Lehman - 2005

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2005 Annual Report
Powerful
Performance.
Raising
the Bar.
8:38 AM
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Closing Stock Price

$ 126.00
$ 83.78
$ 72.21
$ 61.40
$ 66.15
As of November 30
$ 125
100
75
Contents
2
50
Its All About Our Clients, Our People

and Our Shareholders
Client Focus
Do the Right Thing
Commitment to Excellence
Teamwork
Meritocracy
Respect for Each Other
Smart Risk Management
Preserve and Strengthen Our Culture
Ownership Mentality
Build and Protect Our Brand
Maximize Shareholder Value
The Numbers Will Follow
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8
12
14
16
18
20
22
24
28
30
32
34
25
Financial Review
35
Senior Leadership
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01 02 03 04 05
$ 10.87
$ 7.90
Earnings per Share

(Diluted)
$ 6.35
Letter from the Chairman
$ 3.47
2/20/06
$ 4.38
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$ 12
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01 02 03 04 05
Financial Highlights
In millions, except per common share and selected data

At or for the year ended November 30
FINANCIAL INFORMATION
2 0 0 5
2 0 0 4
2 0 0 3
2 0 0 2
2 0 0 1
Net revenues
$ 14,630
$ 11,576
8,647
6,155
6,736
Net income
1,699
975
1,255
Total assets
$ 410,063
$ 357,168
$ 312,061
$ 260,336
$ 247,816
Long-term borrowings
$ 62,309
$ 56,486
$ 43,529
$ 38,678
$ 38,301
Total stockholders equity
$ 16,794
$ 14,920
$ 13,174
Total capital (1)
$ 79,103
$ 71,406
$ 58,013
$ 48,330
$ 47,470
Earnings (diluted)
10.87
7.90
6.35
3.47
4.38
Dividends declared
0.80
0.64
0.48
0.36
0.28
Book value (2)
57.50
49.32
44.17
34.15
31.81
Closing stock price
$ 126.00
83.78
72.21
61.40
66.15
3,260
2,369
8,942
8,459
PER COMMON SHARE DATA
SELECTED DATA
Return on average common

stockholders equity (3)
21.6%
17.9%
18.2%
11.2%
15.9%
Return on average tangible

common stockholders equity (4)
27.8%
24.7%
19.2%
11.5%
16.3%
Pre-tax margin
33.0%
30.4%
29.3%
22.7%
26.0%
24.4x
23.9x
23.7x
29.1x
29.3x
13.6x
13.9x
15.3x
14.9x
15.7x
Gross leverage ratio (5)

Net leverage ratio
(6)
Weighted average common

shares (diluted) (in millions)
Employees
Assets under management (in billions)
(1) Total capital includes long-term borrowings (including junior subordinated notes) and total stockholders
equity and, at November 30, 2003 and prior year-ends,
preferred securities subject to mandatory redemption.
We believe total capital is useful to investors as a
measure of our financial strength.
(2) The book value per common share calculation
includes amortized restricted stock units granted under
employee stock award programs, which have been
included in total stockholders equity.
(3) Average common stockholders equity in 2003 was
appropriately weighted for the effect of the equity issued
in connection with the Neuberger Berman acquisition
on October 31, 2003. Return on average common stockholders equity is computed by dividing net income
applicable to common stock for the period by average
common stockholders equity. Net Income applicable to
common stock for the years ended November 2005,
2004, 2003, 2002 and 2001 was $3.2 billion, $2.3 billion,
$1.6 billion, $906 million and $1.2 billion, respectively.
Average common stockholders equity for the years
ended November 2005, 2004, 2003, 2002 and 2001 was
$14.7 billion, $12.8 billion, $9.1 billion, $8.1 billion and
$7.3 billion, respectively.
(4) Average tangible common stockholders equity in
2003 was appropriately weighted for the effect of the
293.6
290.7
259.9
261.2
265.3
22,919
19,579
16,188
12,343
13,090
175
137
equity issued in connection with the Neuberger Berman

acquisition on October 31, 2003. Return on average
tangible common stockholders equity is computed by
dividing net income applicable to common stock for
the period by average tangible common stockholders
equity. Average tangible common stockholders equity
equals average total common stockholders equity less
average identifiable intangible assets and goodwill.
Average identifiable intangible assets and goodwill
for the years ended November 2005, 2004, 2003, 2002
and 2001 was $3.3 billion, $3.5 billion, $471 million,
$191 million and $174 million, respectively. Management
believes tangible common stockholders equity is a
meaningful measure because it reflects the common
stockholders equity deployed in our businesses.
(5) Gross leverage ratio is defined as total assets divided
by total stockholders equity.
(6) Net leverage ratio is defined as net assets (total
assets excluding: 1) cash and securities segregated and
on deposit for regulatory and other purposes, 2) securities
received as collateral, 3) securities purchased under
agreements to resell, 4) securities borrowed and 5) identifiable intangible assets and goodwill) divided by
tangible equity capital. We believe net assets is a measure
more useful to investors than total assets when comparing
companies in the securities industry because it excludes
certain assets considered to have a low-risk profile and
120
12
identifiable intangible assets and goodwill. We believe

tangible equity capital to be a more representative measure of our equity for purposes of calculating net leverage
because such measure includes total stockholders
equity plus junior subordinated notes (and for years
prior to 2004, preferred securities subject to mandatory
redemptions), less identifiable intangible assets and
goodwill. We believe total stockholders equity plus
junior subordinated notes to be a more meaningful
measure of our equity because the junior subordinated
notes are subordinated and have maturities at issuance
from 30 to 49 years. In addition, a leading rating agency
views these securities as equity capital for purposes of
calculating net leverage. Further, we do not view the
amount of equity used to support identifiable intangible
assets and goodwill as available to support our remaining
net assets. Accordingly, we believe net leverage, based
on net assets divided by tangible equity capital, both
as defined above, to be a more meaningful measure of
leverage to evaluate companies in the securities industry.
These definitions of net assets, tangible equity capital
and net leverage are used by many of our creditors and
a leading rating agency. These measures are not necessarily comparable to similarly-titled measures provided
by other companies in the securities industry because of
different methods of calculation. See Selected Financial
Data for additional information about net assets and
tangible equity capital.
Richard S. Fuld, Jr.

Chairman and Chief Executive Officer
LETTER FROM THE CHAIRMAN
Net Revenues
Dear Shareholders and Clients,
$ 14.630
$ 11.576
records for revenues in each segment and region.We achieved record net income and
$ 8.647
In 2005, Lehman Brothers had its best year by almost all measures.We set new
$ 6.155
$ 6.736
In billions
$ 15
earnings per share.We gained market and fee share and grew assets under management.
Most notably, we played an increasingly important role for our clients, assisting them in
strategic transactions that helped them enhance their competitive positions. Our results
12
clearly demonstrate that we have achieved balance, diversification and momentum across
our three main businesses Capital Markets (including both Equities and Fixed Income),
Investment Banking and Investment Management. By putting our clients at the center
of everything we do, we proved our continued ability to solve their most complex
problems and help them realize their visions. Our results further demonstrate that we
have significantly enhanced the Lehman Brothers franchise by adding capabilities and
talent worldwide, by executing on our strategy, and by achieving the goals we set for ourselves. Underlying all of this is our commitment to an unwavering standard of excellence.
We owe our success to our clients belief that we will live up to this standard and do
the right thing for them.We work hard each day to earn and maintain that confidence.
0
01 02 03 04 05
Our Results
rates and market volatility resulted in more trading opportunities for our Capital
Markets clients, who rely on our unparalleled execution and service. In a shifting
$ 2.369
In billions
$ 1.699
economic disruptions caused by natural disasters and energy price spikes. Rising
$ 1.255
Net Income
$ .975
diversified business model served us well in the face of rising interest rates and
$ 3.260
Lehman Brothers delivered its strongest performance ever in 2005. Our
landscape, our Investment Banking and Investment Management clients increasingly

turned to us for creative advice and solutions.As a result, the entire platform
$ 3.0
performed well throughout the year as we raised the earnings capability of the Firm.
Our financial performance in 2005 included the following highlights:
2.5
We reported record revenues for the third year in a row, reaching

$14.6 billion, a 26% increase over the previous year;
2.0
We delivered record net income of $3.3 billion, a 38% increase over the prior
years record figure;
1.5
We increased our pre-tax margin to 33.0%; our return on average common

stockholders equity to 21.6%; and our return on tangible equity to 27.8%;
1.0
We reported record earnings per share of $10.87, a 38% increase over the
prior year; and
0.5
Our stock price rose more than 50% to $126, and we have delivered a total
0
return of 1,087% over the past decade.
01 02 03 04 05
These achievements are the ultimate

33.0 %
30.4 %
29.3 %
22.7 %
26.0 %
Pre-tax Margin
Investor every year since that survey began in
validation of our business strategy: put the
1997. Additionally, we were named #1 in fixed
clients first, the results will follow.
income sales and trading capabilities by a leading

industry research firm in 2005.The Firms
Balance Across Our Businesses
30%
The Firms steady and strategic investment

over the past decade in expanding the footprint
25
of each of our businesses continues and has

produced meaningful results.
In Investment Banking, as revenues rose
20
15
10
0
01 02 03 04 05
21.6 %
17.9 %
18.2 %
11.2 %
15.9 %
Return on Average
Common Equity
10
0
01 02 03 04 05
global securitization business.

