UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                For the quarterly period ended February 28, 1997

                                       or

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 0R 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the transition period from ____ to ____

                         Commission File Number: 1-6817

                                LEHMAN CMO INC.
             (Exact name of registrant as specified in its charter)


Maryland                                                             77-2022794
(State or other jurisdiction of                                (I.R.S. Employer
incorporation or organization)                               Identification No.)

200 Vesey Street, 20th Floor, New York, NY                                10285
(Address of principal executive offices)                              (Zip Code)

                                  212-526-5594
              (Registrant's telephone number, including area code)


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                           Yes X                  No ___

Registrant had 100 shares of common stock  outstanding  (all owned indirectly by
Lehman Brothers Holdings Inc.) as of March 31, 1997.

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


<PAGE>


                                 LEHMAN CMO INC.
                                    FORM 10-Q
                     FOR THE QUARTER ENDED FEBRUARY 28, 1997

                                      INDEX

Part I.           FINANCIAL INFORMATION                           Page Number

  Item 1.      Financial Statements - (unaudited)

                    Statement of Operations -
                      Three Months Ended February 28, 1997
                      and February 29, 1996............................   3

                    Statement of Financial Condition -
                      February 28, 1997 and November 30, 1996 .........   4

                    Statement of Cash Flows -
                      Three Months Ended February 28, 1997
                      and February 29, 1996............................   5

                    Notes to Financial Statements......................   6

  Item 2.      Management's Discussion and Analysis of
               Financial Condition and Results of Operations...........   9

Part II.          OTHER INFORMATION

  Item 6.      Exhibits and Reports on Form 8-K .......................   10

Signatures   ..........................................................   11

Exhibit


<PAGE>



                                 LEHMAN CMO INC.
                             STATEMENT of OPERATIONS

                                   (Unaudited)


<TABLE>
<CAPTION>

                                              Three months ended
                                ------------------------------------------------
                                February 28 1997             February 29 1996
                                -------------------        ---------------------
<S>                              <C>                         <C>  
Revenues:

    Interest                                               $             77
                                                -
                                -------------------        ---------------------



Expenses:

    Compensation                          1,250                       1,750

    General and administrative            5,246                       6,484
                                -------------------        ---------------------

                                          6,496                       8,234
                                -------------------        ---------------------

Loss before income tax benefit           (6,496)                     (8,157)

Income tax benefit                       (2,991)                     (3,757)
                                -------------------        ---------------------

Net loss                          $      (3,505)              $      (4,400)
                                ===================        =====================


</TABLE>


                       See notes to financial statements.


<PAGE>


                                 LEHMAN CMO INC.
                        STATEMENT of FINANCIAL CONDITION
                                   (Unaudited)

                                     ASSETS

<TABLE>
<CAPTION>


                                              February 28            November 30 
                                                   1997                   1996
                                             -------------------- --------------
<S>                                          <C>                       <C>   
Cash                                         $     14,967              15,163
Income taxes receivable from 
affiliate                                         106,689             103,698
                                             --------------------    -----------

                                             $    121,656         $   118,861
                                             ====================    ===========
</TABLE>


                      LIABILITIES and STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>

<S>                                          <C>                   <C>  
Liabilities:
     
   Payables to affiliates                    $     61,481          $   56,432
                                            
   Other liabilities and accrued             $      2,239                 988  
   expenses                                           
                                               -------------------     ---------

                    Total liabilities              63,720              57,420
                                                   
                                             --------------------    -----------

Stockholder's equity:
Common stock, $1 par value; 100 shares
      authorized, issued and outstanding              100                 100
   Additional paid-in capital                      55,656              55,656
   Retained earnings                                2,180               5,685
                                             --------------------    -----------

                    Total stockholder's equity     57,936              61,441
                                             --------------------    -----------

                                           $      121,656            $ 118,861
                                             ====================    ===========

</TABLE>

                       See notes to financial statements.


<PAGE>


                                 LEHMAN CMO INC.
                             STATEMENT of CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                          Three months ended
                                                  ------------------------------
                                                     February 28   February 29
                                                        1997          1996
                                                  ---------------- -------------

Cash flows from operating activities

<S>                                                      <C>          <C>     
Net loss                                                 $(3,505)     $(4,400)

  Net change in:
         Income taxes receivable from affiliate           (2,991)      (3,757)
         Payables to affiliates                            5,049        2,041
         Other liabilities and accrued expenses            1,251          443
                                                  ---------------- -------------

            Net cash used in operating activities           (196)      (5,673)
                                                  ---------------- -------------

Cash flows from financing activities
  Capital contributions by parent                              -        5,751
                                                  ---------------- -------------

          Cash provided by financing activities                -        5,751
                                                  ---------------- -------------

          Net change in cash                                (196)          78

Cash, beginning of the period                             15,163        14,901
                                                  ---------------- -------------

            Cash, end of the period                      $14,967      $14,979
                                                  ================ =============



</TABLE>

                                      See notes to financial statements.


<PAGE>



                                 LEHMAN CMO INC.

