair value. At November 30,
2001 and 2000, the Company had $210 billion and $226 billion, respectively, of
such secured financing activities. As with the Company's long-term debt, its
secured financing activities expose the Company to interest rate risk.

    At November 30, 2001 and 2000, the Company, as an end user, utilized
derivative financial instruments with an aggregate notional amount of
$8.8 billion and $8.5 billion, respectively, to modify the interest rate
characteristics of its secured financing activities. At November 30, 2001, the
carrying value of the secured financing activities designated as a fair value
hedge, approximated its fair value. At November 30, 2000, the unrecognized net
losses on derivates associated with certain financing activities were
$22 million, which were substantially offset by unrecognized net gains on
related secured financing activities.

    Additionally, at November 30, 2001 and 2000, the Company had approximately
$30 million and $8 million, respectively, of unrecognized losses related to
approximately $4 billion for both years of long-term fixed rate repurchase
agreements.

                                      F-29
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12. OTHER COMMITMENTS AND CONTINGENCIES

    As of November 30, 2001 and 2000, the Company was contingently liable for
$0.9 billion and $1.5 billion, respectively, of letters of credit, primarily
used to provide collateral for securities and commodities borrowed and to
satisfy margin deposits at option and commodity exchanges, and other guarantees.

    In connection with its secured financing activities, the Company had
outstanding commitments under certain secured lending arrangements of
approximately $1.5 billion and $3.0 billion, at November 30, 2001 and 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. The Company utilizes various hedging and funding
strategies to actively manage its market, credit and liquidity exposures on
these commitments. In addition, total commitments are not indicative of actual
risk or funding requirements, as the commitments may not be drawn or fully
utilized. These commitments and any related draw downs of these facilities
typically have fixed maturity dates and are contingent upon certain
representations, warranties and contractual conditions applicable to the
borrower.

    At November 30, 2001 and 2000, the Company had net lending commitments to
investment grade borrowers of $2.1 billion (gross commitments of $3.2 billion
less $1.1 billion of associated hedges) and $2.5 billion ($2.6 billion of gross
commitments and $0.1 billion of associated hedges), respectively. Lending
commitments to non-investment grade borrowers totaled $1.0 billion and
$0.9 billion at November 30, 2001 and 2000, respectively. In addition, the
Company has pre-arranged funding facilities with third party lenders of
$2.9 billion at both November 30, 2001, and November 30, 2000, available to it
to fund draw downs against these commitments. These funding facilities contain
limits for certain concentrations of counterparty, industry or credit ratings of
the underlying loans.

    As of November 30, 2001, the Company had pledged securities, primarily fixed
income related, having a market value of approximately $16.6 billion, as
collateral for securities borrowed having a market value of approximately
$16.4 billion.

    At November 30, 2001, the Company had commitments to enter into forward
starting secured resale and repurchase agreements of $43.6 billion and
$21.5 billion, respectively, as compared to secured resale and repurchase
agreements of $47.6 billion and $14.5 billion, respectively, as of November 30,
2000.

    Securities and other financial instruments sold but not yet purchased
represent obligations of the Company to purchase the securities at prevailing
market prices. Therefore, the future satisfaction of such obligations may be for
an amount greater or less than the amount recorded. The ultimate gain or loss is
dependent upon the price at which the underlying financial instrument is
purchased to settle the Company's obligation under the sale commitment.

    In the normal course of business, the Company is exposed to off-balance
sheet credit and market risk as a result of executing, financing and settling
various customer security and commodity transactions. Off-balance sheet risk
arises from the potential that customers or counterparties fail to satisfy their
obligations and that the collateral obtained is insufficient. In such instances,
the Company may be required to purchase or sell financial instruments at
unfavorable market prices. The Company seeks to control these

                                      F-30
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12. OTHER COMMITMENTS AND CONTINGENCIES (CONTINUED)
risks by obtaining margin balances and other collateral in accordance with
regulatory and internal guidelines.

    At November 30, 2001 and 2000, the Company had commitments to invest up to
$169 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.

    Subsidiaries of the Company, as general partner, are contingently liable for
the obligations of certain public and private limited partnerships organized as
pooled investment funds or engaged primarily in real estate activities. In the
opinion of the Company, contingent liabilities, if any, for the obligations of
such partnerships will not in the aggregate have a material adverse effect on
the Company's consolidated financial position or results of operations.

    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, but
may be material to the Company's operating results for any particular period,
depending on the level of income for such period.

CONCENTRATION OF CREDIT RISK

    As a major international securities firm, the Company is actively involved
in securities underwriting, brokerage, distribution and trading. These and other
related services are provided on a worldwide basis to a large and diversified
group of clients and customers, including multinational corporations,
governments, emerging growth companies, financial institutions and individual
investors.

