Filed Pursuant to Rule 424(b)(2)
                                           Registration Statement No. 333-134553

PROSPECTUS SUPPLEMENT
(To prospectus dated May 30, 2006 and
prospectus supplement dated May 30, 2006)

                          LEHMAN BROTHERS HOLDINGS INC.
                           MEDIUM-TERM NOTES, SERIES I
        PERFORMANCE LINKED TO THE VALUE OF A COMMON STOCK, A STOCK INDEX,
 AN EXCHANGE TRADED FUND, A BASKET OF COMMON STOCKS OR A BASKET OF STOCK INDICES

The following terms will generally apply to certain notes that Lehman Brothers
Holdings will sell from time to time using this prospectus supplement (the
"synthetic convertible prospectus supplement") and the accompanying prospectus
supplement dated May 30, 2006 relating to Lehman Brothers Holdings' Medium-Term
Notes, Series I (the "MTN prospectus supplement") and the accompanying
prospectus dated May 30, 2006 (the "base prospectus"). Lehman Brothers Holdings
will include information on the specific terms for each series of notes in a
pricing supplement to this synthetic convertible prospectus supplement that
Lehman Brothers Holdings will deliver to prospective buyers of the notes.

SECURITIES OFFERED: Notes of Lehman Brothers Holdings (a "note," and, in the
aggregate, the "notes").

REFERENCE EQUITY: The return on the notes will be linked to a common stock (an
"index stock"), a stock index, an exchange traded fund, a basket of common
stocks, a basket of stock indices or a combination of two or more of the
foregoing, as specified in the relevant pricing supplement. As used in this
synthetic convertible prospectus supplement, the term "common stock" includes
other types of equity securities, including American Depositary Shares (or
"ADSs").

PRINCIPAL AMOUNT: As specified in the relevant pricing supplement.

STATED MATURITY DATE: As specified in the relevant pricing supplement, subject
to postponement if the valuation date is postponed.

INTEREST: Lehman Brothers Holdings will pay you interest on the dates and at the
rate per year specified in the relevant pricing supplement.

VALUATION DATE: Unless otherwise specified in the relevant pricing supplement,
the third business day prior to the stated maturity date or, in the case of
redemption, the date that notice of redemption is given or, in the case of
repurchase, the date that is a number of business days equal to the
determination period specified in the relevant pricing supplement before the
repurchase date, in each case subject to postponement if a market disruption
event occurs or if such day is not a scheduled trading day.

DETERMINATION PERIOD: As specified in the relevant pricing supplement.

THRESHOLD VALUE: As specified in the relevant pricing supplement.

DENOMINATIONS: $1,000 and whole multiples of $1,000.

RANKING: Senior unsecured debt securities of Lehman Brothers Holdings.

PAYMENT AT MATURITY: At maturity, Lehman Brothers Holdings will pay to you, per
$1,000 note, in addition to any accrued but unpaid interest, the greater of:

(1) $1,000; and

(2) the alternative redemption amount.

The alternative redemption amount per $1,000 note will equal $1,000 multiplied
by a ratio determined by dividing the settlement value on the valuation date by
the threshold value. The settlement value used for calculating the alternative
redemption amount on the stated maturity date will generally be based on the
closing price of the index stock, the closing level of the stock index, the
closing price of the exchange traded fund or the closing level of the basket, as
the case may be, on the valuation date. The settlement value may be adjusted
under certain circumstances, as described herein.

You can calculate the alternative redemption amount using the following formula:

                                     settlement value
                            $1,000 x ----------------
                                      threshold value

As a result, you will only receive the alternative redemption amount, plus any
accrued but unpaid interest, if the settlement value is greater than the
threshold value.

REDEMPTION: On or after the date specified in the relevant pricing supplement,
Lehman Brothers Holdings may redeem, on not less than 30 days' (or such other
period specified in the relevant pricing supplement) prior written notice, each
$1,000 note which is part of the series at a price equal to the amount that
would be payable to you at maturity, but with the settlement value based on the
closing price of the index stock, the closing level of the stock index, the
closing price of the exchange traded fund or the closing level of the basket, as
the case may be, on the date notice of redemption is given, plus any accrued but
unpaid interest.

REPURCHASE OPTION: At any time until the earlier of (a) the date Lehman Brothers
Holdings gives notice of its intention to redeem the notes or (b) eight business
days (or such other period specified in the relevant pricing supplement) before
the stated maturity date, you may require Lehman Brothers Holdings to repurchase
each $1,000 note which is part of the series at a price equal to the alternative
redemption amount, but with the settlement value based on the closing price of
the index stock, the closing level of the stock index, the closing price of the
exchange traded fund or the closing level of the basket, as the case may be, on
the date that is a number of business days equal to the determination period
specified in the relevant pricing supplement before the repurchase date, plus
any accrued but unpaid interest.

STOCK SETTLEMENT: In the case of notes whose performance is linked to an index
stock or an exchange traded fund, the relevant pricing supplement will specify
whether Lehman Brothers Holdings has the option of paying the amount due at
maturity or upon repurchase (but not upon redemption) in shares of the index
stock or the exchange traded fund (and any other equity securities used in the
calculation of the settlement value) or in cash, whether the holder of a note
has the option of electing stock settlement at maturity or upon repurchase or
whether stock settlement at maturity or upon repurchase is mandatory. Notes
whose performance is linked to a stock index, a basket of common stocks or a
basket of stock indices may only be settled in cash, unless otherwise specified
in the relevant pricing supplement.

OTHER TERMS: You should review "Description of the Notes" and the relevant
pricing supplement for other terms that apply to your notes. If any information
in the relevant pricing supplement is inconsistent with this synthetic
convertible prospectus supplement, the MTN prospectus supplement or the base
prospectus, you should rely on the information in the relevant pricing
supplement.

     Investing in the notes involves risks. Risk Factors begin on page SS-6.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
SYNTHETIC CONVERTIBLE PROSPECTUS SUPPLEMENT OR ANY ACCOMPANYING MTN PROSPECTUS
SUPPLEMENT OR BASE PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

                                   ----------

Lehman Brothers Inc., a wholly-owned subsidiary of Lehman Brothers Holdings,
makes a market in Lehman Brothers Holdings' securities. It may act as principal
or agent in, and this synthetic convertible prospectus supplement, the
accompanying MTN prospectus supplement and the base prospectus may be used in
connection with, those transactions. Any such sales will be made at varying
prices related to prevailing market prices at the time of sale.

                                 LEHMAN BROTHERS

October 5, 2006



YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS SYNTHETIC CONVERTIBLE PROSPECTUS SUPPLEMENT, THE MTN PROSPECTUS
SUPPLEMENT, THE BASE PROSPECTUS AND ANY RELEVANT PRICING SUPPLEMENT OR FREE
WRITING PROSPECTUS. ANY FREE WRITING PROSPECTUS SHOULD BE READ IN CONNECTION
WITH THIS SYNTHETIC CONVERTIBLE PROSPECTUS SUPPLEMENT, THE MTN PROSPECTUS
SUPPLEMENT, THE BASE PROSPECTUS AND ANY OTHER PROSPECTUS SUPPLEMENT REFERRED TO
THEREIN. WE HAVE NOT, AND THE AGENT HAS NOT, AUTHORIZED ANY OTHER PERSON TO
PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR
INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT. WE ARE NOT, AND THE AGENT
IS NOT, MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING
IN THIS SYNTHETIC CONVERTIBLE PROSPECTUS SUPPLEMENT, THE MTN PROSPECTUS
SUPPLEMENT, THE BASE PROSPECTUS AND ANY RELEVANT PRICING SUPPLEMENT, AS WELL AS
INFORMATION WE HAVE FILED OR WILL FILE WITH THE SECURITIES AND EXCHANGE
COMMISSION AND INCORPORATED BY REFERENCE, IS ACCURATE AS OF THE DATE OF THE
APPLICABLE DOCUMENT OR OTHER DATE REFERRED TO IN THE DOCUMENT. OUR BUSINESS,
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE
THAT DATE.

                                   ----------

                                TABLE OF CONTENTS

                              PROSPECTUS SUPPLEMENT

Summary Information-Q&A.................................................    SS-1
Risk Factors............................................................    SS-6
Use of Proceeds and Hedging.............................................   SS-15
Description of the Notes................................................   SS-16
Common Stock Information................................................   SS-28
Index Information.......................................................   SS-28
Exchange Traded Fund Information........................................   SS-29
United States Federal Income Tax Consequences...........................   SS-30
Supplemental ERISA Considerations ......................................   SS-34
Book-Entry Issuance.....................................................   SS-35
Supplemental Plan of Distribution.......................................   SS-36

                            MTN PROSPECTUS SUPPLEMENT

Risk Factors............................................................     S-4
Description of the Notes................................................    S-13
Supplemental United States Federal Income Tax Consequences..............    S-37
Certain ERISA Considerations............................................    S-44
Plan of Distribution....................................................    S-45
Appendix A..............................................................    S-48

                                 BASE PROSPECTUS

Prospectus Summary......................................................       1
General Information.....................................................       6
Cautionary Statement Regarding Forward-Looking Statements...............       6
Use of Proceeds.........................................................       7
Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed
   Charges and Preferred Stock Dividends................................       7
Description of Debt Securities..........................................       8
Description of Warrants.................................................      19
Description of Purchase Contracts.......................................      23
Description of Preferred Stock..........................................      27
Description of Depositary Shares........................................      30
Description of Common Stock.............................................      32
Description of Units....................................................      34
Form, Exchange and Transfer.............................................      37
Book-Entry Procedures and Settlement....................................      38
United States Federal Income Tax Consequences...........................      40
Plan of Distribution....................................................      54
Certain ERISA Considerations............................................      58
Where You Can Find More Information.....................................      58
Legal Matters...........................................................      59
Experts.................................................................      59


                                      SS-i



                           SUMMARY INFORMATION - Q&A

This summary highlights selected information from this synthetic convertible
prospectus supplement, the MTN prospectus supplement and the base prospectus to
help you understand the notes. You should carefully read this synthetic
convertible prospectus supplement, the MTN prospectus supplement, the base
prospectus and the relevant pricing supplement to understand fully the terms of
the notes and the tax and other considerations that are important to you in
making a decision about whether to invest in the notes. You should pay special
attention to the "Risk Factors" section beginning on page SS-6 to determine
whether an investment in the notes is appropriate for you.

In this synthetic convertible prospectus supplement, references to the "base
prospectus" mean the accompanying prospectus, as supplemented by the
accompanying MTN prospectus supplement. References to the "relevant pricing
supplement" mean the pricing supplement that describes the specific terms of the
series of the notes that you purchase.

WHAT ARE THE NOTES?

The notes will be a series of senior debt of Lehman Brothers Holdings Inc.
("Lehman Brothers Holdings") whose value will be tied to the performance of an
index stock, a stock index, an exchange traded fund, a basket of common stocks
or a basket of stock indices. See "Common Stock Information", "Index
Information" and "Exchange Traded Fund Information." The notes will rank equally
with all other unsecured debt of Lehman Brothers Holdings, except subordinated
debt, and will mature on the date specified in the relevant pricing supplement,
unless the applicable valuation date is postponed.

WHAT PAYMENTS WILL I RECEIVE ON THE NOTES BEFORE MATURITY?

The interest rate, the interest payment dates and the related record dates will
be specified in the relevant pricing supplement. If any interest payment date is
not a business day, you will receive payment on the following business day
unless that day falls in the next calendar month, in which case payment will be
made on the first preceding day which is a business day.

WHAT WILL I RECEIVE IF I HOLD THE NOTES UNTIL THE STATED MATURITY DATE?

Lehman Brothers Holdings has designed this type of note for investors who want
to protect their investment by receiving at least the principal amount of their
investment at maturity and who also want to participate in a possible increase
in the market price of the index stock, the level of the stock index, the price
of the exchange traded fund or the level of the basket, as the case may be. At
maturity, Lehman Brothers Holdings will pay you per $1,000 note, in addition to
any accrued but unpaid interest, the greater of:

o    $1,000; and

o    the alternative redemption amount.

Unless Lehman Brothers Holdings elects the stock settlement option, Lehman
Brothers Holdings will pay the amount due on the stated maturity date in cash.
As a result, if you hold the notes until maturity, you will not receive less
than the price at which the notes are initially being sold to the public;
provided, that in the case of notes whose performance is linked to an index
stock or an exchange traded fund, you may, under certain circumstances, receive
less than the price at which the notes are initially being sold to the public if
Lehman Brothers Holdings pays the amount due at maturity in shares of the index
stock or the exchange traded fund, as described below under "What is the stock
settlement option?"

The payment on the stated maturity date may be postponed if the valuation date
is postponed, as described below under "Description of the Notes--Settlement
value". Unless otherwise specified in the relevant pricing supplement, the
valuation date for purposes of the payment on the stated maturity date is the
third business day prior to the stated maturity date.

HOW DOES THE REDEMPTION FEATURE WORK?

Lehman Brothers Holdings may redeem, on not less than 30 days' (or such other
period specified in the relevant pricing supplement) prior written notice, all
or part of a series of notes on one or more occasions on or after the date
specified in the relevant pricing supplement at a redemption price per $1,000
note equal to the greater of:

o    $1,000; and

o    the alternative redemption amount, but with the settlement value based on
     the closing price of the


                                      SS-1




     index stock, the closing level of the stock index, the closing price of the
     exchange traded fund or the closing level of the basket, as the case may
     be, on the date the notice of redemption is given,

plus any accrued but unpaid interest.

As a result, if Lehman Brothers Holdings redeems your notes, you will not
receive less than the principal amount. Unless otherwise specified in the
relevant pricing supplement, Lehman Brothers Holdings will pay the amount due on
the redemption date in cash.

Unless otherwise specified in the relevant pricing supplement, the applicable
valuation date for purposes of the payment on the redemption date is the date
that the redemption notice is mailed. The payment on the redemption date may be
postponed if the applicable valuation date is postponed, as described below
under "Description of the Notes-Settlement value".

HOW CAN YOU REQUIRE LEHMAN BROTHERS HOLDINGS TO REPURCHASE YOUR NOTES?

At any time until the earlier of (a) the date Lehman Brothers Holdings gives
notice of its intention to redeem the notes or (b) eight business days (or such
other period specified in the relevant pricing supplement) before the stated
maturity date, you may instruct Lehman Brothers Holdings to repurchase all or
part of your notes at a price per $1,000 note equal to the alternative
redemption amount, but with the settlement value based on the closing price of
the index stock, the closing level of the stock index, the closing price of the
exchange traded fund or the closing level of the basket, as the case may be, on
the date that is a number of business days equal to the determination period
specified in the relevant pricing supplement before the repurchase date, plus
any accrued but unpaid interest by giving Lehman Brothers Holdings written
notice on any business day at the corporate trust office of the trustee for the
notes. The repurchase date will be the eighth business day following the
business day when Lehman Brothers Holdings has received your written notice,
unless payment is postponed because the valuation date is postponed.

If Lehman Brothers Holdings repurchases your notes, the amount you receive may
be greater or less than $1,000 per $1,000 note. In addition, in the case of
notes whose performance is linked to an index stock or an exchange traded fund,
you may, under certain circumstances, receive less than you would otherwise
receive if Lehman Brothers Holdings pays the amount due upon repurchase in
shares of the index stock or the exchange traded fund, as the case may be, as
described below under "What is the stock settlement option?"

Unless otherwise specified in the relevant pricing supplement, the applicable
valuation date for purposes of payment on the repurchase date is the third
business day prior to such repurchase date. The payment of the repurchase price
may be postponed if the applicable valuation date is postponed, as described
below under "Description of the Notes-Settlement value".

HOW WILL THE ALTERNATIVE REDEMPTION AMOUNT BE CALCULATED?

The alternative redemption amount per $1,000 note will be calculated by the
following formula:

                                     settlement value
                            $1,000 x ----------------
                                      threshold value

This formula accounts for the fact that the settlement value must be greater
than the threshold value for you to receive any amount above $1,000 (excluding
any accrued but unpaid interest) per $1,000 note and the portion of any increase
that you will receive if the settlement value is greater than the threshold
value. The threshold value will be specified in the relevant pricing supplement.

