10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark one)

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2006

OR

¨Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from              to             

Commission file numbers 333-129195-01 and 333-129195-02

Lehman Brothers Holdings E-Capital Trust I	Delaware	20-3646452
Lehman Brothers Holdings E-Capital LLC I	Delaware	20-3646427
(Exact Name of Registrant as Specified in its Charter)	(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

745 Seventh Avenue
New York, New York	10019	(212) 526-7000
(Address of principal executive offices)	(Zip Code)	(Registrants’ telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  None

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

Indicate by check mark if the Registrants are well-known seasoned issuers, as defined in Rule 405 of the Securities Act. Yes o  No x

Indicate by check mark if the Registrants are not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes oNo x

Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the Registrants are large accelerated filers, accelerated filers, or non-accelerated filers. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filers o Accelerated filers o Non-accelerated filers x

Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

As of April 2, 2007, there was one Trust common security outstanding of Lehman Brothers Holdings E-Capital Trust I and one LLC common security outstanding of Lehman Brothers Holdings E-Capital LLC I and no voting securities of the Registrants were held by non-affiliates of the Registrants.

DOCUMENTS INCORPORATED BY REFERENCE: Prospectus dated May 16, 2006 (the “Prospectus”), filed on May 16, 2006, pursuant to Rule 424(b), under Registration Statement on Form S-3 (No. 333-129195) filed by the Registrants and Lehman Brothers Holdings Inc., is incorporated by reference in Part II. A portion of Lehman Brothers Holdings Inc.’s Definitive Proxy Statement, dated February 26, 2007, for its 2007 Annual Meeting of Stockholders (the “2007 Proxy Statement”) is incorporated by reference in Part III.

LEHMAN BROTHERS HOLDINGS E-CAPITAL TRUST I
LEHMAN BROTHERS HOLDINGS E-CAPITAL LLC I

TABLE OF CONTENTS

Available Information
Part I
Item 1.	Business
Item 1A.	Risk Factors
Item 1B.	Unresolved Staff Comments
Item 2.	Properties
Item 3.	Legal Proceedings
Item 4.	Submission of Matters to a Vote of Security Holders
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.	Selected Financial Data
Item 7.	Management’s Narrative Analysis of Results of Operations
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk
Item 8.	Financial Statements and Supplementary Data
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.	Controls and Procedures
Item 9B.	Other Information
Part III
Item 10.	Directors and Executive Officers of the Registrant
Item 11.	Executive Compensation
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.	Certain Relationships and Related Transactions
Item 14.	Principal Accountant Fees and Services
Part IV
Item 15.	Exhibits and Financial Statement Schedules
Signatures
Exhibit Index
Exhibits

LEHMAN BROTHERS HOLDINGS E-CAPITAL TRUST I
LEHMAN BROTHERS HOLDINGS E-CAPITAL LLC I

AVAILABLE INFORMATION

Lehman Brothers Holdings E-Capital Trust I (the “Trust”) and Lehman Brothers Holdings E-Capital LLC I (the “LLC”) (together, the “Registrants,” “we,” “us” or “our”) and the Registrants’ ultimate parent, Lehman Brothers Holdings Inc. (“LBHI”) file annual, quarterly and current reports, proxy statements (in the case of LBHI) and other information with the United States Securities and Exchange Commission (“SEC”). You may read and copy any document the Registrants or LBHI file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, U.S.A. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 (or 1-202-551-8090). The SEC maintains an internet site that contains annual, quarterly and current reports, proxy statements and other information regarding issuers that file electronically with the SEC. The Registrants’ and LBHI’s electronic SEC filings are available to the public at http://www.sec.gov.

These documents are also available in print without charge to any person who requests them by writing or telephoning:

Lehman Brothers Holdings Inc.
Office of the Corporate Secretary
1301 Avenue of the Americas
5th Floor
New York, New York 10019, U.S.A.
1-212-526-0858

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PART I

ITEM 1.BUSINESS

The Trust and the LLC

The Trust is a statutory trust formed on August 16, 2005, under the Delaware Statutory Trust Act, as amended. The LLC is a limited liability company formed on August 16, 2005, under the Delaware Limited Liability Company Act, as amended.

On August 19, 2005, the Trust issued $300 million aggregate liquidation amount of Floating Rate Enhanced Capital Advantage Preferred Securities (the “Trust Preferred Securities” or “ECAPS®”) to investors in a private placement and $1,000 of Trust common securities (the “Trust Common Securities,” and together with the Trust Preferred Securities, the “Trust Securities”) to LBHI. The Trust used the proceeds of the issuance of the Trust Securities to purchase from the LLC $300 million aggregate liquidation preference of preferred securities (the “LLC Preferred Securities”) issued by the LLC. Contemporaneous with the issuance of the LLC Preferred Securities, the LLC also issued to LBHI the LLC’s common securities (the “LLC Common Securities,” and, together with the LLC Preferred Securities, the “LLC Securities”) with an aggregate liquidation preference of $15.8 million, representing 5% of the total initial capital of the LLC. The LLC used the proceeds from the issuance of the LLC Preferred Securities and LLC Common Securities to purchase from LBHI a $300,000,000 floating rate subordinated debenture due 2035 (the “Company Debenture”) and certain U.S. government obligations and commercial paper of entities not affiliated with LBHI and its subsidiaries (the “Eligible Debt Securities”).

The Trust exists for the sole purpose of (i) issuing the Trust Securities, representing undivided beneficial ownership interests in the assets of the Trust, (ii) investing the gross proceeds of the Trust Securities in the LLC Preferred Securities and (iii) engaging in only those other activities necessary or incidental thereto. LBHI is the sole owner of the Trust Common Securities.

The LLC exists for the sole purpose of (i) issuing the LLC Securities, (ii) investing the proceeds thereof in the Company Debenture or other junior subordinated debt of LBHI (“Affiliate Debt Instruments”) and Eligible Debt Securities and (iii) engaging in only those other activities necessary or incidental thereto. LBHI is the sole managing member of the LLC, and the Trust is the sole non-managing member of the LLC.

On June 19, 2006, pursuant to contractual registration rights, the Trust issued to its investors Trust Preferred Securities registered under the Securities Act of 1933, as amended, in exchange for the unregistered Trust Preferred Securities, the LLC exchanged registered LLC Preferred Securities for the unregistered LLC preferred securities and LBHI exchanged a registered Company Debenture for the unregistered Company Debenture.

LBHI has irrevocably guaranteed, on a subordinated basis, the payment in full of (i) any accumulated and unpaid distributions on the Trust Preferred Securities to the extent of funds of the Trust available therefor, (ii) the amount payable upon redemption of the Trust Preferred Securities to the extent of funds of the Trust available therefor and (iii) the liquidation amount of the Trust Preferred Securities to the extent of the assets of the Trust available for distribution to holders of Trust Preferred Securities  (the “Trust Guarantee”).  LBHI has also irrevocably guaranteed, on a subordinated basis, the payment in full of (i) any accumulated and unpaid distributions on the LLC Preferred Securities to the extent they become payable after giving effect to any permitted deferrals and to the extent of funds of the LLC available therefor, (ii) the amount payable upon redemption of the LLC Preferred Securities to the extent of funds of the LLC available therefor (the “LLC Guarantee”) and (iii) the liquidation preference of the LLC Preferred Securities to the extent of the assets of the LLC available for distribution to holders of LLC Preferred Securities. LBHI will fully and unconditionally guarantee, on a subordinated basis, payments in respect of any Affiliate Debt Instruments not issued by LBHI (the “Investment Guarantees”).

Pursuant to the Trust’s declaration of trust, there are initially five trustees for the Trust. Three of the trustees (the “Regular Trustees”) are individuals who are employees or officers of or who are affiliated with LBHI. The fourth trustee is a financial institution that is unaffiliated with LBHI and is trustee for purposes of compliance with the provisions of the Trust Indenture Act (the “Property Trustee”). The fifth trustee is an entity that maintains its principal place of business in the State of Delaware (the “Delaware Trustee”). Currently, JPMorgan Chase Bank, N.A., acts as Property Trustee, and its affiliate, Chase Bank USA, National Association, acts as Delaware Trustee until, in each case, it is removed or replaced by LBHI as the holder of the Trust Common Securities. For purposes of

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compliance with the Trust Indenture Act, JPMorgan Chase Bank, N.A., acts as trustee (the “Trust Guarantee Trustee”) under the Trust Guarantee.

The Property Trustee holds title to the LLC Preferred Securities, for the benefit of the holders of the trust securities, and, as such holder, the Property Trustee has the power to exercise all rights, powers and privileges with respect to the LLC Preferred Securities under the Limited Liability Company Agreement dated as of August 19, 2005 (the “LLC Agreement”), entered into by LBHI, as managing member of the LLC, and the Trust. In addition, the Property Trustee maintains exclusive control of a segregated non-interest bearing bank account to hold all payments made in respect of the LLC Preferred Securities for the benefit of the holders of the trust securities.

JPMorgan Chase Bank, N.A., as the Trust Guarantee Trustee, holds the Trust Guarantee for the benefit of the holders of the Trust Preferred Securities.

LBHI, as the holder of all the Trust Common Securities, has the right to appoint, remove or replace any of the trustees and to increase or decrease the number of trustees, provided that there is always a Delaware Trustee, a Property Trustee and at least one Regular Trustee. LBHI pays all fees and expenses related to the organization and operation of the Trust (including any taxes (other than withholding taxes), duties, assessments or governmental charges of whatever nature imposed by the United States or any other domestic taxing authority upon the Trust) and is responsible for all debts and obligations of the Trust (other than with respect to the Trust Preferred Securities). If the Trust is required by law to withhold amounts from distributions in respect of payments on the Affiliate Debt Instruments or Eligible Debt Securities, such withheld amounts will be treated as paid in respect of current or future distributions to the applicable holders. In the event the Trust is unable to credit its withholding tax obligations against distributions to such holders, LBHI will reimburse the Trust for any liability in respect of withholding taxes.

For so long as the Trust Preferred Securities remain outstanding, LBHI has covenanted (i) to maintain direct 100% ownership of the Trust Common Securities, (ii) to cause the Trust to remain a statutory trust and not to voluntarily dissolve, except as permitted by the declaration of trust, (iii) to use its commercially reasonable efforts to ensure that the Trust will not be an “investment company” that is required to be registered under the Investment Company Act and (iv) to take no action that would be reasonably likely to cause the Trust to be classified as an association or a publicly traded partnership taxable as a corporation for United States federal income tax purposes.

LBHI pays all fees and expenses related to the organization and operation of the LLC (including any taxes (other than withholding taxes), duties, assessments or governmental charges of whatever nature imposed by the United States or any other domestic taxing authority upon the LLC) and is responsible for all debts and obligations of the LLC (other than with respect to the LLC Preferred Securities). If the LLC is required by law to withhold amounts from distributions in respect of payments on the Affiliate Debt Instruments or Eligible Debt Securities, such withheld amounts will be treated as paid in respect of current or future distributions to the applicable holders. In the event the LLC is unable to credit its withholding tax obligations against distributions to such holders, LBHI will reimburse the LLC for any liability in respect of withholding taxes.

For so long as the LLC Preferred Securities remain outstanding, LBHI has covenanted (i) to remain the sole managing member of the LLC and to maintain direct 100% ownership of the managing member’s interest in the LLC, which interest currently represents at least 5% of the total capital of the LLC, (ii) to cause the LLC to remain a limited liability company and not to voluntarily dissolve, except as permitted by the LLC Agreement, (iii) to use commercially reasonable efforts to ensure that the LLC will not be an “investment company” for purposes of the Investment Company Act and (iv) to take no action that would be reasonably likely to cause the LLC to be classified as an association or a publicly traded partnership taxable as a corporation for United States federal income tax purposes.

The location of the principal executive office of the Trust and the LLC is c/o Lehman Brothers Holdings Inc., 745 Seventh Avenue, New York, NY 10019. The office of the Delaware Trustee of the Trust is Chase Bank USA, National Association, 500 Stanton Christiana Road, Building 4, 3rd Floor, Newark, Delaware 19713.