Increased volume in the worlds stock
markets accelerated our growth in Equities in
2005, with revenues rising 26% to $2.5 billion.
For the third consecutive year, Lehman Brothers
overall fee share for the sixth consecutive year.
ranked #1 in Institutional Investors U.S. equity
We advised on many of the largest deals and
research poll.We are developing a tradition of
expanded our client base, evidence of the value
firsts: no other firm has achieved a #1 ranking
of deepening our partnerships with clients
in both Equity and Fixed Income research in
over the long term.We also improved our
the same year, and we have now done it three
productivity and made strategic hires to bolster
years running.We also achieved #1 rankings
our industry, product and geographic expertise.
from Institutional Investor in New York Stock
In mergers and acquisitions, our volume of
Exchange-listed trading, Nasdaq trading,
completed transactions increased 24% to
NYSE-listed sales-trading and Nasdaq sales-
$306 billion, while our volume of announced
trading, the first time any firm has achieved
transactions nearly doubled to $460 billion.
top rankings in all four categories.We have
In fixed income origination, we posted record
continued to build our capabilities in both
revenues for the third consecutive year and
derivatives and financing for clients, investing
lead-managed $393 billion of debt offerings.
in both electronic connectivity and automated
In equity underwriting, we lead-managed
trading technologies as part of our drive to
132 transactions and improved our market
provide the very best service to our clients.

As we diversify the Firms revenue base and
rose 48%, and in convertibles, we lead-managed
seek to provide the most comprehensive end-
the years two largest issuances.
to-end solutions, our Investment Management
In Capital Markets, we posted record
15
increasing supply of products for our growing
32% to a record $2.9 billion, we increased our
share. In initial public offerings, our volume

20%
mortgage origination businesses provided an
business has played an increasingly important
revenues. Fixed Income revenues rose 28%
role. Revenues rose 14% to a record $1.9 billion
to $7.3 billion, our seventh straight record year.
in 2005, with strong contributions from both
Industry recognition has closely tracked our
Asset Management and Private Investment
growth, with the Firm achieving a #1 ranking
Management.The successful integration of
for the sixth consecutive year in the Institutional
Neuberger Berman has significantly enhanced
Investor All-America Fixed Income Research
our investment offerings for high net worth
poll. We have also built upon our heritage of
and institutional clients, helping to increase
excellence in fixed income benchmarks, ranking
assets under management to a record
#1 in fixed income indices by Institutional
$175 billion, up 28% from 2004. During 2005,
and the acquisition of minority stakes in several
opportunities to help clients restructure their
hedge funds. In Private Equity, we raised capital
balance sheets and monetize assets and to expand
to help our clients invest in real estate, merchant
our business with hedge funds.At the same time,
banking, secondary and fund-of-funds opportu-
we increased our capacity, adding to our invest-
nities. Continued expansion of the Investment
ment banking and capital markets capabilities in
Management business remains a priority.
China, Japan and Korea and opening an office
Total Capital*
In billions
Global Scale and Diversification
We have built considerable international
had strong growth in high yield; in Equities,

we achieved strong performance in execution
scale not solely for the sake of geographic
and volatility-related services. In Investment
diversification, but also because we believe
Banking, we were involved in some of the
strongly in providing our clients local market
regions most innovative structured equity
expertise with global capability. As a result, our
transactions.We will continue to invest in Asia
international revenues have increased to 37%
because we see attractive long-term opportuni-
of total revenues from 29% in 2004.
ties. Building our franchise in the region, both
In Europe, revenues rose 71% in 2005 to

a record $3.6 billion as we made great strides
$ 47.470
in Mumbai, India. In Fixed Income, we
$ 79.103
was to continue to execute on cross-divisional
$ 71.406
Strategies platform through senior-level hirings
$ 58.013
of revenues, up 41% to $1.8 billion. Our focus
$ 48.330
we developed our Global Absolute Return
$ 80
70
60
50
in established and higher-growth markets,

remains a key strategic focus.
40
through our sustained investment in the region.

We have increased the number of employees in
Europe by 60% in the last three years, making
Our Strategy
There is no magic formula to what Lehman
strategic hires to expand both our product
Brothers accomplished in 2005 or to what we
and country coverage. In Investment Banking,
have achieved in more than 11 years as a public
we advised on some of the largest and most
company. Our success comes from putting clients
complex transactions, many of them cross-
at the center of everything we do.To support
border, and managed several of the years largest
this strategy, we have made a sustained investment
initial public offerings. In Capital Markets, we
in building a high-quality, diversified franchise
continued to expand our derivatives business,
one that is designed to meet our clients changing
and our state-of-the-art equity trading platform
needs and provide them with the most innovative
ranked #1 on both Xetra and the London Stock
solutions.To accomplish this, we have invested
Exchange and #2 on Euronext in trading
in our people and worked together as one team
volume. In Fixed Income, our revenues more
to deliver intellectual capital and the full resources
than doubled on strength in mortgages, real
of the Firm to our clients.
estate, interest rate products and European securi-
Firms capital, expenses and risk are vital to the
to expanding the number of products offered
proper execution of this buildout and to our
to our Investment Management clients.
pursuit of global opportunities.We have almost
2005, posting our third consecutive record year
20
10
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* See definition in
Financial Highlights.
Our core competencies of managing the
tization markets.We are also devoting resources
The Firm had strong growth in Asia during
30
$80 billion in total capital, and we are using this

strength in a targeted way.We have also improved
5
$ 57.50
$ 49.32
$ 44.17
$ 34.15
$ 31.81
Book Value per

Common Share
$ 60
50
40
30
our capital efficiency, reducing net leverage even
Bart McDade was named global head of
as our balance sheet has grown. Standard & Poors
Equities. He was succeeded as global head of
recognized this in 2005, citing our strong
Fixed Income by Mike Gelband, who became
capabilities in liquidity and risk management by
a member of our Executive Committee.Also
increasing our long-term senior debt rating to
named to the Executive Committee was Tom
A+. Another key component of our strategy is
Russo, our chief legal officer.
the rigorous attention to expenses.We have kept

our ratio of compensation and benefits to revenues
below 50% despite our rapid growth.We have
Extending the Brand
In 2005, as we did in the prior year,
also kept our non-compensation expense growth
Lehman Brothers reached a new level and
in check. In 2005, our non-compensation
achieved the standard of excellence we set
expenses increased at a rate less than our revenue
for ourselves.We are a diversified global
growth rate, which reflects the sustained scalability
organization with a valued brand.We compete
of the franchise. During the year, we also
for and win some of the largest and most
continued to re-engineer business processes,
significant client assignments, and we are
where appropriate, to further increase produc-
consistently ranked #1 in a variety of businesses.
tivity.Together, these disciplines continue to
While we have made tremendous progress,
widen our operating margins and enhance
I still believe that we have tapped only a small
shareholder value.
part of our potential.We know that we would

not have come this far, nor would we be in
Our Principles, Our People
20
We could not deliver on our strategy