The settlement value at maturity or upon redemption or repurchase will generally
be based on the closing price of the index stock, the closing level of the stock
index, the closing price of the exchange traded fund or the closing level of the
basket, as the case may be, on the applicable valuation date; provided that if
the calculation agent determines that a market disruption event has occurred on
any such day or if such day is not a scheduled trading day, the valuation date
will be postponed and the settlement value will, subject to certain limitations,
be based upon the closing price of the index stock, the closing level of the
stock index, the closing price of the exchange traded fund or the closing level
of the basket, as the case may be, on the next succeeding scheduled trading day
on which no market disruption event occurs. Any such postponement of the
valuation date will cause the payment you receive to be postponed by a number of
business days equal to the number of scheduled trading days by which the
valuation date is postponed. For notes whose performance is linked to an index
stock, an exchange traded fund or a basket of common stocks, the settlement
value will also


                                      SS-2




include any other equity securities or any cash received by a holder of the
index stock, a holder of shares of the exchange traded fund or holder of the
common stocks in the basket, as the case may be, as a result of transactions,
events or occurrences as described below. See "Description of the
Notes-Determination of alternative redemption amount" for details. For notes
whose performance is linked to a stock index or a basket of stock indices, the
closing level of a relevant index may be adjusted in limited circumstances. See
"Description of the Notes-Discontinuance of one or more relevant indices;
Alteration of method of calculation" for details.

The relevant pricing supplement will contain examples of how the alternative
redemption amount will be calculated.

WHAT CHANGES WILL BE MADE TO THE SETTLEMENT VALUE?

For notes whose performance is linked to an index stock, an exchange traded fund
or a basket of common stocks, changes will be made to the settlement value if
the index stock issuer, the exchange traded fund or the issuers of the common
stocks included in the basket, as the case may be, or other issuers whose
securities are included in the calculation of the settlement value, engage in
certain transactions and to reflect certain events affecting such securities,
such as stock splits, stock dividends and similar occurrences. For example, if
an issuer is not the surviving entity in a merger, its common stock will be
removed from the calculation of the settlement value and the settlement value
will then include the common stock of the successor entity or cash received in
the merger plus any accrued interest. Also as an example, if an issuer
distributes the common stock of a subsidiary to shareholders, the value of the
subsidiary's common stock will then be added to the settlement value. See
"Description of the Notes-Adjustments to multipliers and to securities included
in the calculation of the settlement value."

WHAT IS THE STOCK SETTLEMENT OPTION?

In the case of notes whose performance is linked to an index stock or an
exchange traded fund, the relevant pricing supplement will specify whether and
under what circumstances the stock settlement at maturity or upon repurchase
(but not upon redemption) will be available. Unless otherwise specified in the
relevant pricing supplement, if and to the extent stock settlement is available,
Lehman Brothers Holdings will, as applicable (a) pay the amount due at maturity,
subject to the following paragraph, by delivering, for each $1,000 principal
amount of notes, a number of shares of the index stock or the exchange traded
fund, as the case may be, having a value on the applicable valuation date equal
to the greater of $1,000 and the alternative redemption amount or (b) pay the
amount due upon repurchase, subject to the following paragraph, by delivering,
for each $1,000 principal amount of notes, a number of shares of the index stock
or the exchange traded fund, as the case may be, having a value on the
applicable valuation date equal to the alternative redemption amount. Upon the
occurrence of certain events, or if the index stock issuer or the exchange
traded fund, as the case may be, is involved in certain transactions, the number
of shares of the index stock or the exchange traded fund, as the case may be, to
be delivered may be adjusted and Lehman Brothers Holdings may deliver, in lieu
of or in addition to the index stock or the exchange traded fund, as the case
may be, cash and any other equity securities used in the calculation of the
settlement value, all as described below under "Description of the
Notes-Adjustments to multipliers and to securities included in the calculation
of the settlement value." If the calculations above result in fractional shares,
Lehman Brothers Holdings will pay cash to you in an amount equal to the value of
the fractional shares based upon the closing price of the index stock or the
closing price of the exchange traded fund, as the case may be, or such other
equity securities on the applicable valuation date.

If Lehman Brothers Holdings determines that it is prohibited from delivering
shares of the index stock or the exchange traded fund, as the case may be, or
other equity securities, or that it would otherwise be unduly burdensome to do
so, it will pay the entire amount due at maturity or upon repurchase in cash.

Because the settlement value will ordinarily be determined prior to the stated
maturity date or the repurchase date, if the notes are settled with stock at
maturity or upon repurchase the effect to holders will be as if the notes
matured or were repurchased prior to the stated maturity date or repurchase
date, as the case may be. Thus, the value of the shares of the index stock or
the exchange traded fund, as the case may be, and any other equity securities
and cash that you receive at maturity or upon repurchase may, as a result of
fluctuations in the value of these securities during the period between the
valuation date and the stated maturity date or repurchase date, be more or less
than the amount you would have received had


                                      SS-3



the notes not been stock settled. Consequently, it is possible that the
aggregate value of the securities and cash that you receive at maturity or upon
repurchase may be less than the amount you would have received had there not
been stock settlement.

Notes whose performance is linked to a stock index, a basket of common stocks or
a basket of stock indices may only be settled in cash, unless otherwise
specified in the relevant pricing supplement.

HOW WILL I BE ABLE TO FIND THE SETTLEMENT VALUE?

You may call Lehman Brothers Inc. at 212-526-0905 to obtain the settlement value
and, in the case of notes whose performance is linked to an index stock, an
exchange traded fund or to a basket of common stocks, the number of shares and
other equity securities included in the calculation of the settlement value per
$1,000 note, calculated as if the settlement value were being determined on that
date.

ARE THERE ANY RISKS ASSOCIATED WITH MY INVESTMENT?

Yes, the notes will be subject to a number of risks. See "Risk Factors"
beginning on page SS-6.

WHAT ABOUT TAXES?

The notes will be subject to U.S. Treasury regulations that apply to contingent
payment debt instruments. As a result, you will be subject to federal income tax
on the accrual of original issue discount in respect of the notes based on the
"comparable yield" of the notes, which will exceed the stated interest payments
actually made to you. The "comparable yield" of the notes will generally be the
rate at which Lehman Brothers Holdings could issue a fixed rate debt instrument
with terms and conditions similar to the notes. In addition, gain and, to some
extent, loss on the sale, exchange or other disposition of notes will generally
be ordinary income or loss. See "United States Federal Income Tax Consequences"
in this synthetic convertible prospectus supplement.

WHO IS LEHMAN BROTHERS HOLDINGS?

Lehman Brothers Holdings, an innovator in global finance, serves the financial
needs of corporations, governments and municipalities, institutional clients and
individuals worldwide. Lehman Brothers Holdings provides a full array of
equities and fixed income sales, trading and research, investment banking
services and investment management and advisory services. Lehman Brothers
Holdings' global headquarters in New York and regional headquarters in London
and Tokyo are complemented by offices in additional locations in North America,
Europe, the Middle East, Latin America and the Asia Pacific region. See
"Prospectus Summary-Lehman Brothers Holdings Inc." and "Where You Can Find More
Information" on pages 1 and 58, respectively, of the base prospectus.

You may request a copy of any document Lehman Brothers Holdings files with the
Securities and Exchange Commission, or the SEC, pursuant to the Securities
Exchange Act of 1934, as amended, at no cost, by writing or telephoning Lehman
Brothers Holdings at the address set forth under the caption "Where You Can Find
More Information" in the base prospectus.

WHAT IS THE ROLE OF LEHMAN BROTHERS INC.?

Unless indicated otherwise in the relevant pricing supplement, Lehman Brothers
Inc., a subsidiary of Lehman Brothers Holdings, will be an agent for the
offering and sale of the notes. Lehman Brothers Inc. will also be the
calculation agent for purposes of determining the amount you receive and, in the
case of notes whose performance is linked to an index stock or an exchange
traded fund, as the case may be, the number of shares of the index stock or the
exchange traded fund, as the case may be (and any other equity securities used
in the calculation of the settlement value), you receive if there is stock
settlement at maturity or upon repurchase of the notes. Potential conflicts of
interest may exist between Lehman Brothers Inc. and you as a beneficial owner of
the notes. See "Risk Factors-Potential conflicts of interest exist because
Lehman Brothers Holdings controls Lehman Brothers Inc., which will act as the
calculation agent" and "Description of the Notes-Calculation agent."

After the initial offering of each series of notes, Lehman Brothers Inc. intends
to buy and sell the notes to create a secondary market in the notes and may
stabilize or maintain the market price of the notes during the initial
distribution of the notes. However, Lehman Brothers Inc. will not be obligated
to engage in any of these market activities or to continue them once they are
begun.

IN WHAT FORM WILL THE NOTES BE ISSUED?

The notes of each series will be represented by one or more global securities
that will be deposited with and registered in the name of The Depository Trust
Company ("DTC") or its nominee. Except in very limited circumstances, you will
not receive a certificate for your notes.


                                      SS-4




WILL THE NOTES BE LISTED ON A STOCK EXCHANGE?

The notes may be listed on a stock exchange. If a series of notes is listed on a
stock exchange, the relevant pricing supplement will identify the exchange and
the trading symbol of the series. You should be aware that that the listing of
the notes on a stock exchange will not necessarily ensure that a liquid trading
market will be available for the notes.


                                      SS-5



                                  RISK FACTORS

You should carefully consider the risk factors provided below as well as the
other information contained in this synthetic convertible prospectus supplement,
the MTN prospectus supplement, the base prospectus, any relevant pricing
supplement and the documents incorporated in this document by reference. As
described in more detail below, the trading price of the notes may vary
considerably before the stated maturity date due, among other things, to
fluctuations in the price of the index stock, the common stocks underlying the
stock index, the shares of the exchange traded fund, the common stocks
underlying the exchange traded fund, the common stocks included in the basket or
the common stocks underlying the stock indices included in the basket, as the
case may be, and any other equity securities included in the calculation of the
settlement value and other events that are difficult to predict and beyond
Lehman Brothers Holdings' control.

You should reach an investment decision only after you have carefully considered
with your advisors the suitability of an investment in the notes in light of
your particular circumstances.

THE NOTES WILL BE DIFFERENT FROM CONVENTIONAL DEBT SECURITIES OF LEHMAN BROTHERS
HOLDINGS IN SEVERAL WAYS.

o    THE YIELD MAY BE LOWER THAN THE YIELD ON A CONVENTIONAL DEBT SECURITY OF
     COMPARABLE MATURITY. The amount Lehman Brothers Holdings pays you at
     maturity may be less than the return you could earn on other investments.
     Because the amount you receive at maturity may only equal the principal
     amount, the effective yield to maturity on the notes may be less than that
     which would be payable on a conventional fixed-rate, debt security of
     Lehman Brothers Holdings. In addition, any return may not fully compensate
     you for any opportunity cost to you when you take into account inflation
     and other factors relating to the time value of money.

o    IF THE ALTERNATIVE REDEMPTION AMOUNT IS LESS THAN OR EQUAL TO $1,000 PER
     $1,000 NOTE ON THE VALUATION DATE, YOU WILL RECEIVE ONLY THE PRINCIPAL
     AMOUNT OF THE NOTE ON THE STATED MATURITY DATE. This will be true even if,
     at some other time during the life of the notes, the price of the index
     stock, the level of the stock index, the price of the exchange traded fund
     or the level of the basket, as the case may be, exceeds the threshold
     value, because the settlement value on the valuation date must be greater
     than the threshold value before the alternative redemption amount becomes
     greater than $1,000 per $1,000 note.

o    THE RATE OF INTEREST PAID ON THE NOTES MAY BE SIGNIFICANTLY LESS THAN
     INTEREST PAID ON A CONVENTIONAL DEBT SECURITY. Your note may bear interest
     at a rate below the prevailing market rate for debt securities of Lehman
     Brothers Holdings that are not indexed to an index stock, a stock index, an
     exchange traded fund, a basket of common stocks or a basket of stock
     indices. However, because the notes will be classified as contingent
     payment debt instruments, they will be considered to be issued with
     original issue discount. As a result, you will be required to include
     original issue discount in income in excess of the stated interest payments
     actually made to you during your ownership of the notes, subject to some
     adjustments. See "United States Federal Income Tax Consequences."

YOUR RETURN ON THE NOTES COULD BE LESS THAN IF YOU OWNED THE INDEX STOCK, THE
COMMON STOCKS UNDERLYING THE STOCK INDEX, SHARES OF THE EXCHANGE TRADED FUND,
THE COMMON STOCKS UNDERLYING THE EXCHANGE TRADED FUND, THE COMMON STOCKS
INCLUDED IN THE BASKET OR THE COMMON STOCKS UNDERLYING THE STOCK INDICES
INCLUDED IN THE BASKET, AS THE CASE MAY BE.

o    YOU WILL NOT RECEIVE ANY APPRECIATION UNLESS ON THE VALUATION DATE THE
     SETTLEMENT VALUE IS GREATER THAN THE THRESHOLD VALUE. Because you will not
     receive any appreciation unless on the valuation date the settlement value
     is greater than the threshold value, your return on the notes could be less
     than the return obtainable if you had owned the index stock, the common
     stocks underlying the stock index, shares of the exchange traded fund, the
     common stocks underlying the exchange traded fund, the common stocks
     included in the basket or the common stocks underlying the stock indices
     included in the basket, as the case may be.

o    Your return will not reflect dividends on the index stock, the common
     stocks underlying the


                                      SS-6



     stock index, shares of the exchange traded fund, the common stocks
     underlying the exchange traded fund, the common stocks included in the
     basket or the common stocks underlying the stock indices included in the
     basket, as the case may be, included in the calculation of the settlement
     value. Your return on the notes will also not reflect the return you would
     realize if you actually owned these common stocks or shares (or any other
     equity securities included in the calculation of the settlement value), and
     received the dividends paid on such stocks or shares. This is because the
     calculation agent will calculate the amount payable to you by reference to
     the price of these common stocks and shares (and any other equity
     securities), without taking into consideration the value of dividends on
     those securities (although, in the case of notes whose performance is
     linked to an index stock, an exchange traded fund or a basket of common
     stocks, the settlement value may, under certain circumstances, be adjusted
     to reflect changes in the dividends paid on the stocks).

o    YOUR RETURN MAY NOT BE ADJUSTED FOR CHANGES IN CURRENCY EXCHANGE RATES. The
     notes are denominated in U.S. dollars. If the index stock, the common
     stocks underlying the stock index, shares of the exchange traded fund, the
     common stocks underlying the exchange traded fund, the common stocks
     included in the basket or the common stocks underlying the stock indices
     included in the basket, as the case may be, are traded in foreign
     currencies, the amount payable on the stated maturity date may not be
     adjusted for the currency exchange rates in effect on the stated maturity
     date. If the amount payable on the stated maturity date is not adjusted for
     the currency exchange rates in effect on the stated maturity date, any
     amount in addition to the principal amount of each note payable to you on
     the stated maturity date will be based solely upon the percentage increase
     in the price of the index stock, the level of the stock index, the price of
     the exchange traded fund or the level of the basket, as the case may be. In
     addition, changes in exchange rates may reflect changes in various non-U.S.
     economies, which in turn may adversely affect the price of the index stock,
     the level of the stock index, the price of the exchange traded fund or the
     level of the basket, as the case may be, and the value of the notes.

FOR NOTES WHOSE PERFORMANCE IS LINKED TO AN INDEX STOCK OR AN EXCHANGE TRADED
FUND AND FOR WHICH STOCK SETTLEMENT AT MATURITY OR UPON REPURCHASE OF THE NOTES
IS PROVIDED, YOUR RETURN ON THE NOTES COULD BE LESS THAN IF THERE HAD NOT BEEN
STOCK SETTLEMENT.

If the notes are settled with stock at maturity or upon repurchase, then because
the settlement value will ordinarily be determined prior to the stated maturity
date or the repurchase date, the effect to holders will be as if the notes
matured or were repurchased prior to the maturity date or repurchase date, as
the case may be. Thus, the value of the shares of the index stock or the
exchange traded fund, as the case may be, and any other equity securities and
cash that you receive at maturity or upon repurchase may, as a result of
fluctuations in the value of these securities during the period between the
valuation date and the stated maturity date or repurchase date, be more or less
than the amount you would have received had the notes not been stock settled.
Consequently it is possible that the aggregate value of the securities and cash
that you receive at maturity or upon repurchase may be less than the amount you
would have received had there not been stock settlement. See "Description of the
Notes-Stock settlement."

HISTORICAL PRICES OF THE INDEX STOCK, LEVELS OF THE STOCK INDEX, PRICES OF THE
EXCHANGE TRADED FUND OR LEVELS OF THE BASKET, AS THE CASE MAY BE, SHOULD NOT BE
TAKEN AS AN INDICATION OF THE SETTLEMENT VALUE DURING THE TERM OF THE NOTES.