The Certificate of Trust and declaration of trust of the Trust, the Trust Guarantee, the forms of the Trust Preferred Securities and Trust Common Security, the certificate of formation and Limited Liability Company Agreement of the LLC, the LLC Guarantee and the forms of the LLC Preferred Securities are incorporated by reference as exhibits to this Report.  The foregoing is not a complete summary of the material terms and provisions of the Trust Preferred Securities or of the other documents referred to above and is subject to, and qualified in its entirety by reference to, such documents and to applicable law.

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LBHI

LBHI, together with its subsidiaries, is a global investment bank serving the financial needs of corporations, governments and municipalities, institutional clients and high-net-worth individuals worldwide, providing a full array of equity and fixed income sales, trading and research, investment banking services and investment management and advisory services. Its worldwide 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. The firm, through predecessor entities, was founded in 1850.  LBHI files annual, quarterly and current reports, proxy statements and other information with the SEC.  See “Available Information” above.

ITEM 1A.RISK FACTORS

You should carefully consider the following risks, the  risk factors relating to LBHI set forth in Exhibit 99.01 and incorporated by reference herein, and all of the other information set forth in this Report, including the Consolidated Financial Statements of the Trust and the LLC and the Notes thereto. If any of the events or developments described below were actually to occur, it could materially and adversely affect an investment in the Trust Preferred Securities.

Because payments on the Trust Preferred Securities are dependent upon payments made on the Company Debenture, holders are subject to the risks that may affect LBHI’s business.

The ability of the Trust to pay distributions on the Trust Preferred Securities is entirely dependent on its receipt of corresponding distributions with respect to the LLC Preferred Securities. The ability of the LLC to pay distributions on the LLC Preferred Securities is, in turn, dependent on its receipt of payments with respect to the Company Debenture and the Eligible Debt Securities held by the LLC. LBHI has guaranteed, on a subordinated basis, the payment in full of all distributions and other payments on the trust preferred securities to the extent that the Trust has funds available therefor. Accordingly, an evaluation of LBHI’s financial condition is relevant to an evaluation of the financial condition of the Trust and its ability to pay distributions on the Trust Preferred Securities, and you should read the information about LBHI, including financial statements and other financial information, con tained or incorporated by reference in the annual, quarterly and current reports LBHI files with the SEC, which are incorporated herein by reference. See “Available Information” above. A description of certain risk factors that could affect LBHI’s business, financial condition and results of operations is included in Item 1A of LBHI’s Annual Report on Form 10-K for the fiscal year ended November 30, 2006, and is incorporated herein by reference to Exhibit 99.01 to this Report.

Distributions by the LLC may be deferred in LBHI’s discretion and, in such case, holders will be required to recognize income for U.S. federal income tax purposes in advance of the receipt of cash attributable to such income.

Distributions on the LLC Preferred Securities may be deferred by LBHI, as the managing member of the LLC, in its sole discretion. Interest payments on the Affiliate Debt Instruments, including the Company Debenture, can be deferred by the applicable issuer (including LBHI) from time to time for up to 20 consecutive quarters, provided that at the end of any deferral period, the issuer then pays all accrued and unpaid interest, and so long as any deferral does not extend beyond the stated maturity date of such Affiliate Debt Instrument. If interest payments on the Company Debenture and other Affiliate Debt Instruments are deferred or if such interest payments are not paid to the LLC according to their terms, the LLC will generally lack funds to pay distributions on the LLC Preferred Securities. In addition, LBHI, as managing member of the LLC, may fail to pay simple distributions in full on up to an aggregate of 28 payment dates without triggering the right of the Property Trustee, as special representative of the LLC (the “Special Representative”) to require dissolution of the LLC. Furthermore, so long as a mandatory deferral event occurs and is continuing, the LLC will be required to defer distributions on the LLC Preferred Securities to the extent that LBHI cannot sell sufficient common stock or its perpetual deferrable preferred stock to pay such distributions. If the LLC does not make current distributions on the LLC Preferred Securities, either because the managing member defers distributions to be made or because the LLC lacks sufficient funds, the Trust will not have funds available to make current distributions on the Trust Preferred Securities.

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If the issuer of an Affiliate Debt Instrument pays all accrued and unpaid interest with respect to such Affiliate Debt Instrument, the issuer may defer the payment of interest for a new 20-quarter deferral period. As a result, if the LLC is dissolved because payments on the LLC Preferred Securities have been deferred for more than 28 quarters, and at such time all accrued interest has been paid on any Affiliate Debt Instruments held by the LLC, interest on the Affiliate Debt Instruments may be deferred for a new 20-quarter deferral period and holders of the Trust Preferred Securities may not receive distributions for up to 48 consecutive quarters.

Even if distributions are not made on the LLC Preferred Securities, each holder of Trust Preferred Securities will still be required to include in its income, for U.S. federal income tax purposes, its allocable share of income on the LLC Preferred Securities. In that event, each holder of Trust Preferred Securities will recognize income for United States federal income tax purposes in advance of the receipt of cash and will not receive the cash related to such income from the Trust related to such income if such holder disposes of its Trust Preferred Securities prior to the record date for the date on which distributions of such amounts are made by the Trust.

The Trust Preferred Securities may be redeemed when prevailing interest rates are relatively low.

LBHI, as the managing member of the LLC, have the option to redeem the LLC Preferred Securities for cash, in whole or in part, from time to time after August 19, 2010. Additionally, upon the occurrence of a Tax Event or an Investment Company Event (each as defined in the Prospectus) prior to August 19, 2010, LBHI has the option to redeem the LLC Preferred Securities for cash, in whole (but not in part). Upon any such redemption of the LLC Preferred Securities, the Trust Preferred Securities will be redeemed at the same price. LBHI may choose to redeem the Trust Preferred Securities when prevailing interest rates are lower than the rate then borne by the Trust Preferred Securities. In that case you would not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the interest rate on the Trust Preferred Securities.

The Trust Preferred Securities are effectively subordinated to substantially all of LBHI’s debt.

LBHI’s obligations under the Company Debenture are, and under any Investment Guarantees will be, subordinate and junior in right of payment to all of LBHI’s indebtedness except any indebtedness that by its terms is subordinated to, or ranks on an equal basis with, the Company Debenture and certain other indebtedness, including indebtedness incurred in the ordinary course of business (“senior debt”). This means that LBHI cannot make any payments on the Company Debenture and any Investment Guarantee if LBHI defaults on a payment of senior debt and do not cure the default within the applicable grace period or if the senior debt becomes immediately due because of a default and has not yet been paid in full. In addition, LBHI’s obligations under the Company Debenture and any Investment Guarantee will be effectively subordinated to all existing and future liabilities of its subsidiaries. As of November 30, 2006, LBHI’s consolidated unsecured long-term borrowings (excluding borrowings with remaining maturities within one year of that date) were $81.2 billion.

LBHI’s obligations under the Trust Guarantee and the LLC Guarantee are subordinate and junior in right of payment to all of LBHI’s indebtedness and will rank pari passu with the most senior preferred stock issued, if any, from time to time by LBHI.

There are no terms in the Trust Preferred Securities, the LLC Preferred Securities, the LLC Guarantee, the Trust Guarantee or the Affiliate Debt Instruments that limit LBHI’s ability to incur additional indebtedness.

If a mandatory deferral event has occurred and LBHI is unable to sell its common stock or perpetual preferred stock for a period continuing for at least two years, amounts received by the Trust in respect of interest on the Affiliate Debt Instruments accrued from that date will be effectively subordinated to payments on LBHI’s outstanding preferred stock in the event of its bankruptcy or dissolution.

So long as the LLC is in existence and has not been dissolved, in the event of LBHI’s bankruptcy or dissolution and if a mandatory deferral event has occurred and LBHI is unable to sell its common stock or perpetual deferrable preferred stock for a period continuing for at least two years, any amounts received by the Trust in respect of interest on the Affiliate Debt Instruments accrued from that date forward is required to be paid by the Property Trustee directly to the holders of LBHI’s then outstanding preferred or preference stock, if any, or their representatives, to the extent necessary to pay in full any amounts then payable on such preferred or preference stock remaining unpaid. As of November 30, 2006, LBHI had $1.1 billion aggregate liquidation preference of preferred stock outstanding.

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LBHI is a holding company and payments on any Affiliate Debt Instruments issued by LBHI, including the Company Debenture, will only be made from its earnings and assets, and not those of its subsidiaries.

The Company Debenture and any other Affiliate Debt Instruments issued by LBHI will be solely its obligations, and no other entity will have any obligation, contingent or otherwise, to make any payments in respect of such securities. Because LBHI is a holding company whose primary assets consist of shares of stock or other equity interests in or amounts due from subsidiaries, almost all of its income is derived from those subsidiaries. LBHI’s subsidiaries will have no obligation to pay any amount in respect of the Company Debenture or other Affiliate Debt Instruments issued by LBHI or to make any funds available therefor. Accordingly, LBHI will be dependent on dividends and other distributions or loans from its subsidiaries to generate the funds necessary to meet obligations with respect to such securities, including the payment of principal and interest. Due to covenants contained in certain of LBHI’s debt agreements and regulations relating to capital requirements affecting certain of its more significant subsidiaries, the ability of certain subsidiaries to pay dividends and other distributions and make loans to LBHI is restricted. At November 30, 2006, approximately $8.1 billion of net assets of LBHI’s subsidiaries were restricted as to the payment of dividends to LBHI. Additionally, as an equity holder, LBHI’s ability to participate in any distribution of assets of any subsidiary is subordinate to the claims of creditors of the subsidiary, except to the extent that any claims LBHI may have as a creditor of the subsidiary are judicially recognized. If these sources are not adequate, LBHI may be unable to make payments of principal or interest in respect of the Company Debenture and any other Affiliate Debt Instrument issued by LBHI.

LBHI is not required to pay you under the Trust Guarantee or the LLC Guarantee if the Trust or the LLC does not have cash available.

The ability of the Trust to make payments on the Trust Preferred Securities is solely dependent upon the LLC’s ability to pay amounts due on the LLC Preferred Securities, which is in turn solely dependent upon LBHI’s and its affiliates making the related payments on the Affiliate Debt Instruments, including the Company Debenture, when due.

If LBHI or its affiliates default on obligations to make payments on the Affiliate Debt Instruments, the LLC and the Trust will not have sufficient funds to make payments on the LLC Preferred Securities and Trust Preferred Securities. In those circumstances, you will not be able to rely upon the LLC Guarantee or Trust Guarantee for payment of these amounts. In addition, in the event that LBHI is unable to make payments on the Affiliate Debt Instruments that LBHI issues, there is a substantial likelihood that LBHI will be unable to make payments on the Investment Guarantees of the Affiliate Debt Instruments that are not issued by LBHI if, as and when required.

Enforcement of certain rights by or on behalf of holders of Trust Preferred Securities may be limited until simple distributions on the LLC Preferred Securities have not been paid in full on an aggregate of 28 payment dates.

If an event of default occurs and is continuing on any Affiliate Debt Instrument or LBHI is in default on any of its obligations under any of its guarantees, then the holders of Trust Preferred Securities would rely on the enforcement by the property trustee of its rights, as a holder of the LLC Preferred Securities, against LBHI, including its rights as Special Representative to enforce (i) the LLC’s rights with respect to the Affiliate Debt Instruments and the Investment Guarantees, (ii) the LLC’s rights against LBHI under the LLC Agreement (including with respect to its obligation to use commercially reasonable efforts to sell its common stock or perpetual preferred stock and contribute the proceeds to the LLC, and its obligation not to pay dividends on or make certain other payments with respect to its capital stock under certain circumstances) and (iii) the rights of the holders of the LLC Preferred Securities to receive distributions (only if and to the extent not deferred by the managing member at its discretion or during a mandatory deferral period) on the LLC Preferred Securities.