10
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01 02 03 04 05
a position to act on all of the opportunities

that lie ahead, without the trust and partnership
without certain guiding principles as set forth
of our clients; the commitment, dedication
in this annual report.As we have grown to
and integrity of our people; and the long-
almost 23,000 people, the challenge is to ensure
standing support of our shareholders. I thank
that everyone understands and lives by these
all of you for helping to make this another
principles. Both our culture and our focus
great year, our best yet.While the future is
on best practices are dependent on the quality
never without its challenges, we move from
of our workforce.We want to be the firm
2005 into a new year both excited and
of choice for the very best people from
optimistic about our future.
the widest available pools of talent people

from varied backgrounds and with differing
Sincerely,
perspectives. Moreover, talent is critical to

ensuring the continued success of the Firm.
No one understands this better than our
Executive Committee, whose members average
20 years at Lehman Brothers. In 2005,
demonstrating our culture of teamwork,
February 17, 2006
Its all about our clients, our people and our shareholders . . .
CLIENT FOCUS
e deliver the full resources of the Firm to enable

the fulfillment of each clients vision.We seek to
surround our clients with service and place them,
as partners, at the center of everything we do.To
support that goal, we have built a balanced franchise, offering intellectual

capital and creative solutions in every market we serve.
Our client focus extends to the largest and most complex transactions.To us, transactions, no matter what size, are not isolated events.They
We Deliver
the Entire Firm
to Our Clients
are part of a long-term relationship, and we bring

to bear our strengths across businesses, geographies,
asset classes and industry groups to ensure the best
possible outcome for each client.There are no silos
at Lehman Brothers.Whether it is Investment Banking, Capital Markets or

Investment Management whether the task is managing capital, providing
trading expertise, offering strategic advice or controlling risk we deliver
cross-divisional global solutions.
Over time, we have seen this strategy clearly help our clients
position themselves for change and success.
For Carlsberg A/S, the international brewer headquartered in

Denmark, Lehman Brothers acted as sole manager and bookrunner
in the structured sale of 2.3 million shares in Hite Brewery Co. Ltd.,
the leading brewer in South Korea.The order book represented
a full months trading in Hites shares and was oversubscribed within
two hours.The Firms expertise in emerging markets also helped our
client efficiently hedge its currency risk during the month-long settlement process. Lehman Brothers worked closely with the experienced
Carlsberg team to structure and execute this complex transaction,
which spanned different global markets and jurisdictions from an
equity-market, disclosure and taxation perspective.
Jrn P. Jensen, Executive Vice President and CFO, Carlsberg A/S
The Firm acted as sole financial advisor to Charterhouse Capital

Partners and Coral Eurobet Ltd. in the 2.2 billion sale of Coral
Eurobet to Gala Group, a transaction creating the largest multi-platform
European gaming group with a total enterprise value of over 4 billion.
Lehman Brothers also acted as lead arranger/bookrunner for the acquisition financing for the combined betting and gaming entity.The Firm
has now played the lead role on five financings for Coral over a period
of seven years, including the 860 million buyout by Charterhouse
in 2002 and two recapitalizations prior to the recent sale.
Shown left to right:
Jeremy Greenhalgh, Partner, Charterhouse Capital Partners
Vaughn Ashdown, Chief Executive, Coral Eurobet Ltd.
Our client focus has been evident in our extensive work with Dex Media.
The Firm acted as lead financial advisor to Dex in its $9.8 billion merger with
R.H. Donnelley Corporation, which created the worlds largest publicly traded
yellow pages directory publisher and ranks as the largest yellow pages directory
M&A transaction ever. In all, the Firm has executed 13 transactions for Dex
since advising Qwest Communications on its 2002 sale of the directory business.
In addition to our M&A work for Dex, we have also led equity financings, debt
financings, interest rate swaps and provided corporate cash management services
to the company.
George Burnett, Chairman of the Board, R.H. Donnelley Corporation
(formerly President and CEO of Dex Media)
We offer our clients our best ideas. In an innovative equity

derivative transaction, Lehman Brothers, as sole arranger,
provided Diageo plc with a guaranteed exit on a residual
holding of General Mills, Inc. stock.The derivative ensured
Diageo net proceeds of $1.15 billion from the transaction,
regardless of the General Mills share price, three months later.
This transaction was the second major equity capital markets
mandate for Lehman Brothers, following its role as joint global
coordinator on the $2.25 billion monetization and buyback
of General Mills stock in October 2004.
Marcel Miller, Head of Capital Markets, Diageo plc
Sally Moore, Director of Corporate Finance and Capital Markets, Diageo plc
Charles Coase, Group Treasurer, Diageo plc
Lehman Brothers delivered the entire Firm for footwear retailer DSW Inc.
and Chairman and Chief Executive Officer Jay L. Schottenstein. Our relationships with Mr. Schottenstein, through both our Investment Management and
Investment Banking divisions, led to our assignment as sole bookrunner for
DSWs $307 million initial public offering. Our Investment Management division
managed post-IPO restricted stock sales for DSW and the Schottenstein family,
and the Firms Commercial Real Estate Finance group financed several of the
familys retail properties.
Jay L. Schottenstein, Chairman and CEO, DSW Inc.
For Fortress Investment Group LLC, we delivered the entire

Firm. A prime brokerage client since February 2004, Fortress has
utilized our comprehensive suite of prime brokerage products and
services and our premier execution, research and technology capabilities across cash, futures and derivative markets. By strategically
delivering the full range of capital markets and banking capabilities
to Fortress, Lehman Brothers has cultivated a comprehensive relationship enabling the global alternative asset manager to leverage
our industry capabilities and advisory services around the world.
Peter L. Briger, Jr., Principal, Fortress Investment Group LLC
Michael E. Novogratz, Principal, Fortress Investment Group LLC
For HVB Group, Lehman Brothers acted as exclusive financial advisor

to the supervisory board on UniCredito Italiano S.p.A.s 119.2 billion
public tender offer for the German bank and associated international
holdings.The transaction created a pan-European
banking group; was the largest-ever cross-border
financial institutions transaction in Europe; and
was the third-largest public takeover ever in
Germany. Lehman Brothers has in the past assisted
HVB as joint bookrunner or exclusive financial
advisor on various key capital markets and
M&A transactions.
Dr. Albrecht Schmidt,
Former Chairman of
the Supervisory Board,
HVB Group
Lehman Brothers acted as exclusive financial advisor to

Newbridge Capital (the Asian affiliate of Texas Pacific Group
and Blum Capital) and Korea First Bank on the $3.3 billion sale
of Koreas seventh largest nationwide commercial bank to Standard
Chartered Bank.The Firm advised Newbridge on its original
acquisition of KFB in 2000 and served as the Banks primary
investment bank for advisory assignments, bank capital
offerings and fixed income solutions and investments.
Weijian Shan, Managing Partner, Newbridge Capital
Paul Chen, Managing Director, Newbridge Capital
Daniel Poon, Director, Newbridge Capital
Dan Carroll, Managing Partner, Newbridge Capital
10
The Firm has maintained a close relationship with

Kerr-McGee Corporation for more than 40 years.
In 2005, we acted as joint financial advisor and joint
bookrunner on a series of transactions for the global
energy company, aiding in its transformation into a
pure-play oil and natural gas exploration and production company. Lehman Brothers assisted Kerr-McGee
in a $4 billion self tender financed by $5.5 billion of
new credit facilities; the $3.5 billion sale of North Sea
assets; and the $1 billion leveraged recapitalization of
the Tronox Incorporated titanium dioxide business
including an initial public offering, high yield
bonds and bank financing, and a $2.1 billion
consent solicitation to bondholders.
Luke R. Corbett, Chairman and CEO,
Kerr-McGee Corporation
Lehman Brothers acted as sole financial advisor to Permira and

Kohlberg Kravis Roberts & Co. in their 12.1 billion acquisition of
SBS Broadcasting S.A., the second largest pan-European broadcaster
by viewers, and acted as lead arranger and bookrunner for acquisition
financing.We have deep, longstanding relationships with both private
equity firms.We managed the initial public offering of Inmarsat plc,
financed the acquisition of Gala Group, advised on and financed the
acquisition of Intelsat, Ltd. and refinanced Debitel AG all Permira
holdings. For KKR, we advised on selling Accuride Corporation and
acquiring Avago Technologies, arranging financing on both, and acted
as bookrunner on IPOs for ITC and KKR Financial.
Gtz Muser, Partner, Permira
Dominic Murphy, Partner, Kohlberg Kravis Roberts & Co.
For Sprint Nextel, we delivered the Firm. Lehman Brothers

acted as financial advisor during the $46 billion merger of
Sprint with Nextel Communications and as sole advisor on Sprint
Nextels formation of a long-term wireless/cable joint venture
with Comcast Corporation, Cox Communications, Inc.,Time
Warner Cable and Advance/Newhouse Communications. Lehman
Brothers was also sole advisor in the $25 billion recombination
of the companys PCS and FON tracking stocks, and has been
a continuing participant in Sprint Nextels credit facilities.
Gary D. Forsee, President and CEO, Sprint Nextel
Lehman Brothers demonstrated its client focus for