The trading prices of the index stock, the common stocks underlying the stock
index, the exchange traded fund, the common stocks underlying the exchange
traded fund, the common stocks included in the basket or the common stocks
underlying the stock indices included in the basket, as the case may be, and
other equity securities included in the calculation of the settlement value and
any cash included in the calculation of the settlement value will determine the
settlement value. You should realize, however, that past performance is not
necessarily indicative of how the index stock, the common stocks underlying the
stock index, the exchange traded fund, the common stocks underlying the exchange
traded fund, the common stocks included in the basket or the common stocks
underlying the stock indices included in the basket, as the case may be, or the
notes will perform in the future. Trading prices of these common stocks, shares
and other equity securities included in the calculation of the settlement value
will be influenced by complex and interrelated political, economic, financial
and other factors that can affect the markets


                                      SS-7




in which these securities are traded and the values of these securities
themselves.


THE NOTES MAY NOT BE ACTIVELY TRADED.

The notes of a particular series may not be listed on any securities
exchange. Even if they are listed on a securities exchange, there may be little
or no secondary market for the notes and even if there is a secondary market, it
may not provide significant liquidity. Lehman Brothers Inc. currently intends to
act as a market maker for each series of notes, but it is not required to do so.

THE VALUE OF THE NOTES WILL BE AFFECTED BY NUMEROUS FACTORS, SOME OF WHICH ARE
RELATED IN COMPLEX WAYS.

The value of the notes in the secondary market will be affected by supply and
demand of the notes, the price of the index stock, the level of the stock index,
the price of the exchange traded fund or the level of the basket, as the case
may be, at that time and a number of other factors, some of which are
interrelated in complex ways. As a result, the effect of any one factor may be
offset or magnified by the effect of another factor. The price at which you will
be able to sell the notes prior to maturity may be at a discount, which could be
substantial, from the price at which the notes are initially sold to the public
if the price of the index stock, the level of the stock index, the price of the
exchange traded fund or the level of the basket, as the case may be, at that
time, is less than, equal to, or not sufficiently above the threshold value. You
will not participate in the appreciation of the index stock, the stock index,
the exchange traded fund or the basket, as the case may be, unless the
settlement value is greater than the threshold value. A change in a specific
factor could have the following impacts on the market value of the notes,
assuming all other conditions remain constant.

o    REDEMPTION FEATURE. Lehman Brothers Holdings' ability to redeem the notes
     prior to the stated maturity date is likely to limit the secondary market
     price at which the notes will trade.

o    VALUE. Lehman Brothers Holdings expects that the market value of the notes
     will depend substantially on the amount, if any, by which the price of the
     index stock, the level of the stock index, the price of the exchange traded
     fund or the level of the basket, as the case may be, at any given point in
     time exceeds the threshold value. If you decide to sell your notes when the
     price of the index stock, the level of the stock index, the price of the
     exchange traded fund or the level of the basket, as the case may be,
     exceeds the threshold value, you may nonetheless receive substantially less
     than the amount that would be payable on the stated maturity date based on
     that settlement value because of expectations that the settlement value
     will continue to fluctuate until the alternative redemption amount is
     determined. If you decide to sell your notes when the price of the index
     stock, the level of the stock index, the price of the exchange traded fund
     or the level of the basket, as the case may be, is below the threshold
     value, you can expect to receive less than the price at which the notes are
     initially being sold to the public. Political, economic and other
     developments that affect the index stock, the common stocks underlying the
     stock index, the exchange traded fund, the common stocks underlying the
     exchange traded fund, the common stocks included in the basket or the
     common stocks underlying the stock indices included in the basket, as the
     case may be (and any other equity securities included in the calculation of
     the settlement value), may also affect the settlement value and, thus, the
     value of the notes.

o    INTEREST RATES. The trading value of the notes will be affected by changes
     in interest rates. In general, if U.S. or foreign interest rates increase,
     the trading value of the notes may be adversely affected.

o    VOLATILITY OF AN INDEX STOCK, THE COMMON STOCKS UNDERLYING A STOCK INDEX,
     THE SHARES OF AN EXCHANGE TRADED FUND, THE COMMON STOCKS UNDERLYING THE
     EXCHANGE TRADED FUND, THE COMMON STOCKS INCLUDED IN A BASKET OF COMMON
     STOCKS OR THE COMMON STOCKS UNDERLYING THE STOCK INDICES INCLUDED IN THE
     BASKET. Volatility is the term used to describe the size and frequency of
     market fluctuations. If the volatility of an index stock, the common stocks
     underlying a stock index, the shares of an exchange traded fund, the common
     stocks underlying the exchange traded fund, the common stocks included in a
     basket of common stocks or the common stocks underlying the stock indices
     included in the basket, as the case may be, increases or decreases, the
     trading value of the notes may be adversely affected. Lehman Brothers
     Holdings is unable to predict the effect of these events on the future
     levels or volatility


                                      SS-8



     of an index stock, the common stocks underlying a stock index, the shares
     of an exchange traded fund, the common stocks underlying the exchange
     traded fund, the common stocks included in a basket or the common stocks
     underlying the stock indices included in the basket, as the case may be.

o    VOLATILITY OF CURRENCY EXCHANGE RATES. If the index stock, the common
     stocks underlying the stock index, the shares of the exchange traded fund,
     the common stocks underlying the exchange traded fund, the common stocks
     included in the basket or the common stocks underlying the stock indices
     included in the basket, as the case may be, are denominated in a foreign
     currency, the exchange rate between the U.S. dollar and each of the foreign
     currencies in which such securities are denominated is a foreign exchange
     spot rate that measures the relative values of two currencies, the
     particular currency in which the such securities are denominated and the
     U.S. dollar. This exchange rate increases when the U.S. dollar appreciates
     relative to the particular currency in which the securities are denominated
     and decreases when the U.S. dollar depreciates relative to such currency.
     This exchange rate is expressed as a rate that reflects the amount of the
     particular currency in which the securities are denominated that can be
     purchased for one U.S. dollar. Volatility is the term used to describe the
     size and frequency of price and/or market fluctuations. If the volatility
     of the exchange rate between the U.S. dollar and any of the foreign
     currencies in which such securities are denominated changes, the trading
     value of the notes may be adversely affected.

o    CORRELATION BETWEEN CURRENCY EXCHANGE RATES AND THE INDEX STOCK, THE COMMON
     STOCKS UNDERLYING THE STOCK INDEX, THE SHARES OF THE EXCHANGE TRADED FUND,
     THE COMMON STOCKS UNDERLYING THE EXCHANGE TRADED FUND, THE COMMON STOCKS
     INCLUDED IN THE BASKET OR THE COMMON STOCKS UNDERLYING THE STOCK INDICES
     INCLUDED IN THE BASKET. Correlation is the term used to describe the
     relationship between the percentage changes in the exchange rate between
     the U.S. dollar and each of the foreign currencies in which the index
     stock, the common stocks underlying the stock index, the shares of the
     exchange traded fund, the common stocks underlying the exchange traded
     fund, the common stocks included in the basket or the common stocks
     underlying the stock indices included in the basket, as the case may be,
     may be denominated and the percentage changes in the index stock, the
     common stocks underlying the stock index, the shares of the exchange traded
     fund, the common stocks underlying the exchange traded fund, the common
     stocks included in the basket or the common stocks underlying the stock
     indices included in the basket, as the case may be. If the correlation
     between the exchange rate between the U.S. dollar and any of the foreign
     currencies in which the index stock, the common stocks underlying the stock
     index, the shares of the exchange traded fund, the common stocks underlying
     the exchange traded fund, the common stocks included in the basket or the
     common stocks underlying the stock indices included in the basket is
     denominated changes, the trading value of the notes may be adversely
     affected.

o    MERGER AND ACQUISITION TRANSACTIONS. The index stock, one or more of the
     common stocks underlying the stock index, one or more of the common stocks
     underlying the exchange traded fund, one or more of the common stocks
     included in the basket, or one or more of the common stocks underlying the
     stock indices included in the basket, as the case may be (or any other
     equity securities included in the calculation of the settlement value), may
     be affected by mergers and acquisitions, which can contribute to volatility
     of these securities. Additionally, as a result of a merger or acquisition,
     the index stock, one or more of the common stocks underlying the stock
     index, one or more of the common stocks underlying the exchange traded
     fund, one or more of the common stocks included in the basket or one or
     more of the common stocks underlying the stock indices included in the
     basket, as the case may be (or any other equity securities included in the
     calculation of the settlement value), may be replaced with a surviving or
     acquiring entity's securities. The surviving or acquiring entity's
     securities may not have the same characteristics as the securities they
     replaced.

o    TIME REMAINING TO MATURITY. The value of the notes may be affected by the
     time remaining to maturity. As the time remaining to the maturity of the
     notes decreases, this time value may decrease, adversely affecting the
     trading value of the notes.


                                      SS-9



o    DIVIDEND YIELDS. If dividend yields on the index stock, the common stocks
     underlying the stock index, the shares of the exchange traded fund, the
     common stocks underlying the exchange traded fund, the common stocks
     included in the basket or the common stocks underlying the stock indices
     included in the basket, as the case may be (or any other equity securities
     included in the calculation of the settlement value), increase, the value
     of the notes may be adversely affected because the settlement value does
     not incorporate the value of those payments.

o    LEHMAN BROTHERS HOLDINGS' CREDIT RATINGS, FINANCIAL CONDITION AND RESULTS.
     Actual or anticipated changes in Lehman Brothers Holdings' credit ratings,
     financial condition or results may affect the market value of the notes.

o    ECONOMIC CONDITIONS AND EARNINGS PERFORMANCE OF THE INDEX STOCK ISSUER, THE
     COMMON STOCKS UNDERLYING THE STOCK INDEX, THE EXCHANGE TRADED FUND, THE
     COMMON STOCKS UNDERLYING THE EXCHANGE TRADED FUND, THE COMPANIES WHOSE
     COMMON STOCKS ARE INCLUDED IN THE BASKET, OR THE COMMON STOCKS UNDERLYING
     THE STOCK INDICES INCLUDED IN THE BASKET, AS THE CASE MAY BE (AND ANY OTHER
     COMPANIES WHOSE SECURITIES ARE INCLUDED IN THE CALCULATION OF THE
     SETTLEMENT VALUE). General economic conditions and earnings results of
     these companies (and any other companies whose equity securities are
     included in the calculation of the settlement value) and real or
     anticipated changes in those conditions or results may affect the market
     value of the notes.

You should understand that the impact of one of the factors specified above,
such as an increase in interest rates, may offset some or all of any change in
the trading value of the notes attributable to another factor, such as an
increase in the price of the index stock, the level of the stock index, the
price of the exchange traded fund or the level of the basket. In general,
assuming all relevant factors are held constant, the effect on the trading value
of the notes of a given change in most of the factors listed above will be less
if it occurs later than if it occurs earlier in the term of the notes.

THE INCLUSION OF COMMISSIONS AND PROJECTED PROFIT FROM HEDGING IN THE PUBLIC
OFFERING PRICE IS LIKELY TO ADVERSELY AFFECT SECONDARY MARKET PRICES.

Assuming no change in market conditions or any other relevant factors, the
price, if any, at which Lehman Brothers Inc. is willing to purchase notes of a
particular series in secondary market transactions will likely be lower than the
public offering price of the notes of that series, since the public offering
price will include, and secondary market prices are likely to exclude,
commissions paid with respect to the notes, as well as the projected profit
included in the cost of hedging the obligations of Lehman Brothers Holdings
under the notes. In addition, any such prices may differ from values determined
by pricing models used by Lehman Brothers Inc., as a result of dealer discounts,
mark-ups or other transaction costs.

FOR NOTES WHOSE PERFORMANCE IS LINKED TO A STOCK INDEX OR A BASKET OF STOCK
INDICES, ADJUSTMENTS TO THE STOCK INDEX OR STOCK INDICES COULD ADVERSELY AFFECT
THE VALUE OF THE NOTES.

The policies of the publishers of the stock index or basket of stock indices
concerning additions, deletions and substitutions of the stocks underlying the
stock index or stock indices, and the manner in which the publishers take
account of certain changes affecting such underlying stocks may affect the level
of the stock index or stock indices. The policies of the publishers with respect
to the calculation of the stock index or stock indices could also affect the
level of the stock index or stock indices. The publishers may discontinue or
suspend calculation or dissemination of the stock index or stock indices or
materially alter the methodology by which they calculate the index or indices.
Any such actions could affect the value of the notes. See "Description of the
Notes-Discontinuance of one or more relevant indices; Alteration of method of
calculation."

FOR NOTES WHOSE PERFORMANCE IS LINKED TO AN EXCHANGE TRADED FUND, THE
CORRELATION BETWEEN THE PERFORMANCE OF THE EXCHANGE TRADED FUND AND THE
PERFORMANCE OF THE UNDERLYING INDEX MAY BE IMPERFECT.

For notes linked to the performance of an exchange traded fund, the performance
of the exchange traded fund is linked principally to the performance of an
underlying index. However, the performance of the exchange traded is also
generally linked in part to shares of other exchange traded funds because
exchange traded funds generally invest a specified percentage, e.g., 10%, of
their assets in such shares. In addition, while the performance of the exchange
traded fund is linked principally to the performance of the exchange traded
fund's underlying index, exchange traded funds generally invest in a
representative sample of stocks underlying the


                                      SS-10



underlying index and generally do not hold all or substantially all of the
common stocks underlying the underlying index. Finally, the performance of the
exchange traded fund and that of the exchange traded fund's underlying index
will generally vary due to transaction costs, certain corporate actions and
timing variances. Imperfect correlation between the common stocks underlying the
exchange traded fund and the common stocks underlying the exchange traded fund's
underlying index; the performance of the shares of other exchange traded funds,
if applicable; rounding of prices; changes to the underlying index; and changes
to regulatory policies, may cause the performance of the exchange traded fund to
differ from the performance of the exchange traded fund's underlying index. In
addition, because shares of the exchange traded fund are traded on exchanges and
are subject to market supply and investor demand, the market value of one share
of the exchange traded fund may differ from its net asset value per share;
shares of the exchange traded fund may trade at, above or below their net asset
value per share.

Because of the potential discrepancies identified above, the return on the
exchange traded fund may correlate imperfectly with the return on the exchange
traded fund's underlying index over the same period. For more information, see
"Exchange Traded Fund Information" below.

FOR NOTES WHOSE PERFORMANCE IS LINKED TO AN EXCHANGE TRADED FUND, THE POLICIES
OF THE INVESTMENT ADVISER FOR THE EXCHANGE TRADED FUND AND CHANGES THAT AFFECT
THE UNDERLYING INDEX COULD ADVERSELY AFFECT THE VALUE OF THE NOTES.

The policies of the investment adviser for the exchange traded fund concerning
the calculation of the exchange traded fund's net asset value, additions,
deletions or substitutions of securities in the exchange traded fund and the
manner in which changes affecting the underlying index are reflected in the
exchange traded fund could affect the market price of shares of the exchange
traded fund and, therefore, the amount payable on your note on the stated
maturity date and the trading value of your note before that date. The amount
payable on your note and its trading value could also be affected if the
exchange traded fund's investment adviser changes these policies, for example,
by changing the manner in which it calculates the exchange traded fund's net
asset value, or if the exchange traded fund's investment adviser discontinues or
suspends calculation or publication of the exchange traded fund's net asset
value, in which case it may become difficult to determine the market value of
your note. If events such as these occur or if the closing price of shares of
the exchange traded fund is not available on the valuation date, the calculation
agent may determine the closing price of the exchange traded fund on the
valuation date and thus the amount payable on the stated maturity date in a
manner it considers appropriate, in its sole discretion.

FOR NOTES WHOSE PERFORMANCE IS LINKED TO A BASKET OF COMMON STOCKS OR A BASKET
OF STOCK INDICES, CHANGES IN THE PRICE OF ONE OR MORE OF THE COMMON STOCKS OR
LEVEL OF ONE OR MORE OF THE STOCK INDICES, AS THE CASE MAY BE, COMPRISING THE
BASKET MAY OFFSET EACH OTHER.

Price movements in the common stocks or changes in the levels of the stock
indices, as the case may be, comprising a basket may not correlate with each
other. At a time when the price of one or more of the common stocks or level of
one or more of the stock indices, as the case may be, included in the basket
increases, the price of one or more of the other common stocks or stock indices,
as the case may be, included in the basket may not increase as much or may even
decline in value. Therefore, in calculating the closing level of the basket on
the valuation date, increases in the price of one or more of the common stocks
or level of one or more of the stock indices, as the case may be, included in
the basket may be moderated, or wholly offset, by lesser increases or declines
in the price of one or more of the other common stocks or level of one ore more
of the other stock indices, as the case may be, included in the basket. Past
performance is not necessarily indicative of how the common stocks or stock
indices, as the case may be, will perform in the future. In addition, there can
be no assurance that the closing level of the basket will be higher than the
initial level of the basket so that you will receive at maturity an amount in
excess of the price at which the notes are initially being sold to the public.