    A substantial portion of the Company's securities and commodities
transactions is collateralized and is executed with, and on behalf of,
commercial banks and other institutional investors, including other brokers and
dealers. The Company's exposure to credit risk associated with the
non-performance of these customers and counterparties in fulfilling their
contractual obligations pursuant to securities transactions can be directly
impacted by volatile or illiquid trading markets, which may impair the ability
of customers and counterparties to satisfy their obligations to the Company.

    Securities and other financial instruments owned by the Company include U.S.
government and agency securities, and securities issued by non-U.S. governments,
which in the aggregate, represented 10% of the Company's total assets at
November 30, 2001. In addition, all of the collateral held by the Company for
resale agreements principally consisted of securities issued by the U.S.
government, federal agencies or non-U.S. governments which in the aggregate
represented 39% of total assets. The Company's most significant industry
concentration is financial institutions, which include other brokers and
dealers, commercial banks and institutional clients. This concentration arises
in the normal course of the Company's business.

                                      F-31
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12. OTHER COMMITMENTS AND CONTINGENCIES (CONTINUED)

LEASE COMMITMENTS

    The Company leases office space and equipment throughout the world and is a
party to a ground lease with the Battery Park City Authority covering its former
headquarters at 3 World Financial Center which extends through 2069. Total rent
expense for 2001, 2000 and 1999 was $19 million, $13 million and $12 million,
respectively. Certain leases on office space contain escalation clauses
providing for additional rentals based upon maintenance, utility and tax
increases.

    Minimum future rental commitments under non-cancelable operating leases (net
of subleases of $12 million) are as follows:

<Table>
<Caption>
(IN MILLIONS)
-------------
<S>                                                           <C>
Fiscal 2002.................................................   $   39
Fiscal 2003.................................................       37
Fiscal 2004.................................................       31
Fiscal 2005.................................................       50
Fiscal 2006.................................................       54
December 1, 2006 and thereafter.............................      854
                                                               ------
                                                               $1,065
                                                               ======
</Table>

NOTE 13. RELATED PARTY TRANSACTIONS

    In the normal course of business, the Company engages in various securities
trading, investment banking and financing 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.

    Holdings has allocated to the Company the cost of certain employees and
space in the World Financial Center, 399 Park Avenue, New York, New York and 101
Hudson Street, Jersey City, New Jersey. In addition, the Company charges other
affiliates of Holdings for services it provides and has certain revenue sharing
arrangements. A portion of these reimbursements are variable in nature. These
amounts, including any reimbursements, are classified in the Consolidated
Statement of Income as a component of Management fees, Compensation and
benefits, or Revenues as appropriate.

    In addition, Holdings and subsidiaries of Holdings raise money through
short- and long-term funding in the capital markets, which is used to fund the
operations of certain of the Company's wholly owned subsidiaries. Advances from
Holdings and other affiliates were $21.5 billion and $15.0 billion at
November 30, 2001 and 2000, respectively.

    In connection therewith, advances from Holdings aggregating approximately
$20.3 billion and $12.7 billion at November 30, 2001 and 2000, respectively, are
generally payable on demand. The average interest rate charged on these advances
is primarily based on Holdings' average daily cost of funds, which was 4.8% and
6.7% for the twelve months ended November 30, 2001 and 2000, respectively. In
addition, the Company had borrowings from Holdings and subsidiaries of Holdings,
classified as subordinated indebtedness, of approximately $1.6 billion and
$764 million at November 30, 2001 and 2000, respectively. In addition, the
Company has advances from other subsidiaries of Holdings aggregating
approximately $1.2 billion and $2.3 billion at November 30, 2001 and 2000,
respectively, with various repayment terms.

                                      F-32
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company had notes and other receivables due from Holdings and subsidiaries
of Holdings aggregating approximately $8.3 billion and $7.2 billion at
November 30, 2001 and 2000, respectively, with various interest rates and
repayment terms.

    At November 30, 2001, the Company has $16.3 billion of securities purchased
under agreements to resell and $16.5 billion of securities sold under agreements
to repurchase with Holdings and subsidiaries of Holdings. Additionally, at
November 30, 2001, the Company has $0.6 billion and $1.1 billion included within
derivatives and other contract agreements owned and sold but not yet purchased,
respectively, with Holdings and subsidiaries of Holdings.

    The Company believes that amounts arising through related party
transactions, including those allocated expenses referred to above, are
reasonable and approximate the amounts that would have been recorded if the
Company operated as an unaffiliated entity.

    During 2001, the Company distributed $1,052 million to Holdings as
dividends. In 2000, the Company distributed $598 million to Holdings.