Additionally, upon the occurrence of any of the following: (i) after giving effect to distributions (if any) paid on any payment date, LBHI has failed to pay simple distributions in full on an aggregate of 28 payment dates, (ii) an event of default occurs and is continuing on any Affiliate Debt Instrument, or (iii) LBHI is in default of any of its obligations under the Trust Guarantee, the LLC Guarantee or any Investment Guarantee (each an “Enforcement Event”), the LLC Guarantee Trustee and the Trust Guarantee Trustee will have the right to enforce the LLC Guarantee and the Trust Guarantee, respectively. Under no circumstances, however, will the Special Representative, any holder of LLC Preferred Securities or any holder of Trust Preferred Securities have authority to prevent LBHI, as the managing member of the LLC, from deferring distributions on the LLC Preferred Securities until such time, if any, as simple distributions have not been paid in full on an aggregate of 28 payment dates, at which time the LLC may be dissolved at the request of the Special Representative. As a result, although the Special Representative may

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be able to enforce the LLC’s rights to accelerate and receive payments in respect of the Affiliate Debt Instruments and the Investment Guarantees, the LLC would be entitled to reinvest such payments in additional Affiliate Debt Instruments subject to satisfying certain reinvestment criteria and the Eligible Debt Securities, rather than making distributions on the LLC Preferred Securities. If after giving effect to distributions (if any) paid on any payment date, LBHI has failed to pay simple distributions in full on an aggregate of 28 payment dates, then the property Trustee may dissolve the LLC and enforce the Trust’s rights with respect to the Affiliate Debt Instruments and the Investment Guarantees distributed to the Trust in such dissolution.

Holders of the Trust Preferred Securities have limited voting rights.

Holders of the Trust Preferred Securities will have limited voting rights and will not be entitled to vote to appoint, remove or replace, or to increase or decrease the number of, trustees, including the property Trustee, which voting rights are vested exclusively in the holder of the Trust common securities.

The trading price of the Trust Preferred Securities may be less than the value of such securities and more volatile than other securities.

LBHI has no current intention of deferring interest payments on the Affiliate Debt Instruments or distributions on the LLC Preferred Securities and believe that such deferral is a remote possibility. However, if such payments are deferred or the market perceives that the likelihood of deferral is increasing, the Trust Preferred Securities may trade at a price that does not fully reflect the value of such amounts. If you sell the Trust Preferred Securities during a deferral period, you may not receive the same return on investment as someone else who continues to hold the Trust Preferred Securities. In addition, because interest payments on the Affiliate Debt Instruments and distributions on the LLC Preferred Securities may be deferred, the Trust Preferred Securities may be more volatile than other securities that do not have these terms.

You may suffer a loss if the Affiliate Debt Instruments are distributed to you in exchange for Trust Preferred Securities because market prices for the Trust Preferred Securities or the Affiliate Debt Instruments may not be equal.

LBHI cannot give you any assurance as to the market prices for the Trust Preferred Securities or the Affiliate Debt Instruments that may be distributed in exchange for Trust Preferred Securities. Accordingly, the Trust Preferred Securities that an investor may purchase, or the Affiliate Debt Instruments that a holder of Trust Preferred Securities may receive in exchange for Trust Preferred Securities, may trade at a discount to the price that the investor paid to purchase the Trust Preferred Securities.

You could suffer adverse tax consequences if the Trust and the LLC are dissolved and Affiliate Debt Instruments are distributed to holders of Trust Preferred Securities.

If the LLC is dissolved, LBHI may distribute the Affiliate Debt Instruments to the Trust. LBHI may in turn redeem the Trust Preferred Securities by distributing Affiliate Debt Instruments to holders of the Trust Preferred Securities on a proportionate basis. Under current U.S. federal income tax law, and assuming, as expected, the LLC is treated as a partnership and the Trust is treated as a grantor trust, such a distribution of Affiliate Debt Instruments to the Trust or to you should not be a taxable event. However, if the Trust or the LLC is characterized for United States federal income tax purposes as an association taxable as a corporation at the time it is dissolved, or if there is a change in law, the distribution of Affiliate Debt Instruments to the Trust or to you may be a taxable event.

Alternative tax characterizations of the Trust Preferred Securities are possible.

Alternative tax characterizations of the Trust Preferred Securities are possible and could affect the amount, timing and character of income, gain or loss recognized by holders of the Trust Preferred Securities, and non-U.S. holders could be subject to U.S. federal withholding taxes at rates of up to 30%.

There can be no assurance that an active market for the Trust Preferred Securities will develop.

The Trust Preferred Securities may be held or transferred only in amounts having an aggregate liquidation amount of at least $100,000 (100 Trust Preferred Securities). As a result, the trading market for the Trust Preferred Securities may be less active than markets for securities that may be held or transferred in smaller denominations and the Trust Preferred Securities may be less liquid.

There can be no assurance that an active market for the Trust Preferred Securities will develop or be sustained, that the holders of the Trust Preferred Securities will be able to sell their Trust Preferred Securities or at what price

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holders will be able to sell their Trust Preferred Securities. Although the initial purchasers of the Trust Preferred Securities have indicated to LBHI that they intend to make a market in the Trust Preferred Securities, as permitted by applicable laws and regulations, they are not obligated to do so and may discontinue any such market-making at any time without notice. Accordingly, no assurance can be given as to the liquidity of, or trading markets for, the Trust Preferred Securities.

Potential conflicts of interest may exist.

One of LBHI’s affiliates acts as calculation agent for the Company Debenture and will determine the distribution rate on the Trust Preferred Securities as calculation agent. As a result, potential conflicts of interest may exist between LBHI’s affiliate and you.

ITEM 1B.UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.PROPERTIES

None.

ITEM 3.LEGAL PROCEEDINGS

None.

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

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

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There is no established public market for the Trust Common Securities or the LLC Common Securities. All of the Trust Common Securities and the LLC Common Securities are owned of record and beneficially by LBHI.

LBHI, as holder of the LLC Common Securities, is entitled to receive distributions thereon, which accumulate at an annual rate of 3-month LIBOR for each distribution period plus a margin equal to 2.78% until August 19, 2010 and thereafter at an annual rate of 3-month LIBOR plus a margin equal to 3.78%. If earnings on the Company Debenture and the Eligible Debt Securities exceed the aggregate amounts payable on the LLC Preferred Securities and the LLC Common Securities, 50% of such excess will be distributed on the LLC Preferred Securities and the balance will be distributed on the LLC Common Securities. LBHI, as holder of the Trust Common Securities, together with the holders of Trust Preferred Securities, is entitled to receive cumulative cash distributions at such times and in such amounts as the Trust receives cash payments from the LLC on the LLC Preferred Securities or from the Company on the Trust Guarantee.

ITEM 6.SELECTED FINANCIAL DATA

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

9

LEHMAN BROTHERS HOLDINGS E-CAPITAL TRUST I
LEHMAN BROTHERS HOLDINGS E-CAPITAL LLC I
Management’s Narrative Analysis of Results of Operations

ITEM 7.MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

Forward-Looking Statements

Some of the statements contained in this Management’s Narrative Analysis of Results of Operations, including those relating to our strategy and other statements that are predictive in nature, that depend on or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements are not historical facts but instead represent only management’s expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. For discussion of some of these risks, see Part I, Item 1A, “Risk Factors”. Our actual results and financial condition may differ, perhaps materially, from the anticipated results and financial condition in any such forward-looking statements and, accordingly, readers are cautioned not to place undue reliance on such statements, which speak only as of the date on which they are made. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

General

The Trust and the LLC were both formed on August 16, 2005. The Trust is a statutory trust formed under the Delaware Statutory Trust Act, as amended.  The LLC is a limited liability company formed under the Delaware Limited Liability Company Act, as amended.

On August 19, 2005, the Trust issued $300 million aggregate liquidation amount of Trust Preferred Securities to investors in a private placement and $1,000 of Trust Common Securities to LBHI. The Trust used the offering proceeds to purchase from the LLC $300 million aggregate liquidation preference of LLC Preferred Securities. Contemporaneous with the issuance of the LLC Preferred Securities, the LLC also issued to LBHI common securities with an aggregate liquidation preference of $15.8 million, representing 5% of the total initial capital of the LLC. The LLC used the proceeds from the issuance of the LLC preferred and common securities to purchase from LBHI a floating rate subordinated debenture due 2035 in a principal amount of $300,001,000 (the “Company Debenture”) and certain U.S. government obligations and commercial paper of entities not affiliated with LBHI and its subsidiaries (the “Eligible Debt Securities”).

The Trust exists for the exclusive purpose of (i) issuing the Trust Preferred Securities and Trust Common Securities (collectively, the “Trust Securities”) representing undivided beneficial ownership interests in the assets of the Trust, (ii) investing the gross proceeds of the Trust Securities in the LLC Preferred Securities, and (iii) engaging in other activities necessary or incidental thereto.

The LLC exists for the sole purpose of (i) issuing its interests, (ii) investing the proceeds thereof in certain “Affiliate Debt Instruments” (including the Company Debenture) and Eligible Debt Securities and (iii) engaging in other activities necessary or incidental thereto.

On June 19, 2006, pursuant to contractual registration rights, the Trust issued to its investors registered Trust Preferred Securities under the Securities Act of 1933, as amended, in exchange for the unregistered Trust Preferred Securities; the LLC exchanged registered LLC Preferred Securities for the unregistered LLC Preferred Securities; and LBHI exchanged a registered Company Debenture for the unregistered Company Debenture.

LBHI has irrevocably guaranteed, on a subordinated basis, the payment in full of (i) any accumulated and unpaid distributions on the Trust Preferred Securities to the extent of funds of the Trust available therefor, (ii) the amount payable upon redemption of the Trust Preferred Securities to the extent of funds of the Trust available therefor and (iii) the liquidation amount of the Trust Preferred Securities to the extent of the assets of the Trust available for distribution to holders of Trust Preferred Securities.  LBHI has also irrevocably guaranteed on a subordinated basis, the payment in full of (i) any accumulated and unpaid distributions on the LLC Preferred Securities to the extent they become payable after giving effect to any permitted deferrals and to the extent of funds of the LLC available therefor, (ii) the amount payable upon redemption of the LLC Preferred Securities to the extent of funds of the LLC available therefor and (iii) the liquidation preference of the LLC Preferred Securities to the extent of the assets of the

10

LLC available for distribution to holders of LLC Preferred Securities. LBHI will fully and unconditionally guarantee, on a subordinated basis, payments in respect of any Affiliate Debt Instruments not issued by LBHI (the “Investment Guarantees”). These financial statements should be read in conjunction with Lehman Brothers Holdings Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2006.

In accordance with the guidance under FIN 46(R), the Trust consolidates the LLC.  LBHI does not consolidate either the Trust or the LLC as it is not deemed the primary beneficiary under the guidance of FIN 46(R).

Holders of the Trust Preferred Securities receive distributions of their pro rata portion of any cash payments received by the Trust on the LLC Preferred Securities. Distributions on the LLC Preferred Securities accumulate from August 19, 2005, the date of original issuance of the LLC Preferred Securities, and are payable quarterly in arrears on each February 19, May 19, August 19 and November 19 (or the next succeeding business day if not a business day), commencing November 21, 2005, at an annual rate of 3-month LIBOR for the related distribution period plus a margin equal to 0.78% until August 19, 2010 and at an annual rate of 3-month LIBOR plus a margin equal to 1.78% from August 19, 2010 until August 19, 2035, and thereafter as described in the Prospectus. The LLC is entitled to receive interest payments on the Company Debenture on the same dates and in the same amounts until its maturity on August 19, 2035. Distributions on the LLC Common Securities accumulate at an annual rate of 3-month LIBOR for each distribution period plus a margin equal to 2.78% until August 19, 2010 and thereafter at an annual rate of 3-month LIBOR plus a margin equal to 3.78%.

If earnings on the Company Debenture and the Eligible Debt Securities exceed the aggregate amounts payable on the LLC Preferred Securities and the LLC Common Securities at their respective stated distribution rates described above, 50% of such excess will be distributed on the LLC Preferred Securities and the balance will be distributed on the LLC Common Securities. Since the interest payable on the Company Debenture is equal to the stated distribution rate on the LLC Preferred Securities, such additional amounts will be payable on the LLC Preferred Securities only if the earnings on the Eligible Debt Securities since August 19, 2005, the date of the original issuance of the LLC Common Securities, exceed the amounts accumulated on the LLC Common Securities at their stated distribution rate since such date. The earnings on the Eligible Debt Securities since such date have not exceeded the amounts accumulated on the LLC Common Securities at their stated distribution rate since such date, and as a result, no such additional amounts were payable on the LLC Preferred Securities.