FOR NOTES WHOSE PERFORMANCE IS LINKED TO A BASKET OF COMMON STOCKS OR A STOCK
INDEX, AN EXCHANGE TRADED FUND OR A BASKET OF STOCK INDICES IN WHICH THE COMMON
STOCKS INCLUDED IN OR UNDERLYING THE BASKET, THE STOCK INDEX, INDICES OR
EXCHANGE TRADED FUND ARE ALL PART OF THE SAME INDUSTRY, SUCH COMMON STOCKS ARE
NOT NECESSARILY REPRESENTATIVE OF THAT INDUSTRY.


                                      SS-11



The performance of such a stock index, exchange traded fund or basket may not
correlate with the performance of the entire industry. The stock index, exchange
traded fund or basket may decline in value even if the industry as a whole rises
in value. Furthermore, one or more of the issuers of the common stocks included
in or underlying the basket, the stock index or indices or the exchange traded
fund may engage in new lines of business or cease to be involved in the
particular industry. Subject to adjustments to multipliers and to securities
included in the basket for specific corporate events relating to a particular
issuer, the basket may be a static basket, and the common stocks underlying the
stock index or indices or exchange traded fund may vary not even if one or more
of the issuers are no longer involved in the particular industry.

FOR NOTES WHOSE PERFORMANCE IS LINKED TO A BASKET OF COMMON STOCKS OR A STOCK
INDEX, AN EXCHANGE TRADED FUND OR A BASKET OF STOCK INDICES IN WHICH THE COMMON
STOCK INCLUDED IN OR UNDERLYING THE BASKET, THE STOCK INDEX, INDICES OR EXCHANGE
TRADED FUND ARE ALL PART OF THE SAME SECTOR, THERE ARE RISKS ASSOCIATED WITH A
SECTOR INVESTMENT.

The performance of notes linked to the performance of such a stock index,
exchange traded fund or basket is dependent upon the performance of issuers in a
particular sector of the economy. Consequently, the value of the notes may be
subject to greater volatility and be more adversely affected by a single
economic, political or regulatory occurrence affecting this particular industry
than an investment linked to a more broadly diversified group of issuers.

FOR NOTES WHOSE PERFORMANCE IS LINKED TO A BASKET OF COMMON STOCKS OR STOCK
INDEX, AN EXCHANGE TRADED FUND OR A BASKET OF STOCK INDICES IN WHICH THE COMMON
STOCKS INCLUDED IN OR UNDERLYING THE BASKET, THE STOCK INDEX, INDICES OR
EXCHANGE TRADED FUND ARE ALL PART OF THE SAME INDUSTRY, INDUSTRY CONSOLIDATION
AND OTHER CORPORATE EVENTS MAY ALTER THE COMPOSITION OF THE STOCK INDEX, THE
EXCHANGE TRADED FUND OR THE BASKET, AS THE CASE MAY BE.

If the issuer of a common stock included in or underlying the basket, the stock
index, indices or exchange traded fund is acquired in a stock-for-stock
transaction, the common stock of the acquiring company will assume that common
stock's place in the basket, stock index or the exchange traded fund, including
if the common stock of the acquiror is already in the basket or index.
Consequently, consolidation among issuers of the common stock included in the
basket or underlying the stock index or indices or exchange traded fund will
result in an increased weighting for the surviving company. For the effect of
consolidation transactions and other reorganization events with respect to the
common stocks included in the basket on the multipliers and the basket, see
"Description of the Notes-Adjustments to multipliers and to securities included
in the calculation of the settlement value".

LEHMAN BROTHERS HOLDINGS CANNOT CONTROL ACTIONS BY THE INDEX STOCK ISSUER OR THE
COMPANIES WHOSE COMMON STOCKS ARE INCLUDED IN OR UNDERLINE THE BASKET, THE STOCK
INDEX, INDICES OR EXCHANGE TRADED FUND, AS THE CASE MAY BE (OR ANY OTHER
COMPANIES WHOSE EQUITY SECURITIES ARE INCLUDED IN THE CALCULATION OF THE
SETTLEMENT VALUE).

Actions by these companies (or any other companies whose equity securities are
included in the calculation of the settlement value) may have an adverse effect
on the price of the index stock, the common stocks included in the basket, the
common stocks underlying the stock index, indices or the exchange traded fund or
other equity securities that are included in the calculation of the settlement
value, as the case may be, the settlement value and the notes. In addition,
these companies are not involved in the offering of the notes and have no
obligations with respect to the notes, including any obligation to take Lehman
Brothers Holdings' or your interests into consideration for any reason. These
companies will not receive any of the proceeds of this offering of the notes and
are not responsible for, and have not participated in, the determination of the
timing of, prices for, or quantities of, the notes to be issued. These companies
are not involved with the administration, marketing or trading of the notes and
have no obligations with respect to the amount to be paid to you at maturity.

FOR NOTES WHOSE PERFORMANCE IS LINKED TO A STOCK INDEX, AN EXCHANGE TRADED FUND
OR A BASKET OF STOCK INDICES, LEHMAN BROTHERS HOLDINGS AND ITS AFFILIATES HAVE
NO AFFILIATION WITH THE PUBLISHER OF THE STOCK INDEX OR ANY OF THE COMPONENT
STOCK INDICES OR THE INVESTMENT ADVISER AND ARE NOT RESPONSIBLE FOR THEIR PUBLIC
DISCLOSURE OF INFORMATION.

Each publisher of a stock index or any component stock index provides and
services such stock index or


                                      SS-12



exchange traded fund. Each investment adviser of an exchange traded fund advises
such exchange traded fund. Lehman Brothers Holdings and its affiliates are not
affiliated with the publishers of such indices or investment advisers of such
exchange traded funds in any way (except for licensing arrangements) and have no
ability to control or predict their actions, including any errors in or
discontinuance of disclosure regarding their methods or policies relating to the
calculation of the stock index or any component stock index. The publishers of
the stock index or any component stock indices and investment advisers are not
involved in this offering of notes in any way and have no obligation to consider
your interests as an owner of the notes in taking any actions that might affect
the value of your notes.

Neither Lehman Brothers Holdings nor any of its affiliates assumes any
responsibility for the adequacy or accuracy of the information about the stock
index, exchange traded fund or any of the component stock indices or the
publishers of such indices or the investment advisers of such exchange traded
funds contained in any public disclosure of information by such publishers or
such investment advisers. You, as an investor in the notes, should make your own
investigation into the stock index, exchange traded fund or any component stock
indices and the publishers of such indices and the investment advisers of such
exchange traded funds.

IF THE INDEX STOCK IS A SECURITY ISSUED BY A FOREIGN COMPANY OR THE STOCK INDEX,
ONE OR MORE OF THE INDICES INCLUDED IN A BASKET OR THE EXCHANGE TRADED FUND ARE
COMPRISED OF SECURITIES ISSUED BY FOREIGN COMPANIES, AN INVESTMENT IN THE NOTES
IS SUBJECT TO RISKS ASSOCIATED WITH FOREIGN SECURITIES MARKETS.

Foreign securities markets may be more volatile than U.S. securities markets,
and market developments may affect a foreign market differently from U.S. or
other securities markets. Direct or indirect government intervention to
stabilize the foreign securities markets, as well as cross-shareholdings in
foreign companies, may affect trading prices and volume in those markets. Also,
there is generally less publicly available information about foreign companies
that are not subject to the reporting requirements of the SEC, and foreign
companies are subject to accounting, auditing and financial reporting standards
and requirements that differ from those applicable to U.S. reporting companies.

Securities prices outside the United States are subject to political, economic,
financial and social factors that apply in foreign countries. These factors,
which could negatively affect foreign securities markets, include the
possibility of changes in a foreign government's economic and fiscal policies,
the possible imposition of, or changes in, currency exchange laws or other laws
or restrictions applicable to foreign companies or investments in foreign equity
securities and the possibility of fluctuations in the rate of exchange between
currencies. Moreover, foreign economies may differ favorably or unfavorably from
the U.S. economy in different respects, such as growth of gross national
product, rate of inflation, capital reinvestment, resources and
self-sufficiency.

IF THE INDEX STOCK, THE COMMON STOCKS UNDERLYING OR INCLUDED IN THE STOCK INDEX,
THE EXCHANGE TRADED FUND, THE BASKET OR THE STOCK INDICES INCLUDED IN THE
BASKET, AS THE CASE MAY BE, ARE SECURITIES ISSUED BY FOREIGN COMPANIES, THE TIME
DIFFERENCE BETWEEN THE CITIES WHERE THE INDEX STOCK OR THE COMMON STOCKS
UNDERLYING OR INCLUDED IN THE STOCK INDEX, THE EXCHANGE TRADED FUND, THE BASKET
OR THE STOCK INDICES INCLUDED IN THE BASKET, AS THE CASE MAY BE, TRADE AND NEW
YORK CITY MAY CREATE DISCREPANCIES IN TRADING PRICES.

As a result of the time difference between the cities where the index stock, the
common stocks underlying or included in the stock index, the exchange traded
fund, the basket or the stock indices included in the basket, as the case may
be, trade and New York City (where the notes may trade), there may be
discrepancies between the price of the index stock or such common stocks and the
trading prices of the notes. In addition, there may be periods when the foreign
securities markets are closed for trading (for example during holidays in a
foreign country), as a result of which the price of the index stock or such
common stocks, as the case may be, remain unchanged for multiple trading days in
New York City.

YOU HAVE NO SHAREHOLDER RIGHTS.

Investing in the notes is not equivalent to investing in the index stock, the
common stocks underlying the stock index, the exchange traded fund, the common
stocks underlying the exchange traded fund, the basket of common stocks or the
common stocks underlying the stock indices in the basket (or any other equity
securities included in the calculation of


                                      SS-13



the settlement value), as the case may be. As an investor in the notes, you will
not have voting rights or rights to receive dividends or other distributions
(although in the case of notes whose performance is linked to an index stock, or
an exchange traded fund or a basket of common stocks, the multipliers for the
stocks or shares of the exchange traded fund may be adjusted to reflect changes
in the rate of dividends on the stocks or shares) or any other rights with
respect to the index stock, the common stocks that make up the stock index, the
shares of the exchange traded fund, the shares that make up the exchange traded
fund, the common stocks included in the basket the common stocks that make up
the stock indices in the basket (or any other equity securities included in the
calculation of the settlement value), as the case may be.

POTENTIAL CONFLICTS OF INTEREST EXIST BECAUSE LEHMAN BROTHERS HOLDINGS CONTROLS
LEHMAN BROTHERS INC., WHICH WILL ACT AS THE CALCULATION AGENT.

Lehman Brothers Inc. will act as the calculation agent, which determines the
amount you will receive on the notes, whether adjustments should be made to the
settlement value, multipliers or threshold value and whether a market disruption
event has occurred. As a result, potential conflicts of interest may exist
between Lehman Brothers Inc. and you. See "Description of the Notes-Payment at
maturity," "-Adjustments to multipliers and to securities included in the
calculation of the settlement value" and "-Market disruption events."

PURCHASES AND SALES OF THE INDEX STOCK, THE COMMON STOCKS UNDERLYING OR INCLUDED
IN THE STOCK INDEX, THE EXCHANGE TRADED FUND, THE BASKET OR THE STOCK INDICES
INCLUDED IN THE BASKET, AS THE CASE MAY BE (OR ANY OTHER EQUITY SECURITIES
INCLUDED IN THE CALCULATION OF THE SETTLEMENT VALUE), BY LEHMAN BROTHERS
HOLDINGS AND ITS AFFILIATES COULD AFFECT THE PRICES OF THESE COMMON STOCKS,
SHARES OR SECURITIES, OR THOSE OTHER EQUITY SECURITIES OR THE SETTLEMENT VALUE.

Lehman Brothers Holdings and its affiliates, including Lehman Brothers Inc., may
from time to time buy or sell the index stock, the common stocks underlying or
included in stock index, the exchange traded fund, the basket, or the stock
indices included in the basket, as the case may be, or other securities or
derivative instruments related to these common stocks, shares or securities (or
any other equity securities included in the calculation of the settlement
value), for their own accounts in connection with their normal business
practices or in connection with hedging of Lehman Brothers Holdings' obligations
under the notes. These transactions could affect the prices of these common
stocks, shares or securities or those other equity securities. See "Use of
Proceeds and Hedging."

FOR TAX PURPOSES, YOU WILL BE REQUIRED TO INCLUDE ORIGINAL ISSUE DISCOUNT IN
INCOME AND TO RECOGNIZE ORDINARY INCOME ON ANY DISPOSITION OF THE NOTES.

For United States federal income tax purposes, the notes will be classified as
contingent payment debt instruments. As a result, they will be considered to be
issued with original issue discount. You will be required to include this
original issue discount in income in excess of the stated interest payments
actually made to you during your ownership of the notes, subject to some
adjustments, based on the "comparable yield" of the notes, which will generally
be the rate at which Lehman Brothers Holdings could issue a fixed rate debt
instrument with terms and conditions similar to the notes. Additionally, you
will generally be required to recognize ordinary income on the gain, if any,
realized on a sale, upon maturity, or other disposition of the notes. See
"United States Federal Income Tax Consequences" in this synthetic convertible
prospectus supplement.


                                      SS-14



                           USE OF PROCEEDS AND HEDGING

All or a portion of the proceeds to be received by Lehman Brothers Holdings from
the sale of a series of notes may be used by Lehman Brothers Holdings or one or
more of its subsidiaries before and immediately following the initial offering
of the notes to acquire shares of the index stock, the common stocks underlying
the stock index, the shares of the exchange traded fund, the common stocks
underlying the exchange traded fund, the common stocks included in the basket,
or the common stocks underlying the stock indices included in the basket, as the
case may be. Lehman Brothers Holdings or one or more of its subsidiaries may
also acquire futures contracts or listed or over-the-counter options contracts
in, or other derivative or synthetic instruments related to these securities to
hedge Lehman Brothers Holdings' obligations under the notes. The balance of the
proceeds, if any, will be used for general corporate purposes. These hedging
techniques will result in nominal transaction costs to Lehman Brothers Holdings.
See "Use of Proceeds" on page 7 of the base prospectus.

From time to time after the initial offering and before the maturity of the
notes, depending on market conditions, including the market price of the index
stock, the common stocks underlying the stock index, the shares of the exchange
traded fund, the common stocks underlying the exchange traded fund, the common
stocks included in the basket, or the common stocks underlying the stock indices
included in the basket, as the case may be, Lehman Brothers Holdings expects
that it or one or more of its subsidiaries will increase or decrease their
initial hedging positions using dynamic hedging techniques. Lehman Brothers
Holdings or one or more of its subsidiaries may take long or short positions in
these securities or other equity securities or in futures contracts or in listed
or over-the-counter options contracts or other derivative or synthetic
instruments related to these securities or other equity securities. In addition,
Lehman Brothers Holdings or one or more of its subsidiaries may purchase or
otherwise acquire a long or short position in notes from time to time and may
hold or resell those notes. Lehman Brothers Holdings or one or more of its
subsidiaries may also take positions in other types of appropriate financial
instruments that may become available in the future.

To the extent that Lehman Brothers Holdings or one or more of its subsidiaries
has a long hedge position in the index stock, the common stocks underlying the
stock index, the shares of the exchange traded fund, the common stocks
underlying the exchange traded fund, the common stocks included in the basket,
or the common stocks underlying the stock indices included in the basket, as the
case may be, or other equity securities included in the calculation of the
settlement value of a series of the notes, or futures or options contracts or
other derivative or synthetic instruments related to these securities or other
equity securities, Lehman Brothers Holdings or one or more of its subsidiaries
may liquidate a portion of their holdings at or about the time of the maturity
of the notes or at or about the time of a change in the securities included in
the calculation of the settlement value. Depending, among other things, on
future market conditions, the aggregate amount and the composition of the
positions are likely to vary over time. Profits or losses from any of those
positions cannot be ascertained until the position is closed out and any
offsetting position or positions are taken into account. Certain activity by
Lehman Brothers Holdings or one or more of its subsidiaries described above can
potentially increase or decrease the price of the index stock, the common stocks
underlying the stock index, the shares of the exchange traded fund, the common
stocks underlying the exchange traded fund, the common stocks included in the
basket, or the common stocks underlying the indices included in the basket, as
the case may be, or other equity securities included in the calculation of the
settlement value and, accordingly, increase or decrease the settlement value.
Although Lehman Brothers Holdings has no reason to believe that any of those
activities will have a material impact on the price of these securities or those
other equity securities, these activities could have such an effect.


                                      SS-15



                            DESCRIPTION OF THE NOTES

The following description of the particular terms of the notes supplements the
description of the general terms and provisions of the debt securities set forth
in the base prospectus and the description of the general terms and provisions
of the Medium-Term Notes, Series I set forth in the MTN prospectus supplement.