TomTom NV, a leading provider of personal navigation products and services.The Firm acted as joint
global coordinator and joint bookrunner for the companys 1539 million offering, the largest Dutch IPO
since 2000.The transaction was selected as European
IPO of the Year by International Financing Review.
Alexander Ribbink, COO,TomTom NV
Harold Goddijn, CEO,TomTom NV
Marina Wyatt, CFO,TomTom NV
The Firm acted as sole structuring advisor and joint bookrunner

for Zurich Financial Services Groups $1.7 billion offering of
Enhanced Capital Advantaged Preferred Securities (ECAPSSM).
ECAPS, securities pioneered by Lehman Brothers, have the advantage that interest payments are generally deductible by the issuer for
U.S. income tax purposes, while the principal is given greater credit
as equity capital than traditional trust preferred structures by leading
rating agencies in assessing the issuing companys creditworthiness.
Zurich, an insurance-based financial services provider with a global
network focused on its key markets in North America and Europe,
used the proceeds to optimize its capital structure.
Morgan Murphy, Head of Capital Markets, Zurich Financial Services Group
Patrick OSullivan, Group Finance Director, Zurich Financial Services Group
11
Lehman Brothers has served as our trusted

strategic advisor
and partner in helping
us appraise a
variety of potential
acquisitions.
We appreciate their
frank advice and

resolving complex
their assistance in
strategic issues.The
VERITAS merger was a transformative event for us
as a company.We relied upon Lehman Brothers to

handle the transaction with sound judgment and
intellectual rigor, and they delivered.
John W. Thompson
Symantec Corporation
12
DO THE RIGHT THING
ehman Brothers is committed to maintaining the highest ethical standards in everything we do for our clients, shareholders
and employees. Our clients expect us to deliver the best
advice, even if it means advising against a particular transac-
tion.The only way to forge a long-term relationship is to build trust step

by step each day, focusing not only on the transaction, but on the best
interests of our clients in short, to do the right thing.We are only as
good as the most recent advice we have offered them,
Maintaining
the Highest
Ethical
Standards
or trade or investment we have made on their behalf.

In July 2005, Symantec Corporation completed
its $10.25 billion merger with VERITAS Software, one of
the largest software mergers in history, bringing together
worldwide leaders in security software and storage
software. The new Symantec provides corporate customers with a more

effective way to secure and manage their most valuable asset: their information. Lehman Brothers acted as exclusive financial advisor to Symantec.
13
COMMITMENT TO EXCELLENCE
e have developed the Lehman Brothers Standard

as a measure of excellence by which we judge ourselves. Our Standard is many things to us, but first
and foremost, it is what differentiates us as a firm.
In action, it is a strategy centered around our clients and their success.

It is a metric that is reflected in the numbers, but it is about much more
than numbers. It is a measure of distinction that we strive to achieve. And
it is a means of doing business that fuels our growth and our momentum.
The Lehman Brothers Standard means:
Holding
Ourselves
to Our Own
High Standard
Utilizing our intellectual capital to generate the best

creative ideas and solutions for our clients;
Delivering the full resources of the Firm to all clients,
every day, to help them build their vision;
Building partnerships with each of our clients and expanding our

business based on these growing relationships;
Fostering a culture of ownership, one full of opportunity, initiative and
responsibility, where exceptional people want to build their careers; and
Integrity in all that we do.
Simply put, the Lehman Brothers Standard means building on the
extraordinary momentum we set in motion when we became a public
company more than 11 years ago.
14
15
T E A M WO R K
n a business based on talent, we believe that we achieve more by working in teams and leveraging the
entire Firm.We work together because it helps us deliver the best solutions for our clients. Our Executive
Committee is the embodiment of this principle of
teamwork.Their shared goals, varied experiences,
The Value of Management Continuity
expertise and continuity are important assets in maintaining our momentum.Without being defined by their
particular areas of expertise, they work together to contribute to the ultimate success of the franchise.
Richard S. Fuld, Jr.: We have worked hard to get the culture right.We aspire to
be a firm where everyone thinks and acts like an owner.We look for the smartest
people who can contribute in group settings and aim for team victories.The result
is a culture that differentiates us: we come together across the entire Firm to deliver
great ideas to clients, and maximum value to our shareholders.
Jasjit S. Bhattal: Asia represents more than half of the worlds population and
more than a quarter of its economic output, and its principal economies are growing more than twice as fast as Western Europe and North America.The region
offers a compelling growth opportunity for our clients and the Firm. Increasingly,
its where our clients needs are growing so we are serving those needs by
expanding our capabilities and working across divisions.
Michael Gelband: We have diversified in a careful way, making

sure that we add capabilities only where they make sense for our
clients, and where we can bring a competitive advantage to bear.
This enables us to offer best-in-class service with the scale necessary to
deliver a diverse suite of asset classes, across currencies and geographies,
utilizing our One Firm approach.
Dave Goldfarb: We are in the business of delivering intellectual capital

to our clients, whether its help with an IPO, managing a balance sheet or
advising on a merger.We have pursued a strategy of diversified growth to
make sure we can do this consistently and with the highest level of professionalism.We have built a world-class platform in each business we are in,
seeking growth that is consistent with our financial performance objectives.
Joseph M. Gregory: To ensure a strong and lasting franchise, we assemble the best
talent available, surrounding ourselves with people from diverse backgrounds who
bring to bear knowledge and ability in a variety of different areas.We look for people
who respect each other and seek to lead, who ask questions and seize opportunities
and, with training, learning and experience, can help take the Firm to new heights.
16
Jeremy M. Isaacs: This is an exciting time for the Firm.We are seeing
the benefit of all of the hard work we have done to add scale to our
international franchise, translating the brand on a global basis.We have
judiciously invested in strengthening our capabilities in order to provide
the highest level of service wherever our clients do business.
Theodore P. Janulis: Our competitive advantage stems from our

ability to connect the dots for our clients, even as we diversify the
platform to do much more for them.The more things we do well,
the greater our opportunities to serve clients.
Stephen M. Lessing: In order to truly own a client relationship, it must be

prioritized at the most senior levels of the clients organization. By partnering
with key client decisionmakers, we can effectively demonstrate to the clients
entire organization a complete understanding of their needs and objectives.
Herbert H. McDade III: We want to be able to offer the

mix of products and services that most closely matches up
with our clients needs. If we do that, we can deepen and
intensify our relationships with those clients.We always want
to be in a position to help a client in one area of the Firm,
with answers, ideas and thought leadership from other areas.
Hugh E. McGee III: Relationships are built over years, but we

dont keep our clients trust based solely on what we have done
in the past. Instead, we win clients trust by continuing to deliver.
Our job is to use our industry knowledge and intellectual capital
to keep our clients ahead of the changes affecting their businesses,
and to come up with creative solutions that add value.
Roger B. Nagioff: Its our goal to be as compelling a presence

in the marketplace as possible, and the best measure of that is
when our clients tell us they feel that they would be missing out
on opportunities if they didnt do business with us. Its a function
of our scale, our depth, our momentum and ultimately, our
reputation with clients.
Thomas A. Russo: Lehman Brothers culture of doing the right thing

is additive to our legal and compliance infrastructure in that it enables the
Firm to knit the ultimate goals of all laws into the fabric of the workplace.
It is that culture that becomes the ultimate safeguard of our brand and
insurer of its success.
17
M E R I TO C R AC Y
e pride ourselves on assembling diverse

groups of people who work together to
produce extraordinary outcomes for
our clients and our Firm. In a global
marketplace for ideas and people, we are a meritocracy, offering

advancement opportunities to those individuals who deliver
superior performance.This commitment to rewarding people
based on merit enables us to attract and retain
Its All
About
Talent
the best talent in our industry people who

can learn and thrive here.
We seek diversity of backgrounds,
as can be seen clearly in the wealth of different perspectives

and abilities our 2005 analyst and associate classes have brought
to the Firm.The analyst class includes graduates of more than
130 universities and fluency in more than 50 languages, while
the associate class represents more than 44 graduate schools and
34 languages. Our culture enables us to blend together approximately 23,000 diverse and talented individuals into a focused,
agile and smart organization producing superior results for our
clients and shareholders.
I was previously a client of the