A more complete description of the terms of the Trust Preferred Securities, LLC Preferred Securities, the Company Debenture and the guarantees of LBHI is contained under the captions “Description of the Trust Preferred Securities,” “Description of the Trust Guarantee,” “Description of the LLC Preferred Securities,” “Description of the LLC Guarantee,” “Description of the LLC Investments” and “Relationship among the Trust Preferred Securities, the LLC Preferred Securities, the Affiliate Debt Instruments and the Guarantees” in the Prospectus and is incorporated herein by reference.

Results of Operations and Changes in Cash Flow for the Year Ended December 31, 2006 and the period from August 16, 2005 (Inception) to December 31, 2005

The Trust earned revenues of approximately $18.50 million in interest income on the Company Debenture and Eligible Debt Securities held by the LLC for the year ended December 31, 2006, compared to $5.59 million during the period from August 16, 2005 (Inception) to December 31, 2005. The Trust had approximately $17.71 million in interest expense on the Trust Preferred Securities and approximately $790,000 in minority interest expense related to the LLC Common Securities held by LBHI for the year ended December 31, 2006, compared to $5.36 million in interest expense on the Trust Preferred Securities and approximately $233,000 in minority interest expense related to the LLC Common Securities held by LBHI during the period from August 16, 2005 (Inception) to December 31, 2005. Therefore, the Trust had no net income for the year ended December 31, 2006 and the period from August 16, 2005 (Inception) to December 31, 2005.

The LLC earned revenues of approximately $18.50 million in interest income on the Company Debenture and Eligible Debt Securities during year ended December 31, 2006, compared to $5.59 million during the period from August 16, 2005 (Inception) to December 31, 2005. The LLC had approximately $17.71 million in interest expense on the LLC Preferred Securities during the year ended December 31, 2006, compared to $5.36 million during the period from August 16, 2005 (Inception) to December 31, 2005. Therefore, the LLC had net income of approximately $790,000 for the year ended December 31, 2006, and $233,000 during the period from August 16,

11

2005 (Inception) to December 31, 2005, representing the return on LBHI’s investment in the LLC Common Securities.

On February 21, May 19, August 21 and November 20, 2006, the LLC received its scheduled interest payments on the Company Debenture at annual rates of 5.15% (approximately $3.95 million in the aggregate), 5.55% (approximately $4.02 million in the aggregate), 5.95% (approximately $4.66 million in the aggregate) and 6.17% (approximately $4.68 million in the aggregate), respectively, and paid the same amounts on the LLC Preferred Securities to the Trust. The holders of the 300,000 Trust Preferred Securities were paid the required quarterly cash distribution at those rates (or $13.16 per trust preferred security on February 21, 2006, $13.41 per trust preferred security on May 19, 2006, $15.55 per trust preferred security on August 21, 2006 and $15.60 per trust preferred security on November 20, 2006). From November 20, 2006 through December 31, 2006, additional interest of $2.15 million was accrued on the Company Debenture at an annual rate of 6.16%. For the year ended December 31, 2006, approximately $790,000, of interest was earned on the Eligible Debt Securities, compared to $233,000 during the period from August 16, 2005 (Inception) to December 31, 2005.

Liquidity and Capital Resources

The ability of the Trust to pay distributions on the Trust Preferred Securities is entirely dependent on its receipt of corresponding distributions with respect to the LLC Preferred Securities. The ability of the LLC to pay distributions on the LLC Preferred Securities is, in turn, dependent on its receipt of payments with respect to the Company Debenture and the Eligible Debt Securities held by the LLC. LBHI has guaranteed, on a subordinated basis, the payment in full of all distributions and other payments on the Trust Preferred Securities to the extent that the Trust has funds available therefor. Accordingly, an evaluation of LBHI’s financial condition is relevant to an evaluation of the financial condition of the Trust and its ability to pay distributions on the Trust Preferred Securities, and you should read the information about LBHI, including financial statements and other financial information, contained or incorporated by reference in the annual, quarterly and current reports LBHI files with the SEC, which are incorporated herein by reference. See “Available Information” above.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As discussed above, on August 19, 2005, the Trust issued $300 million aggregate liquidation amount of Trust Preferred Securities to investors and $1,000 of Trust Common Securities to LBHI. The Trust used the offering proceeds to purchase from the LLC $300 million aggregate liquidation preference of LLC Preferred Securities. Contemporaneous with the issuance of the LLC Preferred Securities, the LLC also issued to LBHI Trust Common Securities with an aggregate liquidation preference of $15.8 million, representing 5% of the total initial capital of the LLC. The LLC used the proceeds from the issuance of the LLC Preferred Securities and the LLC Common Securities to purchase from LBHI the Company Debenture in the principal amount of $300 million and $15.8 million of Eligible Debt Securities. The ability of the Trust to pay distributions on the Trust Preferred Securities is entirely dependent on its receipt of corresponding distributions with respect to the LLC Preferred Securities. The ability of the LLC to pay distributions on the LLC Preferred Securities is, in turn, dependent on its receipt of payments with respect to the Company Debenture and the Eligible Debt Securities held by the LLC.  See Part I, Item 1A, “Risk Factors,” above.

12

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Lehman Brothers Holdings E-Capital Trust I

Lehman Brothers Holdings E-Capital LLC I

13

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Trustees of Lehman Brothers Holdings E-Capital Trust I and the Board of Directors of Lehman Brothers Holdings Inc.

We have audited the accompanying consolidated statements of financial condition of Lehman Brothers Holdings E-Capital Trust I (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of income, stockholder’s equity, and cash flows for the year ended December 31, 2006 and the period from August 16, 2005 (inception) to December 31, 2005.  These financial statements are the responsibility of the trustees of the Company and management of Lehman Brothers Holdings Inc.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures  that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lehman Brothers Holdings E-Capital Trust I at December 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for the year ended December 31, 2006 and the period from August 16, 2005 (inception) to December 31, 2005, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

New York, New York

April 2, 2007

14

LEHMAN BROTHERS HOLDINGS E-CAPITAL TRUST I
Consolidated Statement of Financial Condition

In thousands, except per share data	December 31, 2006		December 31, 2005
Assets
Cash	$	3	$	—
Investment in LBHI junior subordinated debt	300,001		300,001
Commercial paper	16,810		16,023
Interest receivable	2,154		1,759
Total assets	$	318,968	$	317,783
Liabilities
Trust preferred securities (ECAPS®)	$	300,000	$	300,000
Interest payable	2,154		1,759
Total liabilities	302,154		301,759
Minority interest in consolidated subsidiary	16,813		16,023
Stockholder’s Equity
Trust common security
1 security authorized, issued and outstanding;
$1,000 liquidation amount	1		1
Total stockholder’s equity	1		1
Total liabilities, minority interest and stockholder’s equity	$	318,968	$	317,783

See Notes to Consolidated Financial Statements.

15

LEHMAN BROTHERS HOLDINGS E-CAPITAL TRUST I
Consolidated Statement of Income

			Period from
			August 16, 2005
	Year-ended		(Inception) to
In thousands	December 31, 2006		December 31, 2005
Interest income	$	18,502	$	5,588
Interest expense	17,712		5,355
Minority interest expense	790		233
Total expenses	18,502		5,588
Net income	$	—	$	—

See Notes to Consolidated Financial Statements.

16

LEHMAN BROTHERS HOLDINGS E-CAPITAL TRUST I
Consolidated Statement of Changes in Stockholder’s Equity

In thousands
Year ended December 31, 2006
Trust common security
Beginning balance	$	1
Issuance	—
Ending balance	$	1
Total stockholder’s equity	$	1

See Notes to Consolidated Financial Statements.

17

LEHMAN BROTHERS HOLDINGS E-CAPITAL TRUST I

Consolidated Statement of Cash flows

				Period from
				August 16, 2005
	Year-ended			(Inception) to
In thousands	December 31, 2006			December 31, 2005
Cash Flows From Operating Activities
Net Income	$	—		$	—
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Accretion of interest income	(790		)	(233		)
Minority interest expense	790			233
Net change in:
Investment in LBHI junior subordinated debt	—			(300,001		)
Interest receivable	(395		)	(1,759		)
Interest payable	395			1,759
Net cash provided by (used in) operating activities	—			(300,001		)
Cash Flows From Investing Activities
Maturity of commercial paper	66,311			—
Purchase of commercial paper	(66,308		)	(15,790		)
Net cash provided by (used in) investing activities	3			(15,790		)
Cash Flows From Financing Activities
Issuance of trust preferred securities	—			300,000
Issuance of trust common security	—			1
Contribution of minority interest	—			15,790
Net cash provided by (used in) financing activities	—			315,791
Net change in cash and cash equivalents	3			—
Cash and cash equivalents, beginning of period	—			—
Cash and cash equivalents, end of period	$	3		$	—
Supplemental Disclosure of Cash Flow Information (in thousands):
Interest paid totaled $17,317 and $3,596 in year ended December 31, 2006 and period from August 16, 2005 (Inception) to December 31, 2005, respectively

See Notes to Consolidated Financial Statements.

18

LEHMAN BROTHERS HOLDINGS E-CAPITAL TRUST I

Notes to the Consolidated Financial Statements

1.             Organization and Purpose

Lehman Brothers Holdings E-Capital Trust I (the “Trust”) is a statutory business trust formed under the Delaware Business Trust Act, as amended, pursuant to the filing of a certificate of trust with the Secretary of State on August 16, 2005 and the execution of a declaration of trust dated as of August 19, 2005. The Trust exists for the exclusive purpose of (i) issuing trust securities, consisting of Floating Rate Enhanced Capital Advantage Preferred Securities (the “Trust Preferred Securities” or “ECAPS®”) and trust common securities (the “Trust Common Securities”), representing undivided beneficial ownership interests in the assets of the Trust, (ii) investing the gross proceeds of the trust securities in the preferred securities (the “LLC Preferred Securities”) issued by Lehman Brothers Holdings E-Capital LLC I (the “LLC”), and (iii) engaging in only those other activities necessary or incidental thereto. Lehman Brothers Holdings Inc. (“LBHI”) is the sole owner of the Trust Common Securities.

LBHI paid all expenses related to the offering of the Trust Preferred Securities. LBHI also has agreed to (i) pay all fees and expenses related to the organization and operations of the Trust and LLC (including taxes (other than withholding taxes), duties, assessments, or government charges of whatever nature imposed by the United States of America or any other domestic taxing authority upon the Trust) and the offering of the Trust Preferred Securities and (ii) be responsible for all debts and other obligations of the Trust (other than with respect to the Trust Preferred Securities and the Trust Common Securities). LBHI has agreed to indemnify the trustees of the Trust and certain other persons.

2.             Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates that affect reported amounts. As such, actual results could differ from those estimates.

Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R), “Consolidation of Variable Interest Entities (revised December 2003)—an interpretation of ARB No. 51” (“FIN 46(R)”), defines the criteria used in determining when a special purpose entity qualifies as a variable interest entity (“VIE”), and when that VIE should be consolidated. Under FIN 46(R), the LLC is deemed to be a VIE, and the Trust consolidates the LLC as its primary beneficiary. The primary beneficiary is the party that has either a majority of the expected losses or a majority of the expected residual returns of such entity, as defined.

Investments

The investment in LBHI junior subordinated debt is carried at cost, with the related accrued interest receivable included in the Consolidated Statement of Financial Condition. The investment in commercial paper is carried at cost plus accrued interest in the Consolidated Statement of Financial Condition. The fair values of the investments approximate their carrying values.

Trust Preferred Securities

The Trust Preferred Securities (ECAPS®) are carried at cost, with the related accrued interest payable included in the Consolidated Statement of Financial Condition.

Minority Interest

The minority interest as shown in the Consolidated Statement of Financial Condition represents the investment made by LBHI in the LLC. See Note 3 for additional information.