The pricing supplement for each offering of notes will contain the specific
information and terms for that offering. If any information in the relevant
pricing supplement is inconsistent with this synthetic convertible prospectus
supplement, the MTN prospectus supplement or the base prospectus, you should
rely on the information in the relevant pricing supplement. The relevant pricing
supplement may also add, update or change information contained in the base
prospectus, the MTN prospectus supplement and this synthetic convertible
prospectus supplement. It is important for you to consider the information
contained in the base prospectus, the MTN prospectus supplement, this synthetic
convertible prospectus supplement and the relevant pricing supplement in making
your investment decision.

GENERAL

The notes are to be issued as a series of debt securities under the senior
indenture, which is more fully described in the base prospectus. For a
description of the rights attaching to different series of debt securities under
the senior indenture, you should refer to the section "Description of Debt
Securities" beginning on page 8 of the base prospectus. The notes are "Senior
Debt" as described in the base prospectus. Citibank, N.A. is trustee under the
senior indenture.

Lehman Brothers Holdings may initially issue up to the aggregate principal
amount of notes of any series set forth on the cover page of the relevant
pricing supplement (or if the pricing supplement indicates that an
over-allotment option has been granted, up to that amount plus the amount of the
option). Lehman Brothers Holdings may, without the consent of the holders of the
notes of that series, create and issue additional notes ranking equally with the
notes of that series and otherwise similar in all respects so that such further
notes shall be consolidated and form a single series with the notes. No
additional notes of a series can be issued if an event of default has occurred
with respect to the notes of that series. The notes will be issued in
denominations of $1,000 and whole multiples of $1,000.

INDEX STOCK, INDEX STOCK ISSUER, STOCK INDEX EXCHANGE TRADED FUND, AND BASKET

In this synthetic convertible prospectus supplement, when we refer to the index
stock, we mean the common stock of the issuer specified in the relevant pricing
supplement, and when we refer to the index stock issuer, we refer to that
issuer. When we refer to the stock index, we refer to the stock index specified
in the relevant pricing supplement. When we refer to the exchange traded fund,
we refer to the exchange traded fund specified in the relevant pricing
supplement. When we refer to the basket, we refer to the basket of common stocks
or basket of stock indices specified in the relevant pricing supplement.

INTEREST

The relevant pricing supplement will specify the interest rate that will apply
to the notes, the interest payment dates and the related record dates. Interest
will be calculated based upon the principal amount of the notes and will accrue
from and including the original issue date of the notes to but excluding the
date the notes mature or are redeemed or repurchased. If the stated maturity
date, redemption date or repurchase date is postponed due to a market disruption
event or otherwise, interest will continue to accrue during the period from the
stated maturity date, redemption date or repurchase date to but excluding the
date the notes are paid. Lehman Brothers Holdings will pay interest to the
person in whose name a note is registered at the close of business on the record
date indicated in the pricing supplement. Interest on the notes will be
calculated on the basis of a 360-day year of twelve 30-day months. If any
interest payment date is not a business day, you will receive payment on the
following business day unless that day falls in the next calendar month, in
which case payment will be made on the first preceding day which is a business
day.


                                      SS-16



PAYMENT AT MATURITY

The notes will mature on the date specified in the relevant pricing supplement
unless postponed because the valuation date is postponed; see "-Determination
of alternative redemption amount" and "-Settlement value" below. Unless your
notes have been previously redeemed by Lehman Brothers Holdings or you instruct
Lehman Brothers Holdings to repurchase the notes, you will be entitled to
receive per $1,000 note, at maturity, the greater of:

o    $1,000; and

o    the alternative redemption amount, as described below,

plus any accrued but unpaid interest.

Unless Lehman Brothers Holdings elects the stock settlement option, Lehman
Brothers Holdings will pay the amount due on the stated maturity date in cash.
If the alternative redemption amount per $1,000 note is less than or equal to
$1,000, you will be entitled to receive $1,000, plus any accrued but unpaid
interest per $1,000 note at maturity; provided that in the case of notes whose
performance is linked to an index stock or an exchange traded fund, you may,
under certain circumstances, receive less than the principal amount if Lehman
Brothers Holdings pays the amount due at maturity in shares of the index stock
or the exchange traded fund, as the case may be, as described below under "Stock
settlement".

The payment on the stated maturity date may be postponed if the applicable
valuation date is postponed, as described below under "-Settlement value".
Unless otherwise specified in the relevant pricing supplement, the valuation
date for purposes of the payment on the stated maturity date is the third
business day prior to the stated maturity date.

EARLY REDEMPTION OF NOTES AT THE OPTION OF LEHMAN BROTHERS HOLDINGS

On or after the date specified in the relevant pricing supplement, Lehman
Brothers Holdings may redeem, on not less than 30 days' (or such other period
specified in the relevant pricing supplement) prior written notice, all or part
of the notes on one or more occasions, at a redemption price per $1,000 note
equal to the greater of:

o    $1,000; and

o    the alternative redemption amount,

plus any accrued but unpaid interest.

Unless otherwise specified in the relevant pricing supplement, Lehman Brothers
Holdings will pay the amount due on the redemption date in cash. If the
alternative redemption amount per $1,000 note is less than or equal to $1,000,
you will be entitled to receive $1,000, plus any accrued but unpaid interest,
per $1,000 note upon redemption.

Unless otherwise specified in the relevant pricing supplement, the applicable
valuation date for purposes of the payment on the redemption date is the date
that the redemption notice is mailed. The payment on the redemption date may be
postponed if the applicable valuation date is postponed, as described below
under "-Settlement value".

YOUR OPTION TO REQUIRE LEHMAN BROTHERS HOLDINGS TO REPURCHASE THE NOTES PRIOR TO
MATURITY

At any time until the earlier of (a) the date Lehman Brothers Holdings gives
notice of its intention to redeem the notes or (b) eight business days (or such
other period specified in the relevant pricing supplement) before the stated
maturity date, you may instruct Lehman Brothers Holdings to repurchase all or
part of your notes at a price per $1,000 note equal to the alternative
redemption amount, plus any accrued but unpaid interest by giving Lehman
Brothers Holdings notice on any business day at the corporate trust office of
the trustee for the notes. The repurchase date will be the eighth business day
following the business day when Lehman Brothers Holdings receives a written
notice from you that Lehman Brothers Holdings must repurchase your notes, unless
payment is postponed because the applicable valuation date is postponed. See
"-Determination of alternative redemption amount" and "-Settlement value"
below.

If Lehman Brothers Holdings repurchases your notes for cash, the amount you
receive per $1,000 note may be greater or less than $1,000. In addition, in the
case of notes whose performance is linked to an index stock or an exchange
traded fund, you may, under certain circumstances, receive less than you would
otherwise receive if Lehman Brothers Holdings pays the amount due upon
repurchase in shares of the index stock or the exchange traded fund, as
described below under "-Stock settlement".

Unless otherwise specified in the relevant pricing supplement, the applicable
valuation date for


                                      SS-17



purposes of payment on the repurchase date is the third business day prior to
such repurchase date. The payment of the repurchase price may be postponed if
the applicable valuation date is postponed.

Your election to require Lehman Brothers Holdings to repurchase a note will be
irrevocable. All questions as to the validity, eligibility, including time of
receipt, and acceptance of any note for repurchase will be determined by Lehman
Brothers Holdings, whose determination will be final and binding.

DETERMINATION OF ALTERNATIVE REDEMPTION AMOUNT

The alternative redemption amount per $1,000 note will be determined by the
calculation agent by the following formula:

                                     settlement value
                            $1,000 x ----------------
                                      threshold value

This formula accounts for the fact that the settlement value must be greater
than the threshold value for you to receive any amount above the principal
amount of $1,000 (excluding any accrued but unpaid interest) per $1,000 note and
the portion of any increase you will receive if the settlement value is greater
than the threshold value. The threshold value will be specified in the relevant
pricing supplement.

SETTLEMENT VALUE

The settlement value will be determined by the calculation agent and will be
based on the closing price of the index stock, the closing level of the stock
index, the closing price of the exchange traded fund or the closing level of the
basket, as the case may be, on the applicable valuation date.

For notes whose performance is linked to the price of an index stock, the
settlement value will include the value of the number of shares of index stock
equal to the multiplier for the index stock. For notes whose performance is
linked to the price of an exchange traded fund, the settlement value will
include the value of the number of shares of the exchange traded fund equal to
the multiplier for the exchange traded fund. For notes whose performance is
linked to the level of a basket of common stocks, the settlement value will
include the value of the number of shares of each common stock equal to their
respective multipliers. In addition, for notes whose performance is linked to an
index stock, an exchange traded fund or a basket of common stocks, the
settlement value will also include the value of any cash and any equity
securities included by the calculation agent as settlement property following
certain corporate transactions. See "-Adjustments to multipliers and to
securities included in the calculation of the settlement value" below. For notes
whose performance is linked to a stock index, or a basket of stock indices, the
closing level of a relevant index may also be adjusted in limited circumstances.
See "-Discontinuance of one or more relevant indices; Alteration of method of
calculation" below.

If the calculation agent determines that one or more market disruption events
have occurred on the day that would otherwise be the applicable valuation date
with respect to the index stock, any index, any exchange traded fund or any
common stock included in the basket, as the case may be, or any equity security
included as settlement property, or if that day is not a scheduled trading day
with respect to the index stock, any index, any exchange traded fund or any
common stock included in the basket, as the case may be, or any equity security
included as settlement property, the valuation date will be postponed and the
calculation agent will, subject to the following paragraph, determine the
settlement value on the next scheduled trading day on which no market disruption
event occurs. In that case, the settlement value will be determined by the
calculation agent based on (a) if the notes are linked to the performance of an
index stock, an exchange traded fund or a basket of common stocks (i) with
respect to the equity securities included in the calculation of the settlement
value that have not been subject to a market disruption event, the closing price
of each such security on the postponed valuation date, and (ii) with respect to
the equity securities included in the calculation of the settlement value that
have been subject to a market disruption event, the average execution price an
affiliate of Lehman Brothers Holdings receives on the postponed valuation date
upon the sale of that security used to hedge Lehman Brothers Holdings'
obligations under the notes and (b) if the notes are linked to the performance
of a stock index, or a basket of stock indices, closing level of each relevant
index on the postponed valuation date.

However, if a market disruption event occurs on each of the eight scheduled
trading days following the originally scheduled valuation date, then that eighth
scheduled trading day shall be deemed the valuation date and the calculation
agent shall determine the closing price of the affected stocks, exchange traded
fund or securities, or the closing level of the index or basket, as the case may
be, based upon its estimate of the value of the index stock, the index, the
exchange


                                      SS-18



traded fund or any common stock or any index included in the basket, as the case
may be, as of the close of trading on that eighth scheduled trading day.
Postponement of the date that would otherwise be the valuation date will cause
the payment you receive to be postponed by a number of business days equal to
the number of scheduled trading days by which the valuation date is postponed.

The "closing price" of an index stock, an exchange traded fund, a common stock
included in a basket or any other equity security included as settlement
property, on any particular day, means the last reported sales price for that
security on the relevant exchange at the scheduled weekday closing time of the
regular trading session of the relevant exchange. If, however, the security is
not listed or traded on a bulletin board, then the closing price of the security
will be determined using the average execution price per share that an affiliate
of Lehman Brothers Holdings pays or receives upon the purchase or sale of the
security used to hedge Lehman Brothers Holdings' obligations under the notes.

The "closing level" of a stock index on any particular day means the closing
level of the index on that day, as reported by the publisher of such index or as
determined by the calculation agent under the circumstances described below
under "Discontinuance of one or more relevant indices; Alteration of method of
calculation", on such day.

The "closing level" of a basket of common stocks on any particular day will be
determined by the calculation agent and will equal the sum of the products of
the closing price of each common stock included in the basket and its respective
multiplier.

The "closing level" of a basket of stock indices on any particular day will be
determined by the calculation agent and will equal the sum of the products of
the closing level of each index included in the basket and its respective index
weight. The index weight for each index in a basket will be specified in the
relevant pricing supplement.

The "relevant exchange" for any common stock or security means the primary U.S.
exchange, quotation system, including any bulletin board service, or market on
which that common stock or security is traded, or in case the common stock or
security is not listed or quoted in the United States, the primary exchange,
quotation system or market for the common stock or security.

"Scheduled trading day" means (a) in the case of any index stock, any share of
an exchange traded fund, any common stock included in a basket or any other
equity security included in the calculation of the settlement value, any day on
which the relevant exchange for such security is scheduled to be open for
trading for its regular trading session and (b) in the case of an index, any day
on which the index is published by its publisher or otherwise determined by the
calculation agent as described in "Discontinuance of one or more relevant
indices; Alteration of method of calculation".

You may call Lehman Brothers Inc. at 212-526-0905 to obtain the settlement value
and, in the case of notes whose performance is linked to an index stock, an
exchange traded fund or a basket of common stocks, the number of shares of the
index stock and other equity securities included in the calculation of the
settlement value per $1,000 note, calculated as if the settlement value were
being determined on that date.

ADJUSTMENTS TO MULTIPLIERS AND TO SECURITIES INCLUDED IN THE CALCULATION OF THE
SETTLEMENT VALUE

Unless indicated otherwise in the relevant pricing supplement, for notes whose
performance is linked to an index stock, an exchange traded fund or a basket of
common stocks, adjustments to multipliers and to equity securities included as
settlement property will be made by adjusting the multipliers then in effect for
the securities, by adding new securities or cash and/or by removing current
securities in the circumstances described below. The multiplier for any security
included in the calculation of the settlement value will represent the number of
those securities included in the calculation of the settlement value. The
initial multiplier for an index stock or a share of the exchange traded fund
will, unless otherwise specified in the relevant pricing supplement, be 1.0. The
initial multiplier for each common stock in a basket, will be specified in the
relevant pricing supplement. For purposes of these adjustments, except as noted
below, ADSs are treated like common stock if a comparable adjustment to the
foreign shares underlying the ADSs is made pursuant to the terms of the
depositary arrangement for the ADSs or if holders of ADSs are entitled to
receive property in respect of the underlying foreign share. In addition, for
purposes of these adjustments, references to common stock include shares of an
exchange traded fund.

o    If a common stock is subject to a stock split or reverse stock split, then
     once the split has


                                      SS-19



     become effective, the multiplier relating to that common stock will be
     adjusted. The multiplier will be adjusted to equal the product of the
     number of shares outstanding after the split with respect to each share
     immediately prior to effectiveness of the split and the prior multiplier.

o    If a common stock is subject to an extraordinary stock dividend or
     extraordinary stock distribution in common stock that is given equally to
     all holders of shares, then once the common stock is trading ex-dividend,
     the multiplier will be increased by the product of the number of shares
     issued with respect to one share and the prior multiplier.

o    If the issuer of a common stock, or if a common stock is an ADS, the
     foreign issuer of the underlying foreign share, is being liquidated or
     dissolved or is subject to a proceeding under any applicable bankruptcy,
     insolvency or other similar law, the common stock will continue to be
     included in the calculation of the settlement value so long as the relevant
     exchange is reporting a market price for the common stock. If a market
     price, including a price on a bulletin board service, is no longer
     available for a common stock or other equity security included in the
     calculation of the settlement value, then the value of that common stock or
     other equity security will equal zero for so long as no market price is
     available, and no attempt will be made to find a replacement stock or
     increase the settlement value to compensate for the deletion of that common
     stock or other equity security.

o    If the issuer of a common stock, or if a common stock is an ADS, the
     foreign issuer of the underlying foreign share, has been subject to a
     merger or consolidation and is not the surviving entity and holders of the
     common stock are entitled to receive cash, securities, other property or a
     combination of those in exchange for the common stock, then the following
     will be included in the calculation of the settlement value as "settlement
     property":

     -    To the extent cash is received, the settlement property will include,
          subject to any subsequent adjustments made by the calculation agent
          pursuant to the calculation agency agreement, an amount of cash equal
          to the product of (a) the cash consideration per share of common stock
          and (b) the multiplier for the common stock, each determined as of the
          time the holders of the common stock are entitled to receive the cash
          consideration, plus accrued interest. Interest will accrue beginning
          on the first London business day after the day on which holders of the
          common stock receive the cash consideration until the stated maturity
          date. Interest will accrue at a rate equal to LIBOR with a term
          corresponding to the interest accrual period stated in the preceding
          sentence.