Firm, and Lehman Brothers
culture of cross-divisional teamwork was very attractive to me.
That background also gives me
a unique perspective on our
commitment to true partnership
with clients.We seek to innovate
and commit resources from
multiple divisions to help our
clients meet their goals.This is
evident in Korea where we are
expanding the business and pioneering new products, including
OTC derivatives and long-term
mortgage lending.
R E S P E C T F O R E AC H OT H E R
e value the contributions of individuals

throughout the Firm
and respect their differ-
ences, not only because this is the right thing
ES Min
Managing Director
to do, but also because these differences enable

us to develop new
Diversity
of Viewpoints
Generates
Diversity
of Solutions
ways of looking at
problems and to
deliver the best solutions for our clients.
In order to develop
the most creative ideas, we must have the

broadest possible base of intellectual capital.
We must also ensure we maintain a workplace
in which these creative ideas can be fully
developed and respected.We must give our
employees all of the tools they need to succeed, including training, development and the
freedom to think and grow.
Diversity is at the heart of our One
Firm culture and the values we all share. By
making diversity a business focus, we continue
to build an environment that fosters integrity
and respect, in which each individual is able
to achieve the most in his or her career and
contribute to superior results for our clients
and the Firm.The hallmark of our success will
be a reputation for talent, and wide recognition
as a firm with a unique culture in which
exceptional people from many different
backgrounds can build rewarding careers.
20
Il cliente per noi al centro e costruiamo tutto attorno a questo concetto.

Probabilmente abbiamo una cultura diversa ed un diverso modo di fare
business, ma come il resto della Lehman Brothers siamo focalizzati interamente sul cliente. Abbiamo pi di 100 persone basate in Italia e lavoriamo
come un unico team con altre divisioni della banca. Molti di noi qui a
Milano sono in Lehman da 20 anni: abbiamo quindi una grande credibilit
all'interno della nostra organizzazione ed il cliente lo riconosce. Quando i
clienti parlano con noi sanno che stanno parlando con la Lehman Brothers.
The client is at the center and

you build everything around
that.We have a diverse culture
and a diverse business, all of it
focused on the client.We have
more than 100 people in Italy,
and we do work like a team
with other areas of the Firm.
Many of us in Milan have been
with the Firm for 20 years.
We have internal credibility
and the client knows that.
When they are speaking with
us, they know they are speaking
with the entire Firm.
Patrizia Micucci
Managing Director
Als internationale zakenbank moeten wij verschillende culturen en nationaliteiten naadloos laten samenwerken. Lehman Brothers
doet dit door verschillen te respecteren en
door zeer veel belang te hechten aan teamwork. Dit is precies wat we hebben gedaan
als adviseur van ABN AMRO bij de acquisitie
van Banca Antonveneta. Ik ben zelf Nederlander en heb een jarenlange relatie met
ABN AMRO. Echter om het beste resultaat
te behalen voor onze klant in deze zeer
complexe grensoverschrijdende transactie,
hebben we gewerkt met een volledig gentegreerd team uit onze kantoren in Amsterdam,
Milaan en Londen. Daarnaast hebben wij
nauw samengewerkt met een groot aantal
externe adviseurs en alle betrokken mensen
van ABN AMRO.
On our debt capital markets public

sector team in London, we are fortunate
to have a diverse set of team members
with a wide range of experiences,
backgrounds and nationalities (including Pakistani, Swedish, Georgian, Italian,
American, and including my own,
French).This has been a core strength
for us as it has enabled us as a team to
tackle a clients problem from a variety
of different perspectives which in turn
helps us create the best possible solution. It is this very multifaceted team
that enabled us to structure our 13
billion debt financing for CADES,
the first 15-year issue for this entity
created by the French government to manage the French
social security deficit.
Damien Carde
Vice President
As a Firm, we must navigate cultures and nationalities

seamlessly. Lehman Brothers does this by respecting differences as part of our commitment to teamwork.We
did just that as financial advisor to ABN AMRO in its
acquisition of Banca Antonveneta. I am Dutch and have
decade-long relationships at ABN AMRO, but in order
to achieve the best result for our client in this extremely
complex cross-border transaction, we presented a fully
integrated team, consisting of people from our offices in
Amsterdam, Milan and London. In addition, we worked
in close partnership with a great number of external
advisors and all people involved from ABN AMRO.
There are barriers of language and culture to doing business outside of the U.S., so becoming local is crucial to
becoming the trusted advisor to our clients. For example,
I grew up in Austria and Germany and have been an
investment banker in Germany for over 15 years. But
being local is just one piece of the puzzle; we also have to
think and act globally in order to deliver comprehensive
solutions to clients. Our connectivity to the rest of the
Firm and its global footprint is crucial and contributes
to our strong cross-border capabilities.
Christian Meissner
Managing Director
Maarten van Berckel

Managing Director
The Firm cultivates a spirit of support and cooperation

in the internal exchange of ideas. Our many different
viewpoints are united by a common goal: to bring
the very best ideas to our clients.
In Japan we have been successfully building our business by
partnering with clients to
create innovative solutions
and by helping them complete complex cross-border
and regional transactions.
Akio Katsuragi
Managing Director
A Londres, au sein de notre quipe des

marchs de capitaux responsable du
secteur public, nous avons la chance
davoir une quipe varie aussi bien en
termes dexpriences que de nationalits
(en particulier pakistanaise, sudoise,
gorgienne, italienne, amricaine,
moi-mme tant de nationalit franaise).
Cela savre une vritable force. Nos
diffrents points de vue nous permettent
de rsoudre les problmes de nos
clients en apportant des solutions
uniques. Forte de ces complmentarits,
cest cette quipe qui a obtenu le premier mandat obligataire de 3 milliards
dEuros 15 ans pour la CADES, agence
cre par le gouvernement franais pour
amortir la dette de la scurit sociale.
Mit Blick auf mgliche

Eintrittsbarrieren fr auslndische
Investmentbanken in den deutschen
Markt knnen sprachliche - und
kulturelle Aspekte eine groe
Rolle spielen. Deshalb ist es fr
uns besonderes wichtig, tief im
deutschen Markt verwurzelt zu
sein, um unseren Kunden den bestmglichen Beratungsservice bieten
zu knnen. Ich bin in sterreich und
Deutschland aufgewachsen und seit
ber 15 Jahren als Investmentbanker
im deutschen Markt aktiv. Neben
der lokalen Nhe ist eine globale
Vernetzung mit Blick auf umfassende
Lsungsangebote fr unsere Kunden
von groer Bedeutung. Deshalb
sind wir in Deutschland eng in
die weltweite Lehman Brothers
Organisation eingebunden und
knnen somit grenzberschreitende
Initiativen und Transaktionen fr
unsere Kunden nahtlos vorantreiben
und untersttzen.
Lehman Brothers culture encourages us to be open-minded

when dealing with clients and transactions.We value different
viewpoints and have great respect for local knowledge, while
at the same time bringing our own global and regional
expertise.At Lehman Brothers, we embrace cultural diversity
and that makes the Firm a special place to work.
Zhizhong Yang
Managing Director
21
S M A RT R I S K M A N AG E M E N T
any of our businesses require us to take risks, but we

only take those risks we understand, where we have
unique insight, and where the rewards are sufficient
to justify the potential cost.
Taking these risks and managing them well is the job of every
employee.Thats ideal because no one small, central group can evaluate

every assumption of risk in a Firm with $410 billion in assets and offices
Everyone Is a
Risk Manager
in 20 countries.We must and do rely on all employees

to think before they act. This vigilance works
because we treat everyone as a risk manager,
guarding against inappropriate risk.

We overlay that universally shared responsibility with rigorous
senior management attention to managing our liquidity, our capital
commitments, our expenses and our reputation.We watch them all
very closely, making it a mission-critical priority to practice active and
intelligent risk management at the highest levels of the Firm.
In an electronic age, markets and even economies can shift instantaneously, so we stress-test our assumptions as we pursue, in a balanced
and focused way, global opportunities.We will continue to utilize this
meticulous approach as we enter new markets, introduce new products
and build our existing business lines in order to better serve our clients
and deliver attractive shareholder value.
23
P R E S E RV E A N D
S T R E N G T H E N O U R C U LT U R E
he starting point in everything we do is our culture of

coming together as a team to deliver for the client. In
order for that culture to be sustained, it must evolve as the
Firm grows.After more than 150 years in business, includ-
ing more than a decade as a public company, we understand the role our
culture has played in our growth and achievements, as well as the value of
preserving and strengthening our culture over time.
Our Mission Statement underlines the key elements of our culture:
We are One Firm, defined by our unwavering commitment to
It Starts with
the Culture
our clients, our shareholders and each other. Our mission is to build unrivaled partnerships with and value
for our clients, through the knowledge, creativity and
dedication of our people, leading to superior returns for our shareholders.