NOTE 14. SEGMENTS

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

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

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

    Client Services revenues reflect earnings from the Company's private client
and private equity businesses. Private client revenues reflect the Company's
high-net-worth retail customer flow activities as well as asset management fees
earned from these clients. Private equity revenues include the management and
incentive fees earned in the Company's role as general partner for thirty-three
private equity partnerships. In addition, these revenues also include the
appreciation of its general partnership interests.

                                      F-33
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14. SEGMENTS (CONTINUED)
    The Company's segment information for fiscal years 2001, 2000 and 1999 is
presented below and was developed consistent with the accounting policies used
to prepare the Company's consolidated financial statements.

<Table>
<Caption>
                                                           INVESTMENT   CAPITAL     CLIENT
                                                            BANKING     MARKETS    SERVICES    TOTAL
                                                           ----------   --------   --------   --------
                                                                          (IN MILLIONS)
<S>                                                        <C>          <C>        <C>        <C>
NOVEMBER 30, 2001
Net revenue..............................................    $1,484      $1,878      $732      $4,094
                                                             ======      ======      ====      ======
Earnings before taxes*...................................    $  471      $  538      $171      $1,180
                                                             ======      ======      ====      ======
Segment assets (billions)................................    $  0.7      $185.5      $4.7      $190.9
                                                             ======      ======      ====      ======
NOVEMBER 30, 2000
Net revenue..............................................    $1,609      $2,464      $662      $4,735
                                                             ======      ======      ====      ======
Earnings before taxes....................................    $  497      $  909      $211      $1,617
                                                             ======      ======      ====      ======
Segment assets (billions)................................    $  0.7      $175.1      $4.4      $180.2
                                                             ======      ======      ====      ======
NOVEMBER 30, 1999
Net revenue..............................................    $1,135      $1,899      $444      $3,478
                                                             ======      ======      ====      ======
Earnings before taxes....................................    $  430      $  489      $ 94      $1,013
                                                             ======      ======      ====      ======
Segment assets (billions)................................    $  0.5      $135.8      $2.9      $139.2
                                                             ======      ======      ====      ======
</Table>

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

* Excludes the impact of a special charge of $51 million.

    The following are net revenues by geographic region:

<Table>
<Caption>
                                                                   TWELVE MONTHS ENDED
                                                                       NOVEMBER 30
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
                                                                      (IN MILLIONS)
<S>                                                           <C>        <C>        <C>
U.S.........................................................   $3,450     $4,177     $3,143
Europe......................................................      520        352        223
Asia Pacific and other......................................      124        206        112
                                                               ------     ------     ------
      Total.................................................   $4,094     $4,735     $3,478
                                                               ======     ======     ======
</Table>

    The following information describes the Company's methods of allocating
consolidated net revenues to geographic regions. Net revenues, if origination or
trading-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; if commission-related, by the location
of the salespeople. 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.

                                      F-34
<Page>
                     LEHMAN BROTHERS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15. QUARTERLY INFORMATION (UNAUDITED)

    The following information represents the Company's unaudited quarterly
results of operations for 2001 and 2000. Certain amounts reflect
reclassifications to conform to the current period's presentation. These
quarterly results reflect all normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of the results.
Revenues and earnings of the Company can vary significantly from quarter to
quarter due to the nature of the Company's business activities.

<Table>
<Caption>
                                                         2001                                        2000
                                       -----------------------------------------   -----------------------------------------
                                       NOV. 30    AUG. 31     MAY 31    FEB. 28    NOV. 30    AUG. 31     MAY 31    FEB. 29
                                       --------   --------   --------   --------   --------   --------   --------   --------
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
(IN MILLIONS)
Total revenue........................   $3,290     $3,567     $4,948     $5,771     $5,344     $5,331     $5,096     $5,023
Interest expense.....................    2,676      2,893      3,421      4,494      4,141      4,028      4,185      3,705
                                        ------     ------     ------     ------     ------     ------     ------     ------
Net revenues.........................      614        674      1,527      1,277      1,203      1,303        911      1,318
Non-interest expenses
  Compensation and benefits..........      314        344        778        651        485        652        470        696
  Other expenses.....................      185        206        222        213        201        213        210        192
  Special charge.....................       51         --         --         --         --         --         --         --
                                        ------     ------     ------     ------     ------     ------     ------     ------
Total non-interest expenses..........      550        550      1,000        864        686        865        680        888
                                        ------     ------     ------     ------     ------     ------     ------     ------
Income before taxes..................       64        124        527        413        517        438        231        430
Provision for income taxes...........      (39)        17        155        142        121        134         69        159
                                        ------     ------     ------     ------     ------     ------     ------     ------
Net income...........................   $  103     $  107     $  372     $  271     $  396     $  304     $  162     $  271
                                        ======     ======     ======     ======     ======     ======     ======     ======
</Table>

                                      F-35