     -    To the extent that equity securities that are traded or listed on an
          exchange, quotation system or market are received, once the exchange
          for the new securities has become effective, the former common stock
          will be removed from the calculation of the settlement value and the
          settlement property will include a number of shares of the new
          securities equal to the multiplier for the new securities. The
          multiplier for the new securities will equal the product of the last
          value of the multiplier of the original underlying common stock and
          the number of securities of the new security exchanged with respect to
          one share of the original common stock.

     -    To the extent that equity securities that are not traded or listed on
          an exchange, quotation system or market or non-equity securities or
          other property (other than cash) is received, the calculation agent
          will determine the fair market value of the securities or other
          property received per share of common stock and the settlement
          property will include, subject to any subsequent adjustments made by
          the calculation agent pursuant to the calculation agency agreement, an
          amount of cash equal to the product of (a) such fair market value per
          share of common stock and (b) the multiplier for the common stock,
          each determined as of the time the holders of the common stock are
          entitled to receive the securities or other property. The settlement
          value will also include accrued interest on that amount. Interest will
          accrue beginning on the first London business day after the day that
          an affiliate of Lehman Brothers Holdings sells the securities or other
          property used to hedge Lehman Brothers Holdings' obligations under the
          notes until the stated maturity date. Interest will accrue at a rate
          equal to LIBOR with a term


                                      SS-20



          corresponding to the interest accrual period stated in the preceding
          sentence.

o    If all of the shares of a common stock are converted into or exchanged for
     the same or a different number of shares of any class or classes of equity
     securities other than that common stock included in the calculation of the
     settlement value, whether by capital reorganization, recapitalization or
     reclassification, then, once the conversion has become effective, the
     former common stock will be removed from the calculation of the settlement
     value and the settlement property will include a number of shares of the
     new equity securities equal to the multiplier for the new securities. The
     multiplier for each new equity security added to the settlement property
     will equal the product of the last value of the multiplier of the original
     common stock and the number of shares of the new equity security issued
     with respect to one share of the original common stock.

o    If the issuer of a common stock, or if a common stock is an ADS, the issuer
     of the underlying foreign share, issues to all of its shareholders common
     stock or another equity security that is traded or listed on an exchange,
     quotation system or market of an issuer other than itself, then the
     settlement property will include a number of shares of the new common stock
     or other equity security equal to the multiplier for the new common stock
     or other equity security. The multiplier for the new common stock or other
     equity security will equal the product of the last value of the multiplier
     with respect to the original common stock and the number of shares of the
     new common stock or equity security issued with respect to one share of the
     original common stock.

o    If an ADS is no longer listed or admitted to trading on a United States
     securities exchange registered under the Securities Exchange Act of 1934 or
     is no longer a security quoted on the Nasdaq Stock Market, then the ADS
     will be removed from the calculation of the settlement value, the foreign
     share underlying the ADS will be deemed to be a new common stock and the
     settlement property will include a number of shares of the new common stock
     equal to the multiplier for the new common stock. The initial multiplier
     for that new underlying common stock will equal the last value of the
     multiplier for the ADS multiplied by the number of underlying foreign
     shares represented by a single ADS.

o    If a common stock is subject to an extraordinary dividend or an
     extraordinary distribution (including upon liquidation or dissolution) of
     cash, equity securities that are not traded or listed on an exchange,
     quotation system or market, non-equity securities or other property of any
     kind which is received equally by all holders of its common stock, then the
     following will be included in the calculation of the settlement value as
     "settlement property":

     -    To the extent cash is entitled to be received, the settlement property
          will include, subject to any subsequent adjustments made by the
          calculation agent pursuant to the calculation agency agreement, on
          each day after the time that the common stock trades ex-dividend until
          the date the cash consideration is entitled to be received, the
          present value of the cash to be received per share of common stock
          multiplied by the multiplier for the common stock on such day,
          discounted at a rate equal to LIBOR, with a term beginning that day
          and ending on the date that the cash is entitled to be received;
          provided, however, that when the cash consideration is received, the
          preceding adjustment shall be eliminated and the settlement property
          will include, subject to any subsequent adjustments made by the
          calculation agent pursuant to the calculation agency agreement, an
          amount of cash equal to the product of (a) the cash consideration per
          share of common stock and (b) the multiplier for the common stock ,
          each determined as of the time the holders of the common stock are
          entitled to receive the cash consideration, plus accrued interest.
          Interest will accrue beginning the first London business day after the
          day that holders of the common stock receive the cash consideration
          until the stated maturity date. Interest will accrue at a rate equal
          to LIBOR with a term corresponding to the interest accrual period
          stated in the preceding sentence.

     -    To the extent that equity securities that are not traded or listed on
          an exchange, quotation system or market or non-equity securities or
          other property (other than cash) are received, the calculation agent
          will determine the fair market value of the


                                      SS-21



          securities or other property received per share of common stock and
          the settlement property will include, subject to any subsequent
          adjustments made by the calculation agent pursuant to the calculation
          agency agreement, an amount of cash equal to the product of (a) such
          fair market value per share of common stock and (b) the multiplier for
          the common stock, each determined as of the time the holders of the
          common stock are entitled to receive the securities or other property.
          The settlement property will also include accrued interest on that
          amount. Interest will accrue beginning on the first London business
          day after the day that an affiliate of Lehman Brothers Holdings sells
          the securities or other property used to hedge Lehman Brothers
          Holdings' obligations under the notes until the stated maturity date.
          Interest will accrue at a rate equal to LIBOR with a term
          corresponding to the interest accrual period stated in the preceding
          sentence.

o    If similar corporate events occur with respect to the issuer of an equity
     security other than common stock that is included in the calculation of the
     settlement value, adjustments similar to the above will be made for that
     equity security. In addition, if any other corporate events occur with
     respect to the issuer or a common stock included in the calculation of the
     settlement value, adjustments will be made to reflect the economic
     substance of those events.

In addition to the foregoing adjustments, in the case of notes whose performance
is linked to the value of an index stock, an exchange traded fund or a basket of
common stocks, the multiplier for each common stock (that is, the index stock or
each common stock in the basket) or each share of the exchange traded fund will,
unless otherwise specified in the relevant pricing supplement, also be adjusted
to reflect changes in the per share amount of dividends paid on the common stock
or the shares of the exchange traded fund during the term of the notes. If any
such common stock is an ADS, the term "dividend" used in this section, shall
mean, unless otherwise specified in the relevant pricing supplement, net
dividend (that is, the dividend net of any applicable withholding or similar
taxes).

o    If, during the period from, but excluding, the date of the relevant pricing
     supplement to the valuation date, holders of record of the common stock or
     the shares of the exchange traded fund are entitled to receive a cash
     dividend (other than an extraordinary cash dividend, as determined by the
     calculation agent) from the issuer of the common stock or the exchange
     traded fund, or if the common stock is an ADS, the foreign issuer of the
     underlying foreign share, and the amount of the dividend is less than the
     base dividend specified in the relevant pricing supplement per share (the
     base dividend will ordinarily be the amount of the dividend per share of
     common stock or exchange traded fund most recently paid by the issuer of
     the common stock or the exchange traded fund prior to the date of the
     relevant pricing supplement), including if the issuer of the common stock
     or the exchange traded fund fails to declare or make a dividend payment on
     the common stock or the shares of the exchange traded fund (as determined
     by the calculation agent), the multiplier shall be reduced, effective at
     the close of business on the business day immediately preceding the
     ex-dividend date for the dividend (such business day, the "effective
     adjustment date"), so that the new multiplier equals the product of the
     then current multiplier and:

                            base dividend - new dividend
                       1 -  ----------------------------
                                    closing price

     Any such downward adjustment to the multiplier may decrease the amount you
     receive upon maturity or upon redemption or repurchase. In no event,
     however, will the multiplier be reduced to less than zero. The base
     dividend shall be subject to adjustment by the calculation agent in the
     event of certain events affecting the common stock, such as stock splits,
     reverse stock splits or reclassifications, as determined by the calculation
     agent. As used above, (a) the "new dividend" shall be the dividend per
     share of common stock or exchange traded fund, which may be zero, giving
     rise to the adjustment; and (b) the "closing price" shall be the closing
     price of the common stock or the exchange traded fund on the relevant
     exchange on the effective adjustment date for the stock dividend giving
     rise to the adjustment. If the calculation agent determines that the issuer
     of the common stock or the exchange traded fund has failed to declare or
     make a dividend payment, the effective adjustment date for adjusting the
     multiplier will be the first business day immediately following the
     multiplier adjustment dates specified in the


                                      SS-22



     relevant pricing supplement and the valuation date.

o    If, during the period from, but excluding, the date of the relevant pricing
     supplement to the valuation date, holders of record of the common stock or
     the shares of the exchange traded fund are entitled to receive a cash
     dividend (other than an extraordinary cash dividend, as determined by the
     calculation agent) from the issuer of the common stock or the exchange
     traded fund, or if the common stock is an ADS, the foreign issuer of the
     underlying foreign share, and the amount of the dividend is more than the
     base dividend per share, the multiplier shall be increased, effective at
     the close of business on the effective adjustment date, so that the new
     multiplier equals the product of the then current multiplier and:

                            new dividend - base dividend
                       1 +  ----------------------------
                                    closing price

     Any such upward adjustment to the multiplier may increase the amount you
     receive upon maturity or upon redemption or repurchase.

To the extent that any other equity security (that is, any equity security other
than the index stock, the shares of the exchange traded fund or the common
stocks in the basket) is included as a settlement value security and the issuer
of such equity security changes the rate of the regular cash dividend that it
pays on such equity security during the time that such equity security is a
settlement value security, the calculation agent may, in its sole discretion,
make comparable adjustments to the multiplier for such equity security to the
extent it believes such adjustments are appropriate.

Other than as set forth above, the payment of an ordinary cash dividend from
current income or retained earnings will not result in an adjustment to the
multiplier or entitle you to any cash payments.

Unless otherwise specified in the relevant pricing supplement, except with
respect to adjustments to the multiplier to reflect changes in the per share
amount of net dividends described above, no adjustments of any multiplier will
be required unless the adjustment would require a change of at least 0.1% (.001)
in the multiplier then in effect. The multiplier resulting from any of the
adjustments specified above will be rounded at the calculation agent's
discretion.

DISCONTINUANCE OF ONE OR MORE RELEVANT INDICES; ALTERATION OF METHOD OF
CALCULATION

In the case of notes whose performance is linked to a stock index or a basket of
stock indices, if the publisher of a relevant index discontinues publication of
such index and such publisher or another entity publishes a successor or
substitute index that the calculation agent determines to be comparable to the
discontinued index, then the calculation agent shall determine the closing level
of the successor index to be used for purposes of computing the amount payable
by reference to the closing level of such successor index on the date that any
closing level of the index is to be determined.

Upon any selection by the calculation agent of any successor index, Lehman
Brothers Holdings will promptly give notice to the holders of the notes.

If the publisher of a relevant index discontinues publication of such index and
the calculation agent determines that no successor index to the discontinued
index is available at such time, or if the publisher of such index (or the
publisher of any successor index) fails to calculate and publish a closing level
for the index (or any successor index) on any date when it would ordinarily do
so in accordance with its customary practice, the calculation agent will
determine the closing level of the index to be used. In such circumstances, the
closing level of the index will be computed by the calculation agent in
accordance with the formula for and method of calculating the index (or any
successor index) last in effect prior to such discontinuance or failure to
publish, using the closing price (or, if trading in any of the relevant
securities has been materially suspended or materially limited, its estimate of
the closing price that would have prevailed but for such suspension or
limitation) on such date of each security most recently comprising the index (or
any successor index), on the relevant exchange on which such security trades.
Notwithstanding these alternative arrangements, discontinuance of the
publication of a relevant index may adversely affect the value of the notes.

If at any time the method of calculating a relevant index or a successor index,
or the closing level thereof on any particular day, is changed in a material
respect, or if a relevant index or a successor index is in any other way
modified so that such index does not, in the opinion of the calculation agent,
fairly represent the value of the discontinued index or such


                                      SS-23



successor index had such changes or modifications not been made, then, from and
after such time, the calculation agent will, at the close of trading of the
relevant exchanges on which the securities comprising the relevant index or
successor index traded on the date that any closing level of the index is to be
determined, make such calculations and adjustments as, in the judgment of the
calculation agent, may be necessary in order to arrive at a value of a stock
index comparable to the discontinued index or such successor index, as the case
may be, as if such changes or modifications had not been made, and calculate the
closing level of the index with reference to the discontinued index or such
successor index, as adjusted. Accordingly, if the method of calculating a
relevant index or a successor index is modified so that the value of such index
is a fraction of what it would have been if it had not been modified, then the
calculation agent will adjust such index in order to arrive at a value of the
relevant index or such successor index as if it has not been modified.

MARKET DISRUPTION EVENTS

Unless indicated otherwise in the relevant pricing supplement, a market
disruption event with respect to any common stock (including any index stock,
common stock included in a basket or equity security included in settlement
property), any index, any exchange traded fund (including any shares of other
exchange traded funds underlying the exchange traded fund, if applicable) or
any index underlying an exchange traded fund, as applicable, will occur on any
day if the calculation agent determines that any of the following events has
occurred:

     o    (i) In the case of any common stock or shares of an exchange traded
          fund (including any shares of other exchange traded funds underlying
          the exchange traded fund, if applicable), a material suspension of
          or limitation imposed on trading relating to such common stock or such
          shares, and (ii) in the case of an index or the index underlying the
          exchange traded fund, a suspension of or limitation imposed on trading
          relating to the securities that then comprise 20% or more of such
          index (or any such successor index) or index underlying the exchange
          traded fund, in each case, by the relevant exchange for each such
          security, at any time during the one-hour period that ends at the
          close of trading on such day, whether by reason of movements in price
          exceeding limits permitted by that relevant exchange or otherwise. If
          applicable, limitations on trading during significant market
          fluctuations imposed pursuant to New York Stock Exchange Rule 80B or
          any applicable rule or regulation enacted or promulgated by the New
          York Stock Exchange, any other exchange, quotation system or market,
          any other self regulatory organization or the SEC of similar scope or
          as a replacement for Rule 80B may be considered material.

     o    A material suspension of or limitation imposed on trading in futures
          or options contracts relating to such common stock, such index (or any
          such successor index), such exchange traded fund (including any shares
          of other exchange traded funds underlying the exchange traded fund, if
          applicable) or such index underlying the exchange traded fund, as the
          case may be, by the primary exchange or quotation system on which
          those futures or options contracts are traded, at any time during the
          one-hour period that ends at the close of trading on such day, whether
          by reason of movements in price exceeding limits permitted by that
          primary exchange or quotation system or otherwise.

     o    Any event, other than an early closure, that disrupts or impairs the
          ability of market participants in general to effect transactions in,
          or obtain market values for, (i) in the case of any common stock or
          shares of an exchange traded fund (including any shares of other
          exchange traded funds underlying the exchange traded fund, if
          applicable), such common stock or such shares, and (ii) in the case of
          an index (or a successor index) or the index underlying the exchange
          traded fund, the securities that then comprise 20% or more of such
          index (or such successor index) or such index underlying the exchange
          traded fund, in each case, on the relevant exchanges for that common
          stock or those securities, or in the case of a security not listed or
          quoted in the United States, on the primary exchange, quotation system
          or market for such security, at any time during the one hour period
          that ends at the close of trading on such day.


                                      SS-24



     o    Any event, other than an early closure, that disrupts or impairs the
          ability of market participants in general to effect transactions in,
          or obtain market values for, the futures or options contracts relating
          to that common stock, that index, that exchange traded fund or that
          index underlying the exchange traded fund, as the case may be, on the
          primary exchange or quotation system on which those futures or options
          contracts are traded at any time during the one hour period that ends
          at the close of trading on such day.

     o    The closure of, (i) in the case of any common stock or shares of an
          exchange traded fund (including any shares of other exchange traded
          funds underlying the exchange traded fund, if applicable), the
          relevant exchange for such common stock or such shares or the primary
          exchange or quotation system on which futures or options contracts
          relating to such common stock or such shares are traded, and (ii) in
          the case of any index or the index underlying the exchange traded
          fund, the relevant exchanges for securities that then comprise 20% or
          more of such index or such index underlying the exchange traded fund,
          or the primary exchange or quotation system on which futures or
          options contracts relating to such index or such index underlying the
          exchange traded fund are traded, in each case, prior to its scheduled
          closing time unless the earlier closing time is announced by the
          exchanges or quotation system at least one hour prior to the earlier
          of (1) the actual closing time for the regular trading session on the
          exchanges or quotation system and (2) the submission deadline for
          orders to be entered into the exchanges or quotation system for
          execution at the close of trading on such day.

In the case of notes whose performance is linked to a basket of common stocks or
to a basket of stock indices, a market disruption event with respect to the
basket will occur if a market disruption event occurs with respect to any of the
common stocks (or other equity securities) included in the calculation of the
settlement value) or indices included in the basket.