As we have grown to almost 23,000 employees from 11,000 five
years ago, we have worked hard to ensure that each new employee understands and is comfortable with the Firms values, and that they retain those
values as they continue to develop and grow.To do that, all of us, especially
the senior leaders of the Firm, must consistently demonstrate our values
and integrity in action every day. If we have done our job correctly, we
will continue to create value.The equation really is as simple as that: you
build trust over time, with your shareholders, your clients and your
employees, and it leads to success for the Firm.
24
25
26
ehman Brothers and its employees, together, are strong

supporters of the community.
In addition to major financial
contributions from the Firm to support

underprivileged children, the arts and
culture, healthcare and emergency relief,
thousands of employees provide tens of
thousands of volunteer hours and significant financial resources of their own.
One way the spirit of our employees
and our philanthropic commitment shows
is in our response to emergencies, including
Giving
Back to the
Community
the South Asia Tsunami,

the South Asia Earthquake
and the Gulf Coast Hurricanes. Following the
hurricanes, employees built new housing

with Habitat for Humanity (at left), collected school supplies for displaced students and
served evacuees at shelters in Houston and
Dallas. Employees also personally gave close
to $1 million to emergency relief efforts
worldwide, which the Firm matched dollar
for dollar; combined gifts from the Firm,
The Lehman Brothers Foundation and
employees totaled more than $3 million.
Throughout the year and across the
globe, in groups and as individuals, Lehman
Brothers employees help others. Whether
by cleaning parks, painting schools, tutoring
students, packing food or simply spending
time with young people, Lehman Brothers
employees give back.
OW N E R S H I P M E N TA L I T Y
ur goal is to deliver the highest returns in our industry

to our shareholders.We believe that each employee
must both think and act like a shareholder, all of the
time. If employees think and act like owners, working
both to advance and protect the franchise as though they were the
proprietor of their own business, they will
We Need Every
Employee to
Think and Act
Like a Shareholder
perform better and so will the Firm.

In order to achieve this, we encourage
share ownership by employees to help instill
this strong sense of stewardship throughout
the Firm. Employees own approximately 30% of Lehman Brothers, but

our sense of shared responsibility is far more extensive.
Our employees take personal responsibility for:
Originating new business, reducing expenses and managing risk;
Setting high standards for themselves;
Actively supporting the mission and values of the Firm;
Contributing as part of a team; and
Helping our clients as partners achieve their vision.
29
B U I L D A N D P ROT E C T O U R B R A N D
ur clients needs do not fit neatly into one time zone,

one product area or one industry group. Business is not
done in compartmentalized boxes it flows freely across
borders and sectors of the economy and we must be
ready to provide our intellectual capital wherever and however it is required.

Our evolution as a firm has been guided by our clients needs.
From a single building at One William Street just off Wall Street,
Lehman Brothers has grown to be a global, publicly traded full-service
investment bank with approximately 23,000 employees in 47 principal
offices in 20 countries.We have built upon our distinguished 155-year
Diversifying
Across Products,
Industries
and Borders
history and created a world-class organization for the 21st

century, seamlessly delivering investment banking, capital
markets and investment management products and services
throughout the Americas, Europe and Asia.
Since 2000, Lehman Brothers has expanded its European and Asian franchises. In 2005, Europe and Asia accounted
for over one-third of global net revenues.This momentum has
enabled us to attract the best talent, and to continue to expand
the depth and breadth of our international franchise.
Our broadly diversified base of businesses allows us
to take the strategic view beyond short-term business cycles.
We will continue to seek balance, not for the sake of balance,
but for the sake of meeting clients needs, and creating
shareholder value, around the world.
30
31
M A X I M I Z E S H A R E H O L D E R VA L U E
ur mission guides our success.

Our mission is focused on our
clients, our people, our Firm and
our shareholders. In the end, if
we continue to do our job well, these principles,

woven together, help us realize our ultimate Firm
In Asia, revenues were a

record $1.8 billion. We
advised Newbridge Capital
on the $3.3 billion sale of
Korea First Bank to Standard
Chartered Bank, the largest
Korean bank acquisition
since 2001.We also advised
Fujisawa Pharmaceutical
Co., Ltd. in its $7.3 billion
merger with Yamanouchi
Pharmaceutical Co., Ltd. to
establish Astellas Pharma Inc.,
the largest pharmaceuticals
merger in Asia. In addition,
we were the #1 foreign dealer in Japanese government
bond auctions.
objective: maximizing shareholder value.

We are deeply committed to building the
value of the Firm, by extending our capabilities
along both business and geographic lines.Through
Extending
the Platform
sustained excellence and

balance, Lehman Brothers
seeks to be an attractive
investment representing long-term value for our

shareholders.And we have delivered, registering a
total return of 1,087% over the past decade.
The value creation process is a dynamic
one, involving thousands of decisions each day by
each and every one of our employees. In everything
we do, we are constantly identifying and evaluating
ways to add value, assessing both strategic and tactical
opportunities to grow the Firm while, at the same
time, focusing and building on existing strengths
and resources.
Building shareholder wealth is a long-term
responsibility.After more than 150 years in business
and more than a decade as a public company, we
understand the hard work that goes into maintaining
momentum and commitment over time.There are
no shortcuts.We realize we have achieved much,
but we also realize that we have barely begun.
32
We have achieved scale

in Europe. We advised our
clients Endesa S.A. and HVB
Group on two of the largest
announced European deals
during the year. In June 2005,
Lehman Brothers acted as
joint bookrunner for the IPO
of Inmarsat plc, the world
leader in global mobile satellite communications services,
the largest U.K. IPO the
Firm has ever completed.We
also acted as joint bookrunner
for The Netherlands-based
Royal Philips Electronics,
Europes largest electronics
company, on the sale of
$1.1 billion of stock in
NAVTEQ, a global provider
of digital maps.We were
best-in-class in six of seven
categories for non-U.S. clients
in Global Custodians Prime
Brokerage Survey.
We continue to be one of
the worlds leading Fixed
Income franchises in execution, research and product
innovation. Institutional
Investor has ranked our U.S.
fixed income research #1 for
six consecutive years, and our
bond indices have been #1
since rankings began in 1997.
We accounted for more than
10% of U.S. trading volume
for the third straight year.
And we put our structuring
expertise to work, acting as
sole global financial coordinator for a private equity
consortiums acquisition of
Hertz Corporation.We
arranged aggregate debt
financing of $12.3 billion
to support the transaction,
$5.8 billion of that in the
form of a securitization of
Hertzs U.S. rental fleet.
In Investment Banking, our

share of global fees rose for
the sixth consecutive year.
We advised on a number
of the largest deals done in
2005 as we helped our clients
transform their companies
and industries, including
SBC Communications Inc.s
acquisition of AT&T Corp.,
Sprints merger with Nextel,
Chevron Corporations
acquisition of Unocal
Corporation,Valero Energy
Corporations acquisition of
Premcor Inc. and Time
Warner Inc.s joint acquisition,
with Comcast Corporation,
of Adelphia Communications
Corporation.We were also
named Best Investment
Bank by Euromoney.
Our Investment Management business has doubled

its revenues in two years.
Assets rose to a record
$175 billion in 2005 from
$137 billion in 2004. Our
clients added more than
$26 billion in new assets
in 2005, while accounts
posted $12 billion in market
appreciation, as we completed
the successful integration
of Neuberger Berman.
We have built a powerful

global Equities platform.
Our equity research team has
been ranked #1 by Institutional
Investor for three consecutive
years.We also became the first
firm to achieve a #1 ranking
by Institutional Investor in
all four institutional equity
trading desk categories: NYSElisted trading, NYSE-listed
sales-trading, NASDAQ trading
and NASDAQ sales-trading.
We are the #1 broker on the
London Stock Exchange,
becoming the first and only
broker to achieve one million
order book trades in a calendar month during 2005.
T H E N U M B E R S W I L L F O L L OW
n one sense, maintaining the Firms momentum is a difficult,

nonstop effort. In another, it is easy in that we do not focus
on results as ends unto themselves instead, we see them as
consequences of all of the many other things we do:
Delivering the entire Firm to our clients;