Revenue Recognition

Interest income is recognized on an accrual basis and presented in the Consolidated Statement of Income.

Income Taxes

The Trust is characterized as a grantor trust for United States federal income tax purposes and will not be taxed as a corporation. For income tax purposes, the holders’ proportionate interests in any income or losses from the Trust are passed through to the holders of the Trust Preferred Securities and Trust Common Securities. Therefore, no provision for income taxes has been included in the consolidated financial statements.

19

3.             Trust Preferred Securities (ECAPS®)

The Trust issued $300 million of Trust Preferred Securities (ECAPS®) and $1,000 of Trust Common Securities on August 19, 2005. The Trust used the offering proceeds to purchase $300 million of LLC Preferred Securities. Contemporaneous with the issuance of the LLC Preferred Securities, the LLC also issued common securities with an aggregate liquidation preference of $15.8 million, representing 5% of the total initial capital of the LLC (the “Minority Interest”). The LLC used the proceeds from the issuance of the LLC Preferred Securities and Minority Interest to purchase a LBHI floating rate subordinated debenture due 2035 (the “Company Debenture”) in a principal amount of $300,001,000 and certain U.S. government obligations and commercial paper of entities not affiliated with LBHI and its subsidiaries (the “Eligible Debt Securities”).

Holders of the Trust Preferred Securities (ECAPS®) receive distributions of their pro rata portion of any cash payments received by the Trust on the LLC Preferred Securities. Distributions on the LLC Preferred Securities accumulate from August 19, 2005, the date of original issuance of the LLC Preferred Securities, and are payable quarterly in arrears on each February 19, May 19, August 19 and November 19 (or the next succeeding business day if not a business day), commencing November 21, 2005, at an annual rate of 3-month LIBOR for the related distribution period plus a margin equal to 0.78% until August 19, 2010 and at an annual rate of 3-month LIBOR plus a margin equal to 1.78% from August 19, 2010 until August 19, 2035, and thereafter as set forth in the limited liability company agreement of the LLC. The LLC is entitled to receive interest payments on the Company Debenture on the same dates and in the same amounts until its maturity on August 19, 2035. Distributions on the Minority Interest accumulate at an annual rate of 3-month LIBOR for each distribution period plus a margin equal to 2.78% until August 19, 2010 and thereafter at an annual rate of 3-month LIBOR plus a margin equal to 3.78%. If earnings on the Company Debenture and the Eligible Debt Securities exceed the aggregate amounts payable on the LLC Preferred Securities and the Minority Interest as described above, 50% of such excess will be distributed on the LLC Preferred Securities and the balance will be distributed on the Minority Interest.

The LLC Preferred Securities are redeemable for cash, at the option of LBHI as the managing member of the LLC, in whole or in part, from time to time after August 19, 2010, at an amount per LLC Preferred Security equal to the $1,000 liquidation preference plus accumulated and unpaid distributions on a compounded basis (the “Redemption Price”). Upon any redemption of the LLC Preferred Securities, the Trust Preferred Securities and Trust Common Securities will be redeemed on a pro rata basis and the Trust Preferred Securities will be redeemed at a corresponding Redemption Price. Neither the LLC Preferred Securities nor the Trust Preferred Securities are redeemable at any time at the option of the holders thereof.

LBHI has guaranteed, on a subordinated basis, the payment in full of all distributions and other payments on the Trust Preferred Securities to the extent that the Trust has funds available therefor.

Generally, holders of the Trust Preferred Securities will not have any voting rights.

4.             Concentration of Credit Risk

The credit risk of the Trust principally relates to LBHI as issuer of the Company Debenture, and the possibility of LBHI’s non-performance in fulfilling its contractual obligations pursuant to this transaction.

5.             Related Parties

On February 21, May 19, August 21, and November 20, 2006 the Trust received its scheduled interest payments on the LLC Preferred Securities at annual rates of 5.15% (approximately $3.95 million in the aggregate), 5.55% (approximately $4.02 million in the aggregate), 5.95% (approximately $4.66 million in the aggregate) and 6.17% (approximately $4.68 million in the aggregate), respectively, and paid the same amount on the Trust Preferred Securities. On November 21, 2005, the LLC received its scheduled interest payment on the Company Debenture at an annual rate of 4.59% (approximately $3.60 million in the aggregate) and paid the same amount on the LLC preferred securities to the Trust.

In addition, LBHI has guaranteed certain payments as described in Note 3. These financial statements should be read in conjunction with Lehman Brothers Holdings Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2006.

20

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Trustees of Lehman Brothers Holdings E-Capital LLC I and the Board of Directors of Lehman Brothers Holdings Inc.

We have audited the accompanying statements of financial condition of Lehman Brothers Holdings E-Capital LLC I (the “Company”) as of December 31, 2006 and 2005, and the related statements of income, changes in member’s capital, and cash flows for the year ended December 31, 2006 and the period from August 16, 2005 (inception) to December 31, 2005.  These financial statements are the responsibility of the managing member of the Company and management of Lehman Brothers Holdings Inc.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures  that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lehman Brothers Holdings E-Capital LLC I at December 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for the year ended December 31, 2006 and the period from August 16, 2005 (inception) to December 31, 2005, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

New York, New York

April 2, 2007

21

LEHMAN BROTHERS HOLDINGS E-CAPITAL LLC I
Statement of Financial Condition

In thousands, except share data	December 31, 2006		December 31, 2005
Assets
Cash	$	3	$	—
Investment in LBHI junior subordinated debt	300,001		300,001
Commercial paper	16,810		16,023
Interest receivable	2,154		1,759
Total assets	$	318,968	$	317,783
Liabilities and Member’s Capital
LLC preferred securities	$	300,001	$	300,001
Interest payable	2,154		1,759
Total liabilities	302,155		301,760
Member’s Capital
Contributed capital	15,790		15,790
Retained earnings	1,023		233
Total member’s capital	16,813		16,023
Total liabilities and member’s capital	$	318,968	$	317,783

See Notes to Financial Statements.

22

LEHMAN BROTHERS HOLDINGS E-CAPITAL LLC I

Statement of Income

			Period from
			August 16, 2005
	Year-ended		(Inception) to
In thousands	December 31, 2006		December 31, 2005
Interest income	$	18,502	$	5,588
Interest expense	17,712		5,355
Net income	$	790	$	233

See Notes to Financial Statements.

23

LEHMAN BROTHERS HOLDINGS E-CAPITAL LLC I

Statement of Member’s Capital

In thousands
Year ended December 31, 2006
Contributed capital
Beginning capital	$	15,790
Contributions	—
Withdrawals	—
Ending capital	$	15,790
Retained earnings
Beginning balance	$	233
Net income	790
Ending balance	1,023
Total member’s capital	$	16,813

See Notes to Financial Statements.

24

LEHMAN BROTHERS HOLDINGS E-CAPITAL LLC I
Statement of Cash Flows

In thousands	Year-ended December 31, 2006			Period from August 16, 2005 (Inception) to December 31, 2005
Cash Flows From Operating Activities
Net Income	$	790		$	233
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Accretion of interest income	(790		)	(233		)
Net change in:
Investment in LBHI junior subordinated debt	—			(300,001		)
Interest receivable	(395		)	(1,759		)
Interest payable	395			1,759
Net cash provided by (used in) operating activities	—			(300,001		)
Cash Flows From Investing Activities
Maturity of commercial paper	66,311			—
Purchase of commercial paper	(66,308		)	(15,790		)
Net cash provided by (used in) investing activities	3			(15,790		)
Cash Flows From Financing Activities
Issuance of LLC preferred securities	—			300,001
Contributed capital	—			15,790
Net cash provided by (used in) financing activities	—			315,791
Net change in cash and cash equivalents	3			—
Cash and cash equivalents, beginning of period	—			—
Cash and cash equivalents, end of period	$	3		$	—
Supplemental Disclosure of Cash Flow Information (in thousands):
Interest paid totaled $17,317 and $3,596 in year ended December 31, 2006 and period from August 16, 2005 (Inception) to December 31, 2005, respectively

See Notes to Financial Statements.

25

LEHMAN BROTHERS HOLDINGS E-CAPITAL LLC I

Notes to the Financial Statements

1.Organization and Purpose

Lehman Brothers Holdings E-Capital LLC I (the “LLC”) is a limited liability company formed under the Delaware Limited Liability Company Act, as amended, pursuant to the filing of a certificate of formation with the Secretary of State on August 16, 2005 and the execution of a limited liability company agreement dated as of August 19, 2005. Lehman Brothers Holdings Inc. (“LBHI”) is the sole managing member of the LLC. Upon the issuance of the LLC Preferred Securities to Lehman Brothers Holdings E-Capital Trust I (the “Trust”), which securities represent preferred interests in the LLC (the “LLC Preferred Securities”), the Trust became the sole non-managing member of the LLC. Contemporaneous with the issuance of the LLC Preferred Securities, LBHI as managing member contributed capital to the LLC in an amount equal to 5% of the total initial capital of the LLC for its purchase of the common securities of the LLC (the “LLC Common Securities”). The LLC exists for the sole purpose of (i) issuing its interests, (ii) investing the proceeds thereof in LBHI junior subordinated debt (“Affiliate Debt Instruments”) and certain U.S. government obligations and commercial paper of entities not affiliated with LBHI and its subsidiaries (the “Eligible Debt Securities”), and (iii) engaging in only those other activities necessary or incidental thereto.

LBHI has agreed to (i) pay all fees and expenses related to the organization and operations of the LLC, including taxes (other than withholding taxes), duties, assessments, or government charges of whatever nature imposed by the United States of America or any other domestic taxing authority upon the LLC, and (ii) be responsible for all debts and other obligations of the LLC, other than with respect to the LLC Preferred Securities and the LLC Common Securities.

2.Summary of Significant Accounting Policies

Basis of Presentation

The financial statements are presented in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates that affect reported amounts. As such, actual results could differ from those estimates.

Investments

The investment in LBHI junior subordinated debt is carried at cost, with the related accrued interest receivable included in the Statement of Financial Condition. The investment in commercial paper is carried at cost plus accrued interest in the Statement of Financial Condition. The fair values of the investments approximate their carrying values.

LLC Preferred Securities

The LLC Preferred Securities are carried at cost, with the related accrued interest payable included in the Statement of Financial Condition.

Revenue Recognition

Interest income is recognized on an accrual basis and presented in the Statement of Income.

Income Taxes

The LLC is characterized for United States federal income tax purposes as a partnership and will not be taxed as a corporation. For income tax purposes, the holders’ proportionate interests in any income or losses from the LLC are passed through to the holders of the LLC Preferred Securities and LLC Common Securities. Therefore, no provision for income taxes has been included in the financial statements.

3.LLC Preferred Securities

The LLC issued $300 million of LLC Preferred Securities, which were purchased by the Trust. Contemporaneous with the issuance of the LLC Preferred Securities, the LLC also issued LLC Common Securities with an aggregate liquidation preference of $15.8 million, representing 5% of the total initial capital of the LLC. The LLC used the proceeds from the issuance of the LLC Preferred and Common Securities to purchase a Lehman Brothers Holdings Inc. (“LBHI”) floating rate subordinated debenture due 2035 (the “Company Debenture”) in a principal amount of $300,001,000 and Eligible Debt Securities.

Distributions on the LLC Preferred Securities accumulate from August 19, 2005, the date of original issuance of the LLC Preferred Securities, and are payable quarterly in arrears on each February 19, May 19, August 19 and

26

November 19 (or the next succeeding business day if not a business day), commencing November 21, 2005, at an annual rate of 3-month LIBOR for the related distribution period plus a margin equal to 0.78% until August 19, 2010 and at an annual rate of 3-month LIBOR plus a margin equal to 1.78% from August 19, 2010 until August 19, 2035, and thereafter as set forth in the limited liability company agreement of the LLC. The LLC is entitled to receive interest payments on the Company Debenture on the same dates and in the same amounts until its maturity on August 19, 2035. Distributions on the LLC Common Securities accumulate at an annual rate of 3-month LIBOR for each distribution period plus a margin equal to 2.78% until August 19, 2010 and thereafter at an annual rate of 3-month LIBOR plus a margin equal to 3.78%. If earnings on the Company Debenture and the Eligible Debt Securities exceed the aggregate amounts payable on the LLC Preferred Securities and the LLC Common Securities as described above, 50% of such excess will be distributed on the LLC Preferred Securities and the balance will be distributed on the LLC Common Securities.