For purposes of determining whether a market disruption event has occurred:

o    the relevant percentage contribution of a security to the level of an index
     or an index underlying an exchange traded fund will be based on a
     comparison of (x) the portion of the level of such index attributable to
     that security and (y) the overall level of such index, in each case
     immediately before the occurrence of the market disruption event; and

o    "close of trading" means in respect of any relevant exchange, the scheduled
     weekday closing time on a day on which the relevant exchange is scheduled
     to be open for trading for its regular trading session, without regard to
     after hours or any other trading outside of the regular trading session
     hours.

Under certain circumstances, the duties of Lehman Brothers Inc. as the
calculation agent in determining the existence of market disruption events could
conflict with the interests of Lehman Brothers Inc. as an affiliate of the
issuer of the notes.

Events have occurred in the past that would constitute market disruption events.
The existence or non-existence of such circumstances in the past, however, is
not necessarily indicative of the likelihood of those circumstances arising or
not arising in the future and Lehman Brothers Holdings cannot predict the
likelihood of a market disruption event in the future.

STOCK SETTLEMENT

In the case of notes whose performance is linked to an index stock, the relevant
pricing supplement will specify whether Lehman Brothers Holdings has the option
to settle the notes, at maturity or upon repurchase (but not upon redemption),
with shares of the index stock (and any other equity security used in the
calculation of the settlement value) or the exchange traded fund, whether the
holders of the notes have the option of electing stock settlement at maturity or
upon repurchase or whether stock settlement at maturity or upon repurchase is
mandatory. Unless otherwise specified in the relevant pricing supplement, if and
to the extent stock settlement is available, Lehman Brothers Holdings will, as
applicable (a) pay the amount due at maturity, subject to the following
paragraph, by delivering, for each $1,000 principal amount of notes, a number of
shares of the index stock or the exchange traded fund, as the case may be,
having a value on the applicable valuation date equal to the greater of $1,000
and the alternative redemption amount or (b) pay the amount


                                      SS-25



due upon repurchase, subject to the following paragraph, by delivering, for each
$1,000 principal amount of notes, a number of shares of the index stock or the
exchange fund, as the case may be, having a value on the applicable valuation
date equal to the alternative redemption amount. For notes whose performance is
linked to the price of an index stock, upon the occurrence of certain events, or
if the index stock issuer is involved in certain transactions, the number of
shares of the index stock to be delivered may be adjusted and Lehman Brothers
Holdings may, at its option, deliver, in lieu of or in addition to the index
stock, cash and any other equity securities used in the calculation of the
settlement value, all as described under "Description of the Notes-Adjustments
to multipliers and to securities included in the calculation of the settlement
value". If the calculations above result in fractional shares, Lehman Brothers
Holdings will pay cash to you in an amount equal to the value of the fractional
shares based upon the closing price of the index stock or such other equity
securities or the exchange traded fund, as the case may be, on the applicable
valuation date.

If stock settlement at maturity is available and Lehman Brothers Holdings elects
such stock settlement option, Lehman Brothers Holdings will provide the trustee
with not less than three business days' prior written notice of such election.

If Lehman Brothers Holdings determines that it is prohibited from delivering
shares of the index stock or other equity securities or the exchange fund, as
the case may be, or that it would otherwise be unduly burdensome to do so, it
will pay the entire amount due at maturity or upon repurchase in cash.

Because the settlement value will ordinarily be determined prior to the stated
maturity date or the repurchase date, if the notes are settled with stock at
maturity or upon repurchase the effect to holders will be as if the notes
matured or were repurchased prior to the stated maturity date or repurchase
date, as the case may be. Thus, the value of the shares of the index stock and
any other equity securities and cash or the exchange traded fund, as the case
may be, that you receive at maturity or upon repurchase may be more or less than
the amount you would have received had the notes not been stock settled as a
result of fluctuations in the value of these securities during the period
between the valuation date and the stated maturity date or repurchase date.
Consequently, it is possible that the aggregate value of the securities and cash
that you receive at maturity or upon repurchase may be less than the amount you
would have received had there not been stock settlement.

Unless the stock settlement option is specified in the relevant pricing
supplement, Lehman Brothers Holdings will pay the amount due at maturity in
cash.

Notes whose performance is linked to a stock index or a basket of common stocks
or basket of stock indices may only be settled in cash, unless otherwise
specified in the relevant pricing supplement.

HYPOTHETICAL RETURNS

The relevant pricing supplement will include a table that will illustrate
hypothetical rates of return on an investment in the notes described in the
pricing supplement, calculated for a range of hypothetical settlement values, in
each case assuming that the investment is held from the date on which the notes
are first issued until the stated maturity date.

Any table setting forth hypothetical rates of return will be provided for
purposes of illustration only. The actual amount received by investors and the
resulting total and pre-tax rates of return will depend entirely on the actual
settlement value and the alternative redemption amount determined by the
calculation agent. In particular, the actual settlement value could be lower or
higher than those reflected in the table.

You should compare the features of a series of notes to other available
investments before deciding to purchase the notes. Due to the uncertainty as to
whether the alternative redemption amount, at maturity or in connection with a
repurchase or redemption, will be greater than $1,000 per $1,000 note or the
notes will be redeemed prior to the stated maturity date, the return on
investment with respect to the notes may be higher or lower than the return
available on other securities issued by Lehman Brothers Holdings or by others
and available through Lehman Brothers Inc. You should reach an investment
decision only after carefully considering the suitability of the notes in light
of your particular circumstances.

CALCULATION AGENT

Lehman Brothers Inc., a subsidiary of Lehman Brothers Holdings, will act as
initial calculation agent for each series of notes. Pursuant to the calculation


                                      SS-26



agency agreement, Lehman Brothers Holdings may appoint a different calculation
agent from time to time after the date of this synthetic convertible prospectus
supplement without your consent and without notifying you.

The calculation agent will determine the amount you receive. In addition, the
calculation agent will make all determinations regarding alternative redemption
amount, settlement value, multipliers, threshold value, market disruption
events, valuation dates, successor indices, the closing prices or closing levels
of the index stock, stock index, exchange traded fund or basket, as the case may
be, and the number of shares of the index stock (and any other equity securities
included as settlement property) you receive at maturity or upon repurchase, if
the notes are stock settled. All determinations made by the calculation agent
will be at the sole discretion of the calculation agent and, in the absence of
manifest error, will be conclusive for all purposes and binding on Lehman
Brothers Holdings and you. The calculation agent will have no liability for its
determinations, except as provided in the calculation agency agreement.

Lehman Brothers Holdings or its affiliates, including Lehman Brothers Inc., may
from time to time engage in business with one or more of the issuers of the
index stock, the common stocks underlying the stock index, the common stocks
underlying the exchange traded fund, the common stocks included in the basket,
the common stocks underlying the stock indices included in the basket or the
issuers of other equity securities included in the calculation of the settlement
value or, in the case of ADSs, the underlying foreign shares, or with persons
seeking to acquire these issuers. The services provided may include advisory
services to the issuers or other persons, including merger and acquisition
advisory services. In the course of its business, Lehman Brothers Holdings or
its affiliates, including Lehman Brothers Inc., may acquire non-public
information with respect to these issuers. Neither Lehman Brothers Holdings nor
any of its affiliates undertakes to disclose any such information to you. In
addition, one or more affiliates of Lehman Brothers Holdings may publish
research reports with respect to these issuers. The actions may directly
adversely affect the market prices of the index stock, the common stocks
underlying the stock index, the common stocks underlying the exchange traded
fund, the common stocks included in the basket, the common stocks underlying the
stock indices included in the basket or the other equity securities included in
the calculation of the settlement value.

EVENTS OF DEFAULT AND ACCELERATION

If an event of default with respect to any series of notes has occurred and is
continuing, the amount payable to you upon any acceleration permitted under the
senior indenture will be equal to, per $1,000 note, the amount that would have
been payable at maturity, calculated as though the date of acceleration was the
stated maturity date and the date that is a number of business days equal to the
determination period specified in the relevant pricing supplement before that
date was the valuation date. If a bankruptcy proceeding is commenced in respect
of Lehman Brothers Holdings, the claims of the holder of a note may be limited,
under Section 502(b)(2) of Title 11 of the United States Code, as though the
commencement of the proceeding was the stated maturity date and the date that is
a number of business days equal to the determination period specified in the
relevant pricing supplement before that date was the valuation date. In any such
case where the relevant pricing supplement provides for the stock settlement
option, Lehman Brothers Holdings will be deemed to have elected to pay in cash
and not in shares of the index stock or the exchange traded fund (or shares of
any other equity securities used in the calculation of the settlement value).
See "Description of Debt Securities-Defaults" beginning on page 13 of the base
prospectus.


                                      SS-27



                            COMMON STOCK INFORMATION

INFORMATION ABOUT THE RELEVANT STOCK ISSUERS

In the case of notes whose performance is linked to a common stock or a basket
of common stocks, Lehman Brothers Holdings will provide in the relevant pricing
supplement summary information regarding the business of the issuers of such
stocks based on their publicly available documents. In addition, information
regarding an issuer may be obtained from other sources including, but not
limited to, press releases, newspaper articles and other publicly disseminated
documents.

In connection with any offering of notes, neither Lehman Brothers Holdings nor
any of its affiliates will have participated in the preparation of such
documents or made any due diligence inquiry with respect to any issuer. Neither
Lehman Brothers Holdings nor any of its affiliates makes any representation that
such publicly available documents are, or any other publicly available
information regarding an issuer is, accurate or complete. Furthermore, Lehman
Brothers Holdings and its affiliates cannot give any assurance that all events
occurring prior to the date a series of notes is offered (including events that
would affect the accuracy or completeness of the publicly available documents)
that would affect the trading prices of the stock of an issuer have been
publicly disclosed. Subsequent disclosure of any such events or the disclosure
of or failure to disclose material future events concerning an issuer could
affect the value received at maturity with respect to the notes and therefore
the trading prices of the notes. Neither Lehman Brothers Holdings nor any of its
affiliates makes any representation to you as to the performance of any issuer.

Lehman Brothers Holdings and/or its affiliates may presently or from time to
time engage in business with any such issuer, including extending loans to,
entering into loans with, or making equity investments in, an issuer or
providing advisory services to the issuer, including merger and acquisition
advisory services.

In the course of such business, Lehman Brothers Holdings and/or its affiliates
may acquire non-public information with respect to such an issuer, and neither
Lehman Brothers Holdings nor any of its affiliates undertakes to disclose any
such information to you. In addition, one or more of Lehman Brothers Holdings'
affiliates may publish research reports with respect to an issuer, and these
reports may or may not recommend that investors buy or hold the common stock of
the issuer. As an investor in a note, you should undertake an independent
investigation of the issuers to whose common stocks the notes are linked as in
your judgment is appropriate to make an informed decision with respect to an
investment in the notes.

HISTORICAL TRADING PRICE INFORMATION

In the case of notes whose performance is linked to an index stock or to a
basket of common stocks, Lehman Brothers Holdings will provide historical price
information on the index stock or the common stocks included in the basket, as
the case may be, in the relevant pricing supplement. The historical prices of
common stocks are not necessarily indicative of future performance. Lehman
Brothers Holdings cannot assure you that the prices of these common stocks will
increase enough so that the alternative redemption amount will be greater than
$1,000.

                                INDEX INFORMATION

INFORMATION ABOUT THE RELEVANT INDICES

In the case of notes whose performance is linked to a stock index or a basket of
stock indices, Lehman Brothers Holdings will provide in the relevant pricing
supplement summary information regarding the relevant indices based on the index
publishers' publicly available documents. Lehman Brothers Holdings does not
assume any responsibility for the accuracy or completeness of such information.

HISTORICAL INFORMATION

In the case of notes whose performance is linked to a stock index or a basket of
stock indices, Lehman Brothers Holdings will provide historical information on
the index levels in the relevant pricing supplement.

The historical levels of the stock index or stock indices included in the
basket, as the case may be, are not necessarily indicative of future
performance. Lehman Brothers Holdings cannot give you any assurance that the
levels of the index or indices will increase sufficiently for you to receive an
amount in


                                      SS-28



excess of the principal amount of your note at maturity.

                        EXCHANGE TRADED FUND INFORMATION

INFORMATION ABOUT THE EXCHANGE TRADED FUND

In the case of notes whose performance is linked to an exchange traded fund,
Lehman Brothers Holdings will provide in the relevant pricing supplement summary
information regarding the exchange traded fund based on the exchange traded
fund's publicly available documents. Lehman Brothers Holdings does not assume
any responsibility for the accuracy or completeness of such information.

HISTORICAL INFORMATION

In the case of notes whose performance is linked to an exchange traded fund,
Lehman Brothers Holdings will provide historical price information on the
exchange traded fund in the relevant pricing supplement.

The historical prices of the exchange traded fund are not necessarily indicative
of future performance. Lehman Brothers Holdings cannot give you any assurance
that the price of the exchange traded fund will increase sufficiently for you to
receive an amount in excess of the principal amount of your note at maturity.


                                      SS-29



                  UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the material United States federal income tax
consequences of the purchase, ownership and disposition of notes as of the date
of this synthetic convertible prospectus supplement. If any information in the
MTN prospectus supplement or the base prospectus is inconsistent with this
synthetic convertible prospectus supplement you should rely on the information
in this synthetic convertible prospectus supplement. If any information in the
relevant pricing supplement is inconsistent with this synthetic convertible
prospectus supplement, you should rely on the information in the relevant
pricing supplement. The relevant pricing supplement may also add, update or
change information contained in this synthetic convertible prospectus
supplement.

Except where noted, this summary deals only with a note held as a capital asset
by a United States holder who purchases the note on original issue at its
initial offering price, and it does not deal with special situations. For
example, except where noted, this summary does not address:

o    tax consequences to holders who may be subject to special tax treatment,
     such as dealers in securities or currencies, traders in securities that
     elect to use the mark-to-market method of accounting for their securities,
     financial institutions, regulated investment companies, real estate
     investment trusts, pass-through entities, tax-exempt entities or insurance
     companies;

o    tax consequences to persons holding notes as part of a hedging, integrated,
     constructive sale or conversion transaction or a straddle;

o    tax consequences to holders of notes whose "functional currency" is not the
     U.S. dollar;

o    alternative minimum tax consequences, if any; or

o    any state, local or foreign tax consequences.

The discussion below is based upon the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations, rulings and judicial
decisions as of the date of this synthetic convertible prospectus supplement.
Those authorities may be changed, perhaps retroactively, so as to result in
United States federal income tax consequences different from those discussed
below.

If a partnership holds notes, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the partnership. If
you are a partner of a partnership holding notes, you should consult your own
tax advisors.

Because there is no statutory, judicial or administrative authority directly
addressing the characterization of the notes with terms such as the notes for
United States federal income tax purposes, it is possible that the Internal
Revenue Service could assert characterizations other than those described in
this prospectus supplement that could affect the timing, amount and character of
income, gain, loss or deduction.

If you are considering the purchase of notes, you should consult your own tax
advisors concerning the federal income tax consequences in light of your
particular situation and any consequences arising under the laws of any other
taxing jurisdiction.

UNITED STATES HOLDERS

The following discussion is a summary of certain United States federal income
tax consequences that will apply to you if you are a United States holder of
notes.

For purposes of this discussion, a United States holder is a beneficial owner of
a note that is for United States federal income tax purposes:

o    an individual citizen or resident of the United States;

o    a corporation (or any other entity treated as a corporation for United
     States federal income tax purposes) created or organized in or under the
     laws of the United States, any state thereof, or the District of Columbia;

o    an estate the income of which is subject to United States federal income
     taxation regardless of its source; or


                                      SS-30



o    a trust if (1) it is subject to the primary supervision of a court within
     the United States and one or more United States persons has the authority
     to control all substantial decisions of the trust or (2) it has a valid
     election in effect under applicable Treasury regulations to be treated as a
     United States person.

A non-United States holder is a beneficial owner (other than a partnership) of
notes that is not a United States holder.

ACCRUAL OF INTEREST

The Treasury regulations that apply to contingent payment debt obligations are
expected to apply to the notes. All payments on the notes will be taken into
account under these Treasury regulations. As discussed more fully below, the
effect of these Treasury regulations will be to:

o    require you, regardless of your usual method of tax accounting, to use the
     accrual method with respect to the notes;

o    result in the accrual of original issue discount by you based on the
     "comparable yield" of the notes in excess of stated interest payments
     actually made to you; and

o    generally result in ordinary rather than capital treatment of any gain, and
     to some extent loss, on the sale, exchange or other disposition of the
     notes.