Doing the right thing;
Demonstrating a commitment to excellence;
The
Numbers
Will Follow
Promoting and demonstrating teamwork;

Ensuring our organization is a true meritocracy;
Respecting each other;
Demonstrating smart risk management;
Preserving and strengthening the culture;

Giving back to the community;
Acting always with an ownership mentality;
Building and protecting our brand; and
Maximizing shareholder value.
Our focus on all of these together has defined our success.
When we do our best to try to achieve The Lehman Brothers
Standard, we can see it in our numbers.
34
Financial Review
37
Managements Discussion and

Analysis of Financial Condition
and Results of Operations
37
Introduction
37
Forward-Looking Statements
38
Certain Factors Affecting

Results of Operations
39
Executive Overview
41
Consolidated Results
of Operations
45
Business Segments
51
Geographic Revenues
52
Liquidity, Funding and

Capital Resources
58
Summary of Contractual Obligations

and Commitments
59
Off-Balance-Sheet Arrangements
60
Risk Management
64
Critical Accounting Policies

and Estimates
70
Accounting and Regulatory Developments
71
Effects of Ination
72
Report of Independent Registered

Public Accounting Firm on Internal
Control over Financial Reporting
73
Managements Assessment
of Internal Control over
Financial Reporting
74
Report of Independent Registered

Public Accounting Firm
75
Consolidated Financial Statements
81
Notes to Consolidated
Financial Statements
114
Selected Financial Data
116
Other Stockholder Information
117
Corporate Governance
118
Senior Leadership
119
Locations
M A N AG E M E N T S D I S C U S S I O N A N D A N A LY S I S
OF FINANCIAL CONDITION
A N D R E S U LT S O F O P E R AT I O N S
INTRODUCTION
prietary trading activities, and make principal investments in real estate

and private equity.The nancial services industry is signicantly inu-
Lehman Brothers Holdings Inc. (Holdings) and subsidiaries (collec-
enced by worldwide economic conditions as well as other factors
tively, the Company,Lehman Brothers,we,us or our) is one
inherent in the global nancial markets.As a result, revenues and earn-
of the leading global investment banks, serving institutional, corporate,
ings may vary from quarter to quarter and from year to year.
government and high-net-worth individual clients. Our worldwide
All references to the years 2005, 2004 and 2003 in this
headquarters in New York and regional headquarters in London and
Managements Discussion and Analysis of Financial Condition and
Tokyo are complemented by offices in additional locations in North
Results of Operations (MD&A) refer to our scal years ended
America, Europe, the Middle East, Latin America and the Asia Pacic
November 30, 2005, 2004 and 2003, or the last day of such scal years,
region. Through our subsidiaries, we are a global market-maker in all
as the context requires, unless specically stated otherwise.
major equity and xed income products.To facilitate our market-making activities, we are a member of all principal securities and commodi-
FORWARD-LOOKING STATEMENTS
ties exchanges in the U.S. and we hold memberships or associate

memberships on several principal international securities and com-
Some of the statements contained in this MD&A, including those
modities exchanges, including the London, Tokyo, Hong Kong,
relating to our strategy and other statements that are predictive in
Frankfurt, Paris, Milan and Australian stock exchanges.
nature, that depend on or refer to future events or conditions or that
Our principal businesses are investment banking, capital markets
include words such as expects, anticipates, intends, plans,
and investment management, which, by their nature, are subject to
believes, estimates and similar expressions, are forward-looking
volatility primarily due to changes in interest and foreign exchange
statements within the meaning of Section 21E of the Securities
rates, valuation of nancial instruments and real estate, global eco-
Exchange Act of 1934, as amended.These statements are not historical
nomic and political trends and industry competition. Through our
facts but instead represent only managements expectations, estimates
investment banking, trading, research, structuring and distribution
and projections regarding future events. Similarly, these statements are
capabilities in equity and xed income products, we continue to build
not guarantees of future performance and involve certain risks and
on our client-ow business model. The client-ow business model is
uncertainties that are difficult to predict, which may include, but are
based on our principal focus of facilitating client transactions in all
not limited to, the factors discussed under Certain Factors Affecting
major global capital markets products and services.We generate client-
Results of Operations below and in Part I, Item 1A, Risk Factors, in
ow revenues from institutional, corporate, government and high-net-
our 2005 Annual Report on Form 10-K (the Form 10-K).
worth clients by (i) advising on and structuring transactions
As a global investment bank, our results of operations have varied
specically suited to meet client needs; (ii) serving as a market-maker
signicantly in response to global economic and market trends and
and/or intermediary in the global marketplace, including having secu-
geopolitical events. The nature of our business makes predicting the
rities and other nancial instrument products available to allow clients
future trends of net revenues difficult. Caution should be used when
to adjust their portfolios and risks across different market cycles; (iii)
extrapolating historical results to future periods. Our actual results and
providing investment management and advisory services; and (iv) act-
nancial condition may differ, perhaps materially, from the anticipated
ing as an underwriter to clients. As part of our client-ow activities,
results and nancial condition in any such forward-looking statements
we maintain inventory positions of varying amounts across a broad
and, accordingly, readers are cautioned not to place undue reliance on
range of nancial instruments that are marked to market daily and give
such statements, which speak only as of the date on which they are made.
rise to principal transactions and net interest revenue. In addition, we
We undertake no obligation to update any forward-looking statements,
also maintain inventory positions (long and short) through our pro-
whether as a result of new information, future events or otherwise.

Lehman Brothers 2005
M A N A G E M E N T S D I S C U S S I O N A N D A N A LY S I S
37
CERTAIN
FACTORS
AFFECTING
OF
OPERATIONS
Our nancial condition and results of operations may be affected by
default risk may arise from unforeseen events or circumstances. See Risk
uncertain or unfavorable economic, market, legal and other conditions.
ManagementCredit Risk in this MD&A for more information.
These conditions include but are not limited to:
OPERATIONAL RISK
MARKET RISK
Operational risk is the risk of loss resulting from inadequate or failed
Changes in interest and foreign exchange rates, nancial instruments
internal or outsourced processes, people, infrastructure and technology, or
and real estate valuations and increases in volatility can increase credit
from external events.We seek to minimize these risks through an effec-
and market risks and may also affect client-ow-related revenues and
tive internal control environment. See Risk ManagementOperational
proprietary trading revenues as well as affect the volume of debt and
Risk in this MD&A for more information.
equity underwritings and merger and acquisition transactions. See Risk

ManagementMarket Risk in this MD&A for more information.
LEGAL, REGULATORY AND REPUTATIONAL RISK
The securities and nancial services industries are subject to extensive reg-
COMPETITIVE ENVIRONMENT
ulation under both federal and state laws in the U.S. and under the laws of
All aspects of our business are highly competitive. Our competitive abil-
the many other jurisdictions in which we do business.We also are regulated
ity depends on many factors, including our reputation, the quality of our
by a number of self-regulatory organizations such as the National
services and advice, intellectual capital, product innovation, execution
Association of Securities Dealers, the Municipal Securities Rulemaking
ability, pricing, sales efforts and the talent of our employees. See Part I,
Board and the National Futures Association, and by national securities and
Item 1BusinessCompetition in the Form 10-K for more information
commodities exchanges, including the New York Stock Exchange. As of
about competitive matters.
December 1, 2005, Holdings became regulated by the SEC as a consoli-
BUSINESS ENVIRONMENT
dated supervised entity (CSE), and as such, we are subject to group-wide
Concerns about geopolitical developments, oil prices and natural disasters,
supervision and examination by the SEC, and accordingly, we are subject to
among other things,can affect the global nancial markets.Accounting and
minimum capital requirements on a consolidated basis.Violation of appli-
corporate governance scandals in recent years have had a signicant effect
cable regulations could result in legal and/or administrative proceedings,
on investor condence. See Executive OverviewBusiness Environment
which may impose censures, nes, cease-and-desist orders or suspension of
andEconomic Outlook in this MD&A for additional information.
a rm, its officers or employees.The scrutiny of the nancial services indus-
LIQUIDITY
Liquidity and liquidity management are of critical importance in our
try has increased over the past several years, which has led to increased regulatory investigations and litigation against nancial services rms.
industry. Liquidity could be affected by the inability to access the long-
Legislation and rules adopted both in the U.S. and around the
term or short-term debt, repurchase or securities-lending markets or to
world have imposed substantial new or more stringent regulations,
draw under credit facilities, whether due to factors specic to us or to gen-
internal practices, capital requirements, procedures and controls and dis-
eral market conditions. In addition, the amount and timing of contingent
closure requirements in such areas as nancial reporting, corporate gov-
events, such as unfunded commitments and guarantees, could adversely
ernance, auditor independence, equity compensation plans, restrictions
affect cash requirements and liquidity.To mitigate these risks, our liquidity
on the interaction between equity research analysts and investment
and funding policies have been conservatively designed to maintain suffi-
banking employees and money laundering.
cient liquid nancial resources to continually fund our balance sheet and
The trend and scope of increased compliance requirements has
to meet all expected cash outows, for one year in a stressed liquidity envi-
increased costs necessary to ensure compliance. Our reputation is criti-
ronment. See Liquidity, Funding and Capital ResourcesLiquidity Risk
cal in maintaining our relationships with clients, investors, regulators and
Management in this MD&A for more information.
the general public, and is a key focus in our risk management efforts.
CREDIT RATINGS
We are involved in a number of judicial, regulatory and arbitration
Our access to the unsecured funding markets is dependent on our credit
proceedings concerning matters arising in connection with the conduct
ratings. A reduction in our credit ratings could adversely affect our
of our business, including actions brought against us and others with
access to liquidity alternatives and our competitive position, and could
respect to transactions in which we acted as an underwriter or nancial
increase the cost of funding or trigger additional collateral requirements.
advisor, actions arising out of our activities as a broker or dealer in secu-
See Liquidity, Funding and Capital Resources-Credit Ratings in this
rities and actions brought on behalf of various classes of claimants against
MD&A for more information.
many securities rms and lending institutions, including us. See Part I,
CREDIT EXPOSURE
Credit exposure represents the possibility that a counterparty will be unable