The LLC Preferred Securities will be redeemable for cash, at the option of LBHI as the managing member of the LLC, in whole or in part, from time to time after August 19, 2010, at an amount per LLC Preferred Security equal to the $1,000 liquidation preference plus accumulated and unpaid distributions on a compounded basis (the “Redemption Price”). The LLC Preferred Securities are not redeemable at any time at the option of the holders.

LBHI has guaranteed, on a subordinated basis, the payment in full of all distributions and other payments on the LLC Preferred Securities to the extent that the LLC has funds available therefor.

4.Concentrations of Credit Risk

The credit risk of the LLC principally relates to LBHI as issuer of the Company Debenture and the possibility of LBHI’s non-performance in fulfilling its contractual obligations pursuant to this transaction.

5.Related Parties

On February 21, May 19, August 21 and November 20, 2006, the LLC received its scheduled interest payments on the Company Debenture at annual rates of 5.15% (approximately $3.95 million in the aggregate), 5.55% (approximately $4.02 million in the aggregate), 5.95% (approximately $4.66 million in the aggregate) and 6.17% (approximately $4.68 million in the aggregate), respectively, and paid the same amount on the LLC Preferred Securities to the Trust. On November 21, 2005, the LLC received its scheduled interest payment on the Company Debenture at an annual rate of 4.59% (approximately $3.60 million in the aggregate) and paid the same amount on the LLC preferred securities to the Trust.

In addition, LBHI has guaranteed certain payments as described in Note 3. These financial statements should be read in conjunction with Lehman Brothers Holdings Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2006.

27

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

  FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

The management of the Trust and the LLC, with the participation of the persons who function as the equivalent of the principal executive officer and principal financial officer of the Trust and the LLC, evaluated the disclosure controls and procedures of the Trust and the LLC as of the end of the fiscal quarter covered by this Report.

Based on that evaluation, the persons who function as the equivalent of the principal executive officer and principal financial officer of the Trust and the LLC have concluded that, as of the end of the fiscal quarter covered by this Report, the disclosure controls and procedures of the Trust and the LLC are effective to ensure that information required to be disclosed by the Trust and the LLC in the reports filed or submitted by them under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Trust and the LLC in such reports is accumulated and communicated to their management, including the persons who function as the equivalent of the principal executive officer and principal financial officer of the Trust and the LLC, as appropriate to allow timely decisions regarding required disclosure.

There was no change in the internal control over financial reporting of the Trust and the LLC that occurred during the fiscal quarter covered by this Report that has materially affected, or is reasonably likely to materially affect, their internal control over financial reporting.

This Report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the Trust’s or the LLC’s independent registered public accounting firm due to a transition period established by the rules of the SEC for newly public companies.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS

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

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

[The table below sets forth the aggregate fees for audits of the Trust’s and the LLC’s financial statements by Ernst & Young LLP for the fiscal year ended December 31, 2006, and the period from August 16, 2005 (Inception) to December 31, 2005. There were no other services rendered by Ernst & Young LLP to the Trust or the LLC in the fiscal year ended December 31, 2006, or the period from August 16, 2005 (Inception) to December 31, 2005.

	2006		2005
Audit Fees	$	50,000	$	75,000

Audit Fees include the audit of the Trust’s and the LLC’s annual financial statements and review of financial statements included in the Trust’s and the LLC’s quarterly reports on Form 10-Q.

The Audit Committee of the Board of Directors of LBHI is responsible for the approval of audit fees for its subsidiaries, which includes the Trust and the LLC. LBHI is the sole owner of the Trust Common Securities and the sole managing member of the LLC. Consistent with SEC rules regarding auditor independence, the Audit Committee of LBHI has established policies and procedures governing the provision of audit and non-audit services to LBHI and its subsidiaries (the “pre-approval policies”). The description of the pre-approval policies found on page 35 of LBHI’s 2007 Proxy Statement is incorporated herein by reference. You may obtain a copy of the 2007 Proxy Statement on the SEC’s website at http://www.sec.gov or LBHI’s website at http://www.lehman.com or by written request to Lehman Brothers Holdings Inc., 1301 Avenue of the Americas, New York, New York 10019, Attention: Corporate Secretary.

PART IV

ITEM 15. EXHIBITS

The following exhibits are filed as part of (or are furnished with, as indicated below) this Annual Report or, where indicated, were heretofore filed and are hereby incorporated by reference:

  3.01 Certificate of Formation of Lehman Brothers Holdings E-Capital LLC I (incorporated by reference to Exhibit 4.05 to the Registrants’ Registration Statement on Form S-4, File No. 333-129195-01/02, filed on October 21, 2005)

  3.02 Limited Liability Company Agreement of Lehman Brothers Holdings E-Capital LLC I, dated as of August 19, 2005 (incorporated by reference to Exhibit 4.06 to the Registrants’ Registration Statement on Form S-4, File No. 333-129195-01/02, filed on October 21, 2005)

  3.03 Amendment No. 1, dated as of May 3, 2006, to Limited Liability Company Agreement of Lehman Brothers Holdings E-Capital LLC I, dated August 19, 2005 (incorporated by reference to Exhibit 4.07 to Amendment No. 1 to the Registrants’ Registration Statement on Form S-4, File No. 333-129195-01/02, filed on May 10, 2006)

  3.04 Certificate of Trust of Lehman Brothers Holdings E-Capital Trust I (incorporated by reference to Exhibit 4.07 to the Registrants’ Registration Statement on Form S-4, File No. 333-129195-01/02, filed on October 21, 2005)

  3.05 Declaration of Trust of Lehman Brothers Holdings E-Capital Trust I, dated as of August 19, 2005 (incorporated by reference to Exhibit 4.08 to the Registrants’ Registration Statement on Form S-4, File No. 333-129195-01/02, filed on October 21, 2005)

29

  4.01LLC Guarantee Agreement, dated as of August 19, 2005 (incorporated by reference to Exhibit 4.09 of the Registrants’ Registration Statement on Form S-4, File No. 333-129195-01/-02, filed on October 21, 2005)

  4.02Trust Guarantee Agreement, dated as of August 19, 2005 (incorporated by reference to Exhibit 4.10 of the Registrants’ Registration Statement on Form S-4,File No. 333-129195-01/-02 filed on October 21, 2005)

  4.03Forms of global certificate of trust preferred security (included Exhibit 3.05 above) (incorporated by reference to Exhibit 4.11 of the Registrants’ Registration Statement on Form S-4, File No. 333-129195-01/-02, filed on October 21, 2005)

  4.04Certificate of trust common security (incorporated by reference to Exhibit 4.12 of the Registrants’ Registration Statement on Form S-4, File No. 333-129195-01/-02, filed on October 21, 2005)

  4.05Form of certificate of LLC preferred security (included in Exhibit 3.02 above) (incorporated by reference to Exhibit 4.13 of the Registrants’ Registration Statement on Form S-4, File No. 333-129195-01/-02, filed on October 21, 2005)

12.01*Computation of Ratios of Earnings to Fixed Charges

23.01*Consent of Ernst & Young LLP

31.01*Certification of Person Who Functions as the Equivalent of the Principal Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a)

31.02*Certification of Person Who Functions as the Equivalent of the Principal Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a)

32.01* Certification of Person Who Functions as the Equivalent of the Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Enacted by Section 906 of the Sarbanes-Oxley Act of 2002 (This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.)

32.02* Certification of Person Who Functions as the Equivalent of the Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Enacted by Section 906 of the Sarbanes-Oxley Act of 2002 (This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.)

99.01*Excerpt from Lehman Brothers Holdings Inc. Annual Report on Form 10-K for the fiscal year ended November 30, 2006

*Filed/furnished herewith

30

SIGNATURES

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

	LEHMAN BROTHERS HOLDINGS E-CAPITAL TRUST I
Date:April 2, 2007	By:	/s/ Edward S. Grieb
		Regular Trustee
	LEHMAN BROTHERS HOLDINGS E-CAPITAL LLC I
Date: April 2, 2007	By:	Lehman Brothers Holdings Inc., as Managing Member
	By:	/s/ Edward S. Grieb
		Financial Controller

31

EXHIBIT INDEX

Exhibit No.	Exhibit
12.01	Computation of Ratios of Earnings to Fixed Charges
23.01	Consent of Ernst & Young LLP
31.01	Certification of Person Who Functions as the Equivalent of the Principal Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a)
31.02	Certification of Person Who Functions as the Equivalent of the Principal Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a)
32.01	Certification of Person Who Functions as the Equivalent of the Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Enacted by Section 906 of the Sarbanes-Oxley Act of 2002
32.02	Certification of Person Who Functions as the Equivalent of the Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Enacted by Section 906 of the Sarbanes-Oxley Act of 2002
99.01	Excerpt of Lehman Brothers Holdings Inc. Annual Report on Form 10-K for the fiscal year ended November 30, 2006

32

EX-12.01

EXHIBIT 12.01

COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Unaudited)

	Year-ended				Period from August 19, 2005
	December 31, 2006				(Inception) to December 31, 2005
	Lehman Brothers		Lehman Brothers		Lehman Brothers		Lehman Brothers
	Holdings E-Capital		Holdings E-Capital		Holdings E-Capital		Holdings E-Capital
In thousands	Trust I		LLC I		Trust		LLC I
Earnings	$	—	$	790	$	—	$	233
Add: Fixed Charges	18,502		17,712		5,588		5,355
Pre-tax earnings Before fixed charges	18,502		18,502		5,588		5,588
Fixed charges	$	18,502	$	17,712	$	5,588	$	5,355
Ratio of earnings to fixed charges	1.00		1.04		1.00		1.04

EX-23.01

EXHIBIT 23.01

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form S-4 No. 333-129195, No. 333-129195-01 and No 333-129195-02) of Lehman Brothers Holdings E-Capital Trust I and Lehman Brothers Holdings E-Capital LLC I and in the related Prospectus, of our report dated April 2, 2007 with respect to the consolidated financial statements and schedule of Lehman Brothers Holdings E-Capital Trust I and the financial statements and schedule of Lehman Brothers Holdings E-Capital LLC I included in this Annual Report (Form 10-K) for the year ended December 31, 2006.

/s/ Ernst & Young LLP

New York, New York
April 2, 2007

EX-31.01

EXHIBIT 31.01

CERTIFICATION

I, Paolo R. Tonucci, certify that:

1. I have reviewed this annual report on Form 10-K of Lehman Brothers Holdings E-Capital Trust I and Lehman Brothers Holdings E-Capital LLC I;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this report;

4. The registrants’ other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrants and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Evaluated the effectiveness of the registrants’ disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrants’ internal control over financial reporting that occurred during the registrants’ most recent fiscal quarter (the registrants’ fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants’ internal control over financial reporting;

5. The registrants’ other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants’ auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants’ ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’ internal control over financial reporting.

Date: April 2, 2007

/s/ Paolo R. Tonucci*

Paolo R. Tonucci

Regular Trustee, Lehman Brothers Holdings E-Capital Trust I

Global Co-Treasurer, Lehman Brothers Holdings Inc.
(Managing Member of Lehman Brothers Holdings E-Capital LLC I)

*Paolo R. Tonucci functions as the equivalent of the principal executive officer of the Registrants for purposes of Section 906 of the Sarbanes-Oxley Act of 2002.

EX-31.02

EXHIBIT 31.02

CERTIFICATION

I, Edward S. Grieb, certify that:

1. I have reviewed this annual report on Form 10-K of Lehman Brothers Holdings E-Capital Trust I and Lehman Brothers Holdings E-Capital LLC I;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this report;

4. The registrants’ other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrants and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Evaluated the effectiveness of the registrants’ disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrants’ internal control over financial reporting that occurred during the registrants’ most recent fiscal quarter (the registrants’ fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants’ internal control over financial reporting;

5. The registrants’ other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants’ auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants’ ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’ internal control over financial reporting.