Under the contingent payment debt rules, you will be required to include
original issue discount in income each year, regardless of your usual method of
tax accounting, based on the "comparable yield" of the notes, which will
generally be the rate at which Lehman Brothers Holdings could issue a fixed rate
debt instrument with terms and conditions similar to the notes.

Lehman Brothers Holdings is required to provide the comparable yield to you and,
solely for tax purposes, is also required to provide a projected payment
schedule that includes the actual interest payments on the notes and estimates
the amount and timing of contingent payments on the notes. Lehman Brothers
Holdings will provide the comparable yield and projected payment schedule in the
relevant pricing supplement. Lehman Brothers Holdings agrees and, by purchasing
a note, you agree, for United States federal income tax purposes, to be bound by
Lehman Brothers Holdings' determination of the comparable yield and projected
payment schedule. As a consequence, for United States federal income tax
purposes, you must use the comparable yield determined by Lehman Brothers
Holdings and the projected payments set forth in the projected payment schedule
prepared by Lehman Brothers Holdings in determining your interest accruals, and
the adjustments thereto, in respect of the notes.

THE COMPARABLE YIELD AND THE PROJECTED PAYMENT SCHEDULE ARE NOT PROVIDED FOR ANY
PURPOSE OTHER THAN THE DETERMINATION OF YOUR INTEREST ACCRUALS AND ADJUSTMENTS
THEREOF IN RESPECT OF THE NOTES AND DO NOT CONSTITUTE A REPRESENTATION REGARDING
THE ACTUAL AMOUNT OF THE PAYMENT ON A NOTE.

The amount of original issue discount on a note for each accrual period is
determined by multiplying the comparable yield of the note, adjusted for the
length of the accrual period, by the note's adjusted issue price at the
beginning of the accrual period, determined in accordance with the rules set
forth in the contingent payment debt regulations. The amount of original issue
discount so determined is then allocated on a ratable basis to each day in the
accrual period that you held the note. Lehman Brothers Holdings is required to
provide information returns stating the amount of original issue discount
accrued on notes held of record by persons other than corporations and other
exempt owners.

If an actual contingent payment made on the notes differs from the projected
contingent payment, an adjustment will be made for the difference. A positive
adjustment, for the amount by which an actual payment exceeds the projected
contingent payment, will be treated as additional original issue discount in the
current year. For these purposes, the payments in a taxable year include the
fair market value of property received in that year. A negative adjustment will:

o    first, reduce the amount of original issue discount required to be accrued
     in the current year; and

o    second, any negative adjustments that exceed the amount of original issue
     discount accrued in the current year will be treated as ordinary loss to
     the extent of your total prior original issue discount inclusions with
     respect to the note.

SALE, EXCHANGE, REDEMPTION, REPURCHASE OR OTHER DISPOSITION OF NOTES

Upon the sale, exchange or other disposition of a note, you will recognize gain
or loss equal to the difference between your amount realized (including the fair
market value of any property received in a


                                      SS-31



repurchase or redemption if Lehman Brothers Holdings elects the stock settlement
option) and your adjusted tax basis in the note. Such gain on a note generally
will be treated as ordinary income. Loss from the disposition of a note will be
treated as ordinary loss to the extent of your prior net original issue discount
inclusions with respect to the note. Any loss in excess of that amount will be
treated as capital loss. Special rules apply in determining the tax basis of a
note. Your adjusted tax basis in a note is generally increased by original issue
discount you previously accrued on the note and reduced by the projected amount
of any payments previously scheduled to be made on the note.

If Lehman Brothers Holdings elects the stock settlement option, your tax basis
in the shares of index stock or exchange traded fund received will equal the
then current fair market value of such stock or exchange traded fund. Your
holding period for such stock or exchange traded fund will commence on the day
of maturity, redemption or repurchase.

NON-UNITED STATES HOLDERS

The following discussion is a summary of certain United States federal tax
consequences that will apply to you if you are a Non-United States holder of
notes.

Special rules may apply to you if you are a controlled foreign corporation,
passive foreign investment company, a corporation that accumulates earnings to
avoid United States federal income tax, or an individual who is a United States
expatriate and therefore subject to special treatment under the Code. You should
consult your own tax advisors to determine the United States federal, state,
local and other tax consequences that may be relevant to you.

UNITED STATES FEDERAL WITHHOLDING TAX

The 30% United States federal withholding tax will not apply to any payment,
including original issue discount, on a note under the portfolio interest rule
provided that:

o    interest paid on the note is not effectively connected with your conduct of
     a trade or business in the United States;

o    you do not actually, or constructively, own 10% or more of the total
     combined voting power of all classes of Lehman Brothers Holdings' voting
     stock within the meaning of the Code and the Treasury regulations;

o    you are not a controlled foreign corporation that is related to Lehman
     Brothers Holdings through stock ownership;

o    you are not a bank whose receipt of interest on a note is described in
     Section 881(c)(3)(A) of the Code;

o    the index stock, or any stocks underlying an index, exchange traded fund or
     basket, as the case may be, remain actively traded on an established
     financial market within the meaning of Section 871(h)(4)(c)(v)(i) of the
     Code and are not a United States real property interest as defined in
     Section 897(c)(1) of the Code; and

o    (1) you provide your name and address on an Internal Revenue Service Form
     W-8BEN and certify, under penalties of perjury, that you are not a United
     States holder or (2) you hold your notes through certain foreign
     intermediaries and you satisfy the certification requirements of applicable
     Treasury regulations.

Special certification rules apply to holders that are pass-through entities
rather than individuals.

If the requirements described above are not satisfied, payments made to you will
be subject to a 30% United States federal withholding tax, unless you provide
Lehman Brothers Holdings with a properly executed (1) IRS Form W-8BEN (or other
applicable form) claiming an exemption from, or reduction in, withholding under
the benefit of an applicable income tax treaty or (2) IRS Form W-8ECI stating
that interest paid on a note is not subject to withholding tax because it is
effectively connected with your conduct of a trade or business in the United
States (as described below under "United States federal income tax").
Alternative documentation may be applicable in certain situations.

UNITED STATES FEDERAL INCOME TAX

Any gain or income on a note will generally be subject to United States federal
income tax if you are engaged in a trade or business in the United States, and
gain or income on the notes is effectively connected with the conduct of that
trade or business. In such case, you will be subject to United States federal
income tax on such gain or income on a net income basis (although exempt from
the 30% withholding tax, provided you comply with certain certification and
disclosure requirements discussed above in "United States federal withholding
tax") in the same manner as if you were a United States holder. In addition, if
you are a foreign corporation, you may be subject to a branch profits tax equal
to


                                      SS-32



30%, or lower applicable income tax treaty rate, of your earnings and profits
for the taxable year, subject to adjustments, that are effectively connected
with the conduct by you of a trade or business in the United States.

UNITED STATES FEDERAL ESTATE TAX

Your estate will not be subject to United States federal estate tax on notes
beneficially owned by you at the time of your death, provided that any payment
to you on a note would be eligible for exemption from the 30% withholding tax
under the rules described in the bullet points under the heading "-United
States federal withholding tax," without regard to the certification
requirements of the sixth bullet point.

INFORMATION REPORTING AND BACKUP WITHHOLDING

If you are a United States holder of notes, information reporting requirements
will generally apply to all payments Lehman Brothers Holdings makes to you and
the proceeds from the sale of a note paid to you, unless you are an exempt
recipient such as a corporation. Backup withholding tax will apply to those
payments if you fail to provide a taxpayer identification number, a
certification of exempt status, or if you fail to report in full interest
income.

If you are a Non-United States holder of notes, Lehman Brothers Holdings must
report annually to the Internal Revenue Service and to you the amount of
payments Lehman Brothers Holdings makes to you and the tax withheld with respect
to such payments, regardless of whether withholding was required. Copies of the
information returns reporting such payments and withholding may also be made
available to the tax authorities in the country in which you reside under the
provisions of an applicable income tax treaty. In general, you will not be
subject to backup withholding regarding payments Lehman Brothers Holdings makes
to you provided that Lehman Brothers Holdings does not have actual knowledge or
reason to know that you are a United States holder and Lehman Brothers Holdings
has received from you the statement described above under "-Non-United States
holders-United States federal withholding tax." In addition, you will be
subject to information reporting and, depending on the circumstances, backup
withholding regarding the proceeds of the sale of a note made within the United
States or conducted through United States-related intermediaries, unless the
payor receives the statement described above and does not have actual knowledge
or reason to know that you are a United States holder, or you otherwise
establish an exemption.

Any amounts withheld under the backup withholding rules will be allowed as a
refund or credit against your United States federal income tax liability
provided the required information is furnished to the Internal Revenue Service.


                                      SS-33



                        SUPPLEMENTAL ERISA CONSIDERATIONS

Each person considering the use plan assets of a pension, profit-sharing or
other employee benefit plan, individual retirement account, Keogh plan or other
retirement plan, account or arrangement (a "plan") to acquire or hold the notes
should consider whether an investment in the notes would be consistent with the
documents and instruments governing the plan, and whether the investment would
involve a prohibited transaction under Section 406 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code.
In this regard the U.S. Department of Labor, or DOL, has suggested that at the
time of acquisition of any notes, no more than 15% of a plan's assets should be
invested in the notes.

Section 406 of ERISA and Section 4975 of the Code prohibit plans subject to
Title I of ERISA and/or Section 4975 of the Code ("ERISA plans") from engaging
in certain transactions involving "plan assets" with persons who are "parties in
interest" under ERISA or "disqualified persons" under the Code ("parties in
interest") with respect to the plan. A violation of these prohibited transaction
rules may result in civil penalties or other liabilities under ERISA and/or an
excise tax under Section 4975 of the Code for those persons, unless exemptive
relief is available under an applicable statutory, regulatory or administrative
exemption. Certain plans including those that are governmental plans (as defined
in Section 3(32) of ERISA), certain church plans (as defined in Section 3 (33)
of ERISA) and foreign plans (as described in Section 4(b)(4) of ERISA) are not
subject to the requirements of ERISA or Section 4975 of the Code but may be
subject to similar provisions under applicable federal, state, local, foreign or
other regulations, rules or laws ("similar laws").

The acquisition of the notes by an ERISA plan with respect to which the Lehman
Brothers Holdings Inc., Lehman Brothers Inc. or certain of their affiliates is
or becomes a party in interest may constitute or result in prohibited
transactions under ERISA or Section 4975 of the Code, unless those notes are
acquired pursuant to and in accordance with an applicable exemption. The DOL has
issued prohibited transaction class exemptions, or "PTCEs", as well as
individual exemptions that may provide exemptive relief if required for direct
or indirect prohibited transactions that may arise from the purchase or holding
of the notes.

In addition, we have obtained from the DOL an exemption from the prohibited
transaction rules that, if the conditions set forth therein are satisfied, will
provide relief to permit the purchase and holding of notes by an ERISA plan for
whom we or one of our affiliates is a service provider. This exemption was
issued by the DOL pursuant to its "Expedited Exemption Procedure" under PTCE
96-62. Copies of both the proposed and final exemption are available from us
upon request. Purchasers and holders of the notes have exclusive responsibility
for ensuring that their purchase and holding of the notes do not violate the
prohibited transaction or other rules of ERISA, the Code or applicable similar
laws, and nothing herein should be construed as a representation or suggestion
by Lehman Brothers Holdings Inc., Lehman Brothers Inc. or any of their
respective affiliates that the purchase or holding of the notes will satisfy any
such rules.

Each purchaser and holder of the notes or any interest in the notes will be
deemed to have represented by its purchase or holding of the notes that either
(1) it is not a plan or a plan asset entity and is not purchasing or holding
those notes on behalf of or with "plan assets" of any plan or plan asset entity
or (2) the purchase or holding of the notes will not constitute a non-exempt
prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or
violation under any applicable similar laws.

Due to the complexity of these rules and the penalties that may be imposed upon
persons involved in non-exempt prohibited transactions, it is important that
fiduciaries or other persons considering purchasing the notes on behalf of or
with "plan assets" of any plan or plan asset entity consult with their counsel
regarding the availability of exemptive relief under any of the PTCEs listed
above or any other applicable exemption, or the potential consequences of any
purchase or holding under similar laws, as applicable.


                                      SS-34



                               BOOK-ENTRY ISSUANCE

The notes of each series will be represented by one or more global securities
that will be deposited with and registered in the name of DTC or its nominee.
See "Book-Entry Procedures and Settlement" on page 38 of the base prospectus.

The trustee for the notes will wire payments on the notes to DTC's nominee.
Lehman Brothers Holdings and the trustee will treat DTC's nominee as the owner
of each global security for all purposes. Accordingly, Lehman Brothers Holdings,
the trustee and any paying agent will have no direct responsibility or liability
to pay amounts due on the global security to you or any other beneficial owners
in the global security. Any redemption notices will be sent by Lehman Brothers
Holdings directly to DTC, who will in turn inform the direct participants or the
indirect participants, who will then contact you as a beneficial holder. If less
than all of the notes are being redeemed, DTC will proportionally allot the
amount of the interest of each direct participant to be redeemed.

It is DTC's current practice, upon receipt of any payment of interest,
distributions or liquidation amount, to proportionally credit direct
participants' accounts on the payment date based on their holdings. In addition,
it is DTC's current practice to pass through any consenting or voting rights to
the participants by using an omnibus proxy. Those participants in turn will make
payments to and solicit votes from you, the ultimate owner of notes based on
customary practices. Payments to you will be the responsibility of the
participants and not of DTC, the trustee or Lehman Brothers Holdings.


                                      SS-35



                        SUPPLEMENTAL PLAN OF DISTRIBUTION

With respect to each series of notes to be issued, Lehman Brothers Holdings will
agree to sell to the agents identified in the relevant pricing supplement (which
may include Lehman Brothers Inc.), as principals, and the agents will agree,
severally, to purchase from Lehman Brothers Holdings, the principal amount of
the notes specified, at the price specified in the relevant pricing supplement.
The agents will be committed to take and pay for all of the notes they agree to
purchase, if any are taken.

The agents will offer each series of notes initially at a public offering price
equal to the issue price set forth in the relevant pricing supplement and may
offer the notes to certain dealers at such price less a concession not in excess
of a percentage of the principal amount of the notes specified in the relevant
pricing supplement. The agents may allow, and any such dealers may reallow, a
discount not in excess of a percentage of the principal amount of the notes
specified in the relevant pricing supplement on sales to certain other dealers.
After the initial public offering, the public offering price and other selling
terms may from time to time be varied by the agents.

Each series of notes will be a new issue of securities with no established
trading market. Lehman Brothers Holdings has been advised by Lehman Brothers
Inc., as lead agent, that the agents intend to make a market in the notes, but
they are not obligated to do so and may discontinue market making at any time
without notice. No assurance can be given that a liquid trading market for the
notes will develop or be maintained. For more information about the plan of
distribution and possible market-making activities, see "Plan of Distribution"
in the MTN prospectus supplement and base prospectus.

Lehman Brothers Holdings or an affiliate may enter into swap agreements or
related hedge transactions with one of Lehman Brothers Holdings' other
affiliates or unaffiliated counterparties in connection with the sale of any
series of the notes and Lehman Brothers Inc. and/or an affiliate may earn
additional income as a result of payments pursuant to the swap, or related hedge
transactions.

Lehman Brothers Holdings will agree to indemnify the agents against some
liabilities, including liabilities under the Securities Act of 1933, as amended,
as described in the MTN prospectus supplement and base prospectus.

This synthetic convertible prospectus supplement, the MTN prospectus supplement,
the base prospectus and any relevant pricing supplement in electronic format may
be made available on the Internet sites or through other online services
maintained by Lehman Brothers Holdings and/or the agents and/or selling group
members participating in any offering of notes, or by their affiliates. In those
cases, prospective investors may view offering terms online and, depending upon
the particular agent or selling group member, prospective investors may be
allowed to place orders online. The agent may agree with Lehman Brothers
Holdings to allocate a specific number of shares for sale to online brokerage
account holders. Any such allocation for online distributions will be made by
the agent on the same basis as other allocations.

Other than this synthetic convertible prospectus supplement, the MTN prospectus
supplement, the base prospectus and any relevant pricing supplement in
electronic format, the information on Lehman Brothers Holdings' or any agent's
or any selling group member's web site and any information contained in any
other web site maintained by any agent or selling group member is not part of
this synthetic convertible prospectus supplement, the MTN prospectus supplement,
the base prospectus, any relevant pricing supplement or the registration
statement of which they form a part, has not been approved and/or endorsed by
Lehman Brothers Holdings or any underwriter or selling group member in its
capacity as an agent or selling group member, except, in each case, with respect
to the website maintained by it, and should not be relied upon by investors.


                                      SS-36