                          NOTES to FINANCIAL STATEMENTS

                                   ----------

                             
1.       Organization:

         Lehman  CMO  Inc.  (the   "Company")  is  a  limited   purpose  finance
         corporation   organized   for  the   purpose  of  issuing  and  selling
         Mortgage-Backed  Sequential  Pay  Bonds  (the  "Bonds")  collateralized
         primarily by pass-through  mortgage-backed certificates and/or mortgage
         loans (the  "Certificates").  All of the  outstanding  common  stock is
         owned  by  Lehman  Commercial  Paper  Inc.  ("LCPI"),  a  wholly  owned
         subsidiary of Lehman Brothers Holdings Inc. ("Holdings"). The Company's
         financial  statements  have been prepared in accordance  with the rules
         and regulations of the Securities and Exchange  Commission with respect
         to the Form 10-Q and reflect  all normal  recurring  adjustments  which
         are, in the opinion of management, necessary for a fair presentation of
         the  results  for the  interim  periods  presented.  The  Statement  of
         Financial  Condition  at November 30, 1996 was derived from the audited
         financial statements. It is recommended that these financial statements
         be read in conjunction with the audited financial  statements  included
         in the Company's Annual Report on Form 10-K for the twelve months ended
         November 30, 1996.

         The Company  derives its income from trading and/or  interest earned on
         securities owned and interest bearing deposits. Trading income includes
         the profit (loss) from the issuance and sale of securities  and valuing
         securities owned, if any, at fair value.

         The  Company  has filed  registration  statements  on Form S-3 with the
         Securities and Exchange  Commission (the "Commission") which permit the
         Company to issue,  from time to time,  Bonds in principal amount not to
         exceed $5.5  billion.  No Bonds have been  issued for the three  months
         ended  February 28, 1997. As of February 28, 1997,  approximately  $816
         million was available for issuance  under the  registration  statements
         referred to above.

         The  Company  has issued  Bonds  collateralized  by  Certificates.  The
         Company has  surrendered  all future  economic  interests in the Bonds,
         Certificates  and  Collateral.  According  to the terms of the  various
         trust agreements, the Bond and Certificate holders can look only to the
         related  collateral  for repayment of both  principal and interest.  In
         accordance with generally accepted accounting principles, the Bonds and
         Certificates  have been  removed  from the  accompanying  Statement  of
         Financial Condition.

         During the three months ended  February 28, 1997,  LCPI made no capital
         contributions to the Company.


<PAGE>

                           
                                LEHMAN CMO INC.

                          NOTES to FINANCIAL STATEMENTS

                                   ----------


 2.      Summary of Significant Accounting Policies:

         Income Taxes:

         The Company's loss is included in the consolidated  U.S. federal income
         tax return of Holdings  and in combined  state and local  returns  with
         other  affiliates  of  Holdings.  The Company  computes  its income tax
         benefit on a separate  return basis in accordance with a tax allocation
         agreement between Holdings and its subsidiaries. The benefit for income
         taxes is greater than that calculated by applying the statutory federal
         income tax rate principally due to state and local taxes.

3.       Related Party Transactions:

         Mortgage  collateral  purchased from affiliates and the resulting Bonds
         sold to affiliates are all recorded at fair value.

         Certain  directors  and officers of the Company are also  directors and
         officers of Lehman Brothers Inc., LCPI,  and/or other affiliates of the
         Company.

         Pursuant to a management  agreement (the  "Agreement"),  the Company is
         charged a management fee for various services rendered on its behalf by
         LCPI. The Agreement  provides for an allocation of costs based upon the
         level  of  activity  processed  by  LCPI  on  behalf  of  the  Company.
         Management  fees of $5,000 for the three months ended February 28, 1997
         and  February  29,  1996 are  included  in general  and  administrative
         expenses in the accompanying Statement of Operations.  The Agreement is
         renewable each year unless expressly  terminated or renegotiated by the
         parties.

         Compensation  expense includes amounts allocated to the Company by LCPI
         for  compensation  paid to certain common officers and directors of the
         Company and LCPI.

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

 4.      Financial Instruments with Off-Balance Sheet Risk and Concentration of
         Credit Risk:

         The  Company's  activities  are  principally  conducted  with  brokers,
         dealers and financial  institutions.  At February 28, 1997, the Company
         had no material individual  counterparty  concentration of credit risk,
         or any financial instruments with off-balance-sheet risk.



<PAGE>

                                LEHMAN CMO INC.

                          NOTES to FINANCIAL STATEMENTS

                                   ----------

5.       Fair Value of Financial Instruments:

         Statement   of   Financial   Accounting   Standards   (SFAS)  No.  107,
         "Disclosures About Fair Value of Financial  Instruments,"  requires the
         Company to report the fair value of financial instruments, for which it
         is practicable  to estimate that fair value.  The scope of SFAS No. 107
         excludes certain financial  instruments,  such as trade receivables and
         payables when the carrying value approximates the fair value,  employee
         benefit  obligations and all non-financial  instruments,  such as fixed
         assets.  The fair value of the Company's  assets and liabilities  which
         qualify as financial  instruments  under SFAS No. 107  approximate  the
         carrying amounts presented in the Statement of Financial Condition.



<PAGE>



                                 LEHMAN CMO INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF ANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


         During the three months ended  February 28, 1997 and February 29, 1996,
         the Company had no issuances of securities.  As such, no related income
         was recorded.

         Interest income reflects  interest earned on interest  bearing deposits
         during the period.

         General and administrative  expenses includes management fees of $5,000
         for the three months ended February 28, 1997 and February 29, 1996.



<PAGE>




                           PART II - OTHER INFORMATION




Item 6.  Exhibits and Reports on Form 8-K

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

(a)      Exhibits:

         27.      Financial Data Schedule


(b)      Reports on Form 8-K:

         None.




<PAGE>


                                   SIGNATURES



         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                      LEHMAN CMO INC.
                                      (Registrant)







Date: April 11, 1997                  /S/      Neal Leonard
                                      Neal Leonard
                                      President







Date: April 11, 1997                  /S/      David Goldfarb
                                      David Goldfarb
                                      Controller