Date: April 2, 2007

/s/ Edward S. Grieb*

Edward S. Grieb

Regular Trustee, Lehman Brothers Holdings E-Capital Trust I

Financial Controller, Lehman Brothers Holdings Inc.
(Managing Member of Lehman Brothers Holdings E-Capital LLC I)

*Edward S. Grieb functions as the equivalent of the principal financial officer of the Registrants for purposes of Section 906 of the Sarbanes-Oxley Act of 2002.

EX-32.01

EXHIBIT 32.01

CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ENACTED BY
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), I, Paolo R. Tonucci, certify that:

1.The Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (the “Report”) of Lehman Brothers Holdings E-Capital Trust I and Lehman Brothers Holdings E-Capital LLC I (the “Registrants”) as filed with the Securities and Exchange Commission as of the date hereof, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrants.

Date: April 2, 2007

/s/ Paolo R. Tonucci*

Paolo R. Tonucci

Regular Trustee, Lehman Brothers Holdings E-Capital Trust I

Global Co-Treasurer, Lehman Brothers Holdings Inc.
(Managing Member of Lehman Brothers Holdings E-Capital LLC I)

*Paolo R. Tonucci functions as the equivalent of the chief executive officer of the Registrants for purposes of Section 906 of the Sarbanes-Oxley Act of 2002.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Lehman Brothers Holdings Inc. and will be retained by Lehman Brothers Holdings Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.02

EXHIBIT 32.02

CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ENACTED BY
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, (18 U.S.C. Section 1350) I, Edward S. Grieb, certify that:

1.The Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (the “Report”) of Lehman Brothers Holdings E-Capital Trust I and Lehman Brothers Holdings E-Capital LLC I (the “Registrants”) as filed with the Securities and Exchange Commission as of the date hereof, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrants.

Date: April 2, 2007

/s/ Edward S. Grieb*

Edward S. Grieb

Regular Trustee, Lehman Brothers Holdings E-Capital Trust I

Financial Controller, Lehman Brothers Holdings Inc.
(Managing Member of Lehman Brothers Holdings E-Capital LLC I)

*Edward S. Grieb functions as the equivalent of the chief financial officer of the Registrants for purposes of Section 906 of the Sarbanes-Oxley Act of 2002.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Lehman Brothers Holdings Inc. and will be retained by Lehman Brothers Holdings Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.01

EXHIBIT 99.01

EXCERPT FROM LEHMAN BROTHERS HOLDINGS INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2006

ITEM 1A. RISK FACTORS

You should carefully consider the following risks and all of the other information set forth in this Report, including the Consolidated Financial Statements and the Notes thereto. If any of the events or developments described below were actually to occur, our business, financial condition or results of operations could be adversely affected.

Market Risk

As a global investment bank, risk is an inherent part of our business. Our businesses are materially affected by conditions in the financial markets and economic conditions generally around the world. A favorable business environment is characterized by many factors, including a stable geopolitical climate, transparent and liquid financial markets, low inflation, low unemployment, global economic growth and high business and investor confidence. Concerns about geopolitical developments, energy prices and natural disasters, among other things, can affect the global financial markets.  In addition, economic or political pressures in a country or region may cause local market disruptions and currency devaluations, which may also affect markets generally. In the event of changes in market conditions, such as interest or foreign exchange rates, stock, commodity or real estate valuations or volatility, our businesses could be adversely affected in many ways, including those described below. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Market Risk” for a further discussion of the market risks to which we are exposed.

Our Client-Flow Revenues May Decline in Adverse Market Conditions. We have been operating in a low interest rate market for the past several years, though over the past two years some central banks, and in particular the U.S. Federal Reserve, have raised short-term rates. Further increases in interest rates and long-term rates in particular, especially if such changes are rapid, may create a less favorable environment for certain of our businesses. Rising interest rates may cause a decline in our mortgage origination and securitization businesses in particular, as the volume of our origination and securitization activity may decline. Recently, the residential real estate market in the U.S. has experienced a downturn due to declining real estate values. Further declines in real estate values could further reduce our level of mortgage loan originations and could also reduce our level of securitizations.

Our Investment Banking revenues, in the form of financial advisory and debt and equity underwriting fees, are directly related to the number and size of the transactions in which we participate and would therefore be adversely affected by a sustained market downturn.

A market downturn would also likely lead to a decline in the volume of capital market transactions that we execute for our clients and, therefore, to a decline in the revenues we receive from commissions and spreads earned from the trades we execute for our clients. In addition, because the fees that we charge for managing our clients’ portfolios are in many cases based on the value of those portfolios, a market downturn that reduces the value of our clients’ portfolios would reduce the revenues we receive from our asset management business. Even in the absence of a market downturn, below-market investment performance by our fund and portfolio managers could reduce Investment Management revenues and assets under management.

We May Incur Losses Due to Fluctuations in Market Rates, Prices and Volatility. Market risk is inherent in our client-driven market-making transactions and proprietary trading and principal investment activities in equity and fixed income securities, commodities, currencies and derivatives and our mortgage and loan origination and syndication activities. Fluctuations in market rates, prices and volatility can adversely affect the market value of our long or short inventory and proprietary and principal positions and, to the extent that such positions are not adequately hedged, cause the Firm to incur losses. In our market-making transactions, we maintain substantial inventory positions from time to time, acting as a financial intermediary for our clients, and we hold inventory positions in the normal course of business to allow clients to rebalance their portfolios and diversify risks across market cycles. To the extent that we hold long inventory positions, a downturn in the market could result in losses from a decline in the value of those positions. On the other hand, to the extent that we have sold inventory short, an

upturn in those markets could expose us to losses as we attempt to cover our short positions by acquiring assets in a rising market.

In our mortgage and loan origination and securitization businesses, we are also subject to risks from decreasing interest rates. Most residential mortgages and consumer loans provide that the borrower may repay them early. Borrowers often exercise this right when interest rates decline. As prepayments increase, the value of mortgages and other loans with prepayment features held in inventory prior to securitization generally will decrease, and to the extent that prepayment risk has not been hedged, prepayments may result in a loss.

Market credit spreads are at historically tight levels, and a widening of credit spreads could negatively impact the value of our corporate debt and other inventory.

We also maintain long and short positions through our other proprietary trading activities and make principal investments (such as in real estate and private equity), both of which are also subject to market risks.  The value of these positions can be adversely affected by changes in market rates, prices and volatility.  These risks will increase to the extent that we increase our proprietary trading and principal investing activities.

On the other hand our client-flow and proprietary trading businesses generally depend on market volatility to provide trading and arbitrage opportunities, and a decline in volatility may reduce these opportunities and adversely affect the results of these businesses.

Holding Large and Concentrated Positions May Expose Us to Losses. Concentration of risk may reduce revenues or result in losses in our market-making, block trading, underwriting, proprietary trading, principal investment and lending businesses in the event of unfavorable market movements even when economic and market conditions are generally favorable for others in the industry. We have committed substantial amounts of capital to these businesses, which often require us to take large positions in the securities of, or make large loans to, a particular issuer or issuers in a particular industry, country or region. Moreover, the trend in all major capital markets is towards larger and more frequent commitments of capital in many of these activities, and we expect this trend to continue. For example, large positions of securities are increasingly being sold in block trades rather than on a marketed basis, which could increase the risk that we may be unable to resell the securities at favorable prices. Concentration of risk will increase to the extent we expand our proprietary trading and principal investing activities or commit additional capital to facilitate client-driven business.

Market Risk May Increase the Other Risks That We Face. In addition to the potentially adverse effects on our businesses described above, market risk could exacerbate other risks that we face. For example, if we were to incur substantial market risk losses, our need for liquidity could rise significantly, while our access to liquidity could be impaired. In addition, in conjunction with a market downturn, our clients and counterparties could incur substantial losses of their own, thereby weakening their financial condition and increasing our credit risk exposure to them.

Credit Risk

We May Incur Losses Associated with Our Credit Exposures. Credit risk represents the possibility a counterparty or an issuer of securities or other financial instruments we hold or a borrower of funds from us will be unable to honor its contractual obligations to us. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. Default risk may also arise from events or circumstances that are difficult to foresee or detect, such as fraud. Credit risk may arise, for example, from holding securities of third parties; entering into swap or other derivative contracts under which counterparties have obligations to make payments to us; executing securities, futures, currency or commodity trades that fail to settle at the required time due to non-delivery by the counterparty or systems failure by clearing agents, exchanges, clearing houses or other financial intermediaries; and extending credit to our clients through bridge or margin loans or other arrangements. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk” for a further discussion of the credit risks to which we are exposed. Our principal focus has been acting as an intermediary of credit. In recent years, we have expanded our activities associated with providing our clients access to credit and liquidity and have also expanded our swaps and derivatives businesses. As a result, our credit exposures have increased in amount and in duration.

Defaults by Another Large Financial Institution Could Adversely Affect Financial Markets Generally. The commercial soundness of many financial institutions may be closely interrelated as a result of credit, trading, clearing or other relationships between the institutions. As a result, concerns about, or a default by, one institution could lead to significant market-wide liquidity problems, losses or defaults by other institutions. This is sometimes referred to as

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“systemic risk” and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges, with which we interact on a daily basis, and therefore could adversely affect Lehman Brothers.

Liquidity Risk

Liquidity, that is ready access to funds, is essential to our businesses. Financial institutions rely on external borrowings for the vast majority of their funding, and failures in our industry are typically the result of insufficient liquidity.

An Inability to Access the Debt Markets Could Impair Our Liquidity. We maintain a liquidity pool available to Holdings that is intended to cover all expected cash outflows for one year in a stressed liquidity environment, which assumes, among other things, that during that year we cannot issue unsecured debt. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity, Funding and Capital Resources—Liquidity Risk Management” for a discussion of our liquidity needs and liquidity management.

To the extent that a liquidity event lasts for more than one year, or our expectations concerning the market conditions that exist during a liquidity event, or our access to funds, prove to be inaccurate (e.g., the level of secured financing “haircuts” (the difference between the market and pledge value of the assets) required to fund our assets in a stressed market event is greater than expected, or the amount of drawdowns under our commitments to extend credit in a stressed market environment exceeds our expectations, our ability to repay maturing indebtedness and fund operations could be significantly impaired. Even within the one-year time frame contemplated by our liquidity pool, we depend on continuous access to secured financing in the repurchase and securities lending markets, which could be impaired by factors that are not specific to Lehman Brothers, such as a severe disruption of the financial markets.

We Are a Holding Company and Are Dependent on Our Subsidiaries for Funds. Since Holdings is primarily a holding company, our cash flow and consequent ability to pay dividends and satisfy our obligations under securities we issue are dependent upon the earnings of our subsidiaries and the distribution of those earnings as dividends or loans or other payments by those subsidiaries to Holdings. Several of our principal subsidiaries are subject to various capital adequacy requirements promulgated by the regulatory, banking and exchange authorities of the countries in which they operate and/or to capital targets established by various ratings agencies. These regulatory rules, and certain covenants contained in various debt agreements, may restrict our ability to withdraw capital from our subsidiaries by dividends, loans or other payments. Further information about these requirements and restrictions is set forth in Note 13 to the Consolidated Financial Statementsin Part II, Item 8, of this Report. Additionally, our ability to participate as an equity holder in any distribution of assets of any subsidiary upon liquidation is generally subordinate to the claims of creditors of the subsidiary.

Credit Ratings

Our borrowing costs and our access to the debt capital markets depend significantly on our credit ratings. A reduction in our long- or short-term credit ratings could increase our borrowing costs, limit our access to the capital markets and trigger additional collateral requirements in derivative contracts and other secured funding arrangements. Credit ratings are also important to us when competing in certain markets, such as longer-term over-the-counter derivatives. Therefore, a substantial reduction in our credit ratings would reduce our earnings and adversely affect our liquidity and competitive position. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity, Funding and Capital Resources—Liquidity Risk Management” and “—Credit Ratings” for additional information concerning our credit ratings.

Operational Risk

Operational Risks May Disrupt Our Businesses, Result in Losses or Reputational Damage or Limit Our Growth. We face operational risk arising from errors made in the execution, confirmation or settlement of transactions or from transactions not being properly recorded, evaluated or accounted for. Derivative contracts are not always confirmed by the counterparties on a timely basis; while the transaction remains unconfirmed, we are subject to heightened credit and operational risk and in the event of a default may find it more difficult to enforce the contract. Our businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions across numerous and diverse markets in many currencies and the transactions we process have become increasingly complex. Consequently, we rely heavily on our financial, accounting and other data processing systems. If any of these systems do not operate properly or are disabled, we could suffer financial loss, a disruption of our businesses,

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liability to clients, regulatory intervention or reputational damage. The inability of our systems to accommodate an increasing volume of complex transactions could also constrain our ability to expand our businesses. In recent years, we have substantially upgraded and expanded the capabilities of our data processing systems and other operating technology, and we expect that we will need to continue to upgrade and expand in the future to avoid disruption of, or constraints on, our operations.

Our businesses and operations rely on the secure processing, storage and transmission of confidential and other information, and, increasingly, on the internet. We take extensive protective measures for our computer systems, internet sites, software and networks to protect against vulnerabilities to unauthorized access, computer viruses, denial of service attacks or other events that could have a security or business impact. If, nevertheless, such events should occur, they could result in significant losses or reputational damage.

We also face the risk of operational or business failure of any of the clearing agents or other financial intermediaries or data providers we use, and as our interconnectivity with our clients grows, we face higher levels of operational risk that could adversely affect our ability to effect transactions, service our clients and manage our exposure to risk.

When we originate or purchase residential mortgage loans, we rely heavily upon information supplied by third parties, including the information contained in the loan application, property appraisal, title information and employment and income documentation. If any of this information is intentionally or negligently misrepresented, whether by the loan applicant, the mortgage broker, another third party or one of our employees, and such misrepresentation is not detected prior to loan funding, the value of the loan may be significantly lower than expected and/or be unsaleable or subject to repurchase if it is sold prior to detection of the misrepresentation. While relevant laws may not explicitly hold the originating lenders responsible for the legal violations of mortgage brokers, increasingly federal and state agencies have sought to impose such assignee liability.

In addition, despite the contingency plans we have in place, our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports our businesses and the communities in which we are located. This may include a disruption involving electrical systems, communications, transportation or other services used by Lehman Brothers or third parties with which we conduct business, terrorist activities or disease pandemics.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—­Risk Management” in Part II, Item 7, of this Report for a description of our Risk Management infrastructure and procedures.

Acquisitions or Joint Ventures Could Present Unforeseen Integration Obstacles or Costs. Acquisitions and joint ventures involve a number of risks and present financial, managerial and operational challenges, including difficulty with integrating personnel and financial and other systems, hiring additional management and other critical personnel and increasing the scope, geographic diversity and complexity of our operations. In addition, we may not realize the anticipated benefits from an acquisition, and we may be exposed to additional liabilities of any acquired business.

Legal, Regulatory and Reputational Risk

We face the risk of litigation and intervention by regulatory authorities in all jurisdictions in which we conduct our businesses. Among other things, we could be subjected to judgments or fines, be prohibited from engaging in some of our business activities or be subjected to limitations or conditions on our business activities, all of which could result in significant losses or reputational damage.

We Face Significant Litigation Risks in Our Businesses. The volume of litigation against financial services firms and the amount of damages claimed have increased over the past several years. We are exposed to potential liability as an underwriter under securities or other laws for materially false or misleading statements made in connection with securities and other transactions, potential liability for the “fairness opinions” and other advice we provide to participants in corporate transactions and disputes over the terms and conditions of complex trading arrangements. We also face the possibility that counterparties in complex or risky trading transactions will claim that we improperly failed to tell them of the risks or that they were not authorized or permitted to enter into these transactions with us and that their obligations to Lehman Brothers are not enforceable. In our Investment Management segment, we are exposed to claims against us for recommending investments that are not consistent with a client’s investment objectives or engaging in unauthorized or excessive trading. During a prolonged market downturn, we would expect these types of claims to increase. We are also subject to claims arising from disputes with employees for alleged discrimination or harassment, among other things. These risks often may be difficult to assess or quantify, and their existence and magnitude often remain unknown for substantial periods of time. We incur significant legal expenses every year in defending against litigation, and we expect to continue to do so in the

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future. See Part I, Item 3, “Legal Proceedings” for a discussion of some of the legal and regulatory matters in which we are currently involved.

Extensive Regulation of Our Businesses Limits Our Activities and May Subject Us to Significant Penalties. Lehman Brothers, as a participant in the financial services industry, is subject to extensive regulation under both federal and state laws in the U.S. and under the laws of the many global jurisdictions in which we do business. We are also regulated by a number of self-regulatory organizations. The industry has experienced increased scrutiny from a variety of regulators, including the SEC, NYSE, NASD and state attorney generals. Penalties and fines sought by regulatory authorities in our industry have increased substantially over the last several years. The requirements imposed by our regulators are designed to ensure the integrity of the financial markets and to protect customers and other third parties who deal with Lehman Brothers. Consequently, these regulations often serve to limit our activities, including through net capital, customer protection and market conduct requirements. If we were found to have breached certain of these rules or regulations, we could face the risk of significant intervention by regulatory authorities, including extended investigation and surveillance activity, adoption of costly or restrictive new regulations and judicial or administrative proceedings that may result in substantial penalties. Among other things, we could be fined or prohibited from engaging in some of our business activities.

Additional legislation and regulations, changes in rules imposed by regulatory authorities, self-regulatory organizations and exchanges or changes in the interpretation or enforcement of existing laws and rules may adversely affect our business and profitability. Our business may be materially affected not only by regulations applicable to us as an investment bank, but also by regulations of general application, including existing and proposed tax legislation and other governmental regulations and policies (including the interest rate and monetary policies of the Federal Reserve Board and other central banks) and changes in the interpretation or enforcement of existing laws and rules that affect the business and financial communities.

In emerging markets in particular, we may be subject to risks of possible price controls, capital controls, currency exchange controls and other restrictive governmental actions. In many countries, the laws and regulations applicable to the securities and financial services industries are uncertain and evolving, and it may be difficult for us to determine the exact requirements of local laws in every market. We are also subject to greater risk in these jurisdictions that transactions we structure might not be legally enforceable in all cases. In addition, in conducting business in these jurisdictions, we are often faced with the challenge of ensuring that our activities are also consistent with U.S. or other laws with extra-territorial application, such as the USA PATRIOT Act and the U.S. Foreign Corrupt Practices Act.  Our failure to comply with such laws could result in significant losses or reputational damage.

We are subject to the income tax laws of the jurisdictions in which we have business operations. These tax laws are complex and may be subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. We must make judgments and interpretations about the application of these inherently complex tax laws when determining the provision for income taxes. We are subject to contingent tax risk that could adversely affect our results of operations, to the extent that our interpretations of tax laws are disputed upon examination or audit, and are settled in amounts in excess of established reserves for such contingencies.  See Part I, Item 1, “Business—Regulation” for a further discussion of the regulatory environment in which we conduct our businesses.

Our Mortgage Origination Business is Subject to Special Litigation and Regulatory Risks. The laws and regulations of the various jurisdictions in which we conduct our mortgage lending business are complex, frequently changing and, in some cases, in direct conflict with each other.  In particular, this business is subject to various laws, regulations and guidance that restrict non-prime loan origination or purchase activities. Some of these laws and regulations provide for extensive assignee liability for warehouse lenders, whole loan buyers and securitization trusts.  In addition, the recent downturn in the U.S. residential real estate market could result in increased complaints and claims relating to non-prime mortgage origination practices. As our mortgage origination operations continue to grow, both internally and through acquisitions, it may be more difficult to comprehensively identify and accurately interpret, and to implement our risk-management policies, properly program our systems and effectively train our personnel with respect to, all of these laws and regulations, thereby potentially increasing our exposure to the risks of noncompliance, including possible civil and criminal liability, demands for indemnification or loan repurchases from purchasers of our loans (including securitization trusts), class action lawsuits or administrative enforcement actions. Moreover, our customer base and counterparties in this business is substantially different from the high-net-worth and institutional customers and counterparties of most of our other businesses, which presents a different litigation risk profile.

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Exposure to Reputational Risks Could Impact the Value of Our Brand. Our reputation is critical in maintaining our relationships with clients, investors, regulators and the general public, and is a key focus in our risk management efforts. In recent years, there have been a number of highly publicized cases involving fraud, conflicts of interest or other misconduct by employees in the financial services industry, and we run the risk that misconduct by our employees could occur. Misconduct by employees could include binding Lehman Brothers to transactions that exceed authorized limits or present unacceptable risks, or hiding from Lehman Brothers unauthorized or unsuccessful activities, which, in either case, may result in unknown and unmanaged risks or losses. Employee misconduct could also involve the improper use or disclosure of confidential information, which could result in regulatory sanctions and serious reputational or financial harm. It is not always possible to deter employee misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases.  In addition, in certain circumstances our reputation could be damaged by activities of our clients in which we participate, or of hedge funds or other entities in which we invest, over which we have little or no control.

Potential Conflicts of Interest Are Increasing. As we have expanded the scope of our businesses and our client base, we increasingly have to address potential conflicts of interest, including those relating to our proprietary activities. For example, conflicts may arise between our position as a financial advisor in a merger transaction and a principal investment we hold in one of the parties to the transaction. In addition, hedge funds and private equity funds are an increasingly important portion of our client base, and also compete with us in a number of our businesses. In addition, the SEC and other regulators have increased their scrutiny of potential conflicts of interest. We have extensive procedures and controls that are intended to ensure that any potential conflicts of interest are appropriately addressed. However, properly dealing with conflicts of interest is complex and difficult, and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with conflicts of interest and, it is possible that potential or perceived conflicts could give rise to litigation or enforcement actions.

Competitive Environment

All aspects of our business are highly competitive. Our competitive success depends on many factors, including our reputation, the quality of our services and advice, intellectual capital, product innovation, execution ability, pricing, sales efforts, and the talent of our personnel. Many of our competitors have greater capital resources and greater geographic reach than we do, which enhances their competitive positions.

We Face Increased Competition Due to a Trend Toward Consolidation. In recent years, there has been substantial consolidation and convergence among companies in the financial services industry. In particular, a number of large commercial banks, insurance companies and other broad-based financial services firms have established or acquired broker-dealers or have merged with other financial institutions. Many of these firms have the ability to offer a wide range of products, from loans, deposit-taking and insurance to brokerage, asset management and investment banking services, which may enhance their competitive position. They also have the ability to support investment banking and securities products with commercial banking, insurance and other financial services revenues in an effort to gain market share. These abilities have resulted in pricing pressure in our businesses. We have experienced intense price competition in some of our businesses in recent years. For example, equity and debt underwriting and trading spreads and fees for lending and other activities have been under competitive pressure for a number of years.

Our Revenues May Decline Due to Competition from Alternative Trading Systems. Securities and futures transactions are now being conducted through the internet and other alternative, non-traditional trading systems, and it appears that the trend toward alternative trading systems will continue and probably accelerate. A dramatic increase in computer-based or other electronic trading may adversely affect our commission and trading revenues.

Our Ability to Retain Our Key Employees is Critical to the Success of Our Business. Our people are our most important resource. Our ability to continue to compete effectively in our businesses will depend upon our ability to attract top talent and retain and motivate our existing employees while managing compensation costs.

Risk Management

We have devoted significant resources to develop our risk management policies and procedures and expect to continue to do so in the future. Nonetheless, our hedging strategies and other risk management techniques may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk, including risks that are unidentified or unanticipated. Some of our methods of managing risk are based upon our use of observed historical market behavior. As a result, these methods may not predict future risk exposures, which could be significantly greater than the historical measures indicate. Management of operational, legal and regulatory risk requires, among other things, policies and procedures to record properly and verify a large number of transactions

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and events, and these policies and procedures may not be fully effective. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management” for a discussion of the policies and procedures we use to identify, monitor and manage the risks we assume in conducting our businesses.

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