to honor its contractual obligations. Although we actively manage credit
exposure daily as part of our risk management framework, counterparty
38
RESULTS

Item 1BusinessRegulation and Part I, Item 3Legal Proceedings in the

Form 10-K for more information about legal and regulatory matters.
See Part I, Item 1A, Risk Factors, in the Form 10-K for additional
information about these and other risks inherent in our business.
EXECUTIVE
OVERVIEW
(2)
SUMMARY OF RESULTS
BUSINESS ENVIRONMENT
Net income totaled $3.3 billion, $2.4 billion and $1.7 billion in
As a global investment bank, our results of operations can vary in response
2005, 2004 and 2003, respectively, increasing 38% in 2005 and 39%
to global economic and market trends and geopolitical events.A favorable
in 2004 from the corresponding 2004 and 2003 periods, respectively.
business environment is characterized by many factors, including a stable
Diluted earnings per share were $10.87, $7.90 and $6.35 in 2005,
geopolitical climate, transparent nancial markets, low ination, low
2004 and 2003, respectively, up 38% in 2005 and 24% in 2004 from
unemployment, strong business protability and high business and investor
the corresponding 2004 and 2003 periods, respectively. Net revenues
condence.These factors can inuence (i) levels of debt and equity secu-
were $14.6 billion, $11.6 billion and $8.6 billion in 2005, 2004 and
rity issuance and M&A activity, which can affect our Investment Banking
2003, respectively, up 26% and 34% from the corresponding 2004
business, (ii) trading volumes, nancial instrument and real estate valuations
and 2003 periods.
and client activity in secondary nancial markets, which can affect our
These record results in scal 2005 reect the enhanced scale we

have built and the geographic and product diversication we have
achieved, and our continued discipline around managing expenses, risk
and capital.
Capital Markets businesses and (iii) wealth creation, which can affect both
our Capital Markets and Investment Management businesses.
The global market environment during 2005 was generally favorable for our businesses due to a combination of factorspositive eco-
During 2005, we continued to strengthen and grow our rm.We
nomic growth, improved corporate protability, strong equity markets,
achieved record net revenues, net income and diluted earnings per
and low long-term interest rates by historical standards. The global
share in 2005 for the second consecutive scal year.These results were
equity markets rose, driven by strong earnings reports and positive eco-
driven by record net revenues in each business segment and in each
nomic data, notwithstanding record high oil prices and continued
geographic region.
geopolitical and inationary concerns. Global yield curves continued to
Net revenues grew 26% in 2005 compared with 2004. Investment
atten and corporate credit spreads remained generally tight. The
Banking business segment revenues increased 32% compared with
economies of Asia (excluding Japan) continued their strong growth in
2004, propelled by record revenues in Global FinanceDebt, and
2005, while the European and Japanese economies grew more slowly.
Global FinanceEquity, and the second highest revenues ever in
At various points in 2005, market conditions became more challenging
Advisory Services. Capital Markets business segment net revenues rose
due to higher energy prices, the aftermath of the hurricanes in the
27% in 2005 compared with 2004, reecting a record performance in
southeast U.S. and concerns that these factors could translate into higher
Fixed Income and second highest Equities net revenues. Investment
core ination. Oil prices reaching $70 a barrel and higher than expected
Management business segment net revenues rose 14% in 2005 com-
producer and consumer price indices also added uncertainty, volatility
pared with 2004 on record levels of both Private Investment
and a higher risk premium to the capital markets. However, both the
Management and Asset Management revenues, and assets under man-
consumer and the markets generally proved to be remarkably resilient.
agement grew to $175 billion. Non-U.S. net revenues increased to a
Equity Markets The global equity markets reported broad gains
record $5.4 billion, representing 37% of total net revenues in 2005, up
during 2005, due primarily to positive economic data and strong earn-
from 29% in 2004, as both the Europe and Asia Pacic and other
ings reports. Higher valuations served to fuel the equity origination cal-
regions achieved double-digit net revenue growth.
endar, such that industry-wide volumes were very strong and pipelines
Net revenues grew 34% in 2004 compared with 2003, reecting
continued to build. In 2005, the New York Stock Exchange, Dow Jones
increases in each of our three business segments and in each geographic
Industrial Average, S&P 500 and NASDAQ indices rose 9%, 4%, 6%, and
region. Investment Banking business segment revenues rose 27% in
6%, respectively, when compared to 2004. In the European equity mar-
2004 compared with 2003 propelled by improvements in Global
kets, the FTSE and DAX rose 15% and 26%, respectively, in 2005 when
FinanceEquity and Advisory Services. Capital Markets net revenues
compared to 2004. In Asia, the Nikkei and Hang Seng indices rose 36%
rose 28% in 2004 compared with 2003, reecting robust Fixed Income
and 6%, respectively, in 2005 when compared to 2004.
net revenues and improved Equities net revenues. Investment
Global trading volumes improved in 2005 compared to 2004. In the
Management business segment net revenues rose 87% in 2004 com-
U.S., trading volumes for all major indices increased in 2005 compared
pared with 2003, primarily due to increased Asset Management rev-
with 2004, as continued low interest rates and improved corporate prof-
enues associated with business acquisitions, complemented by
itability created a more favorable environment for equity products.
improved results in the Private Investment Management component of
Average daily trading volumes of FTSE 100 stocks declined 6% compared
this business segment.
with 2004, while the trading volumes of DAX composite stocks rose 7%
(2)
compared with 2004.Volumes on the Nikkei and Hang Seng exchanges

Market share, volume and ranking statistics in this MD&A were obtained from
Thomson Financial.
rose 30% and 6%, respectively, in 2005 compared with 2004.

39
Fixed Income Markets Throughout 2005 interest rates contin-
xed-income-related products and the xed income investor base to
ued to remain low and the yield curve continued to atten, as longer
continue to grow with a continuing global trend of more liquidity
term yields were little affected by the Federal Funds Rate increases
requirements being sourced from the capital markets. We also believe
which totaled 200 basis points. Credit and swap spreads while gener-
a reasonably strong primary debt market should have a positive impact
ally tight, widened slightly in response to the atter treasury curve.
on secondary market ows.
Conditions in Europe were somewhat less favorable than the U.S., as
Fixed income activity is driven in part by the absolute level of
growth remained slow and the Euro weakened. Japan continued on its
interest rates, but also is highly correlated with the degree of volatility,
recovery path, with the Bank of Japan providing favorable monetary
the shape of the yield curve and credit quality, which in the aggregate,
policies which continued to support liquidity and growth.Total global
impact the overall business environment.The xed income investor base
debt origination rose 13% in 2005 compared with 2004 on higher lev-
has changed dramatically from long-only investors of a few years ago to
els of investment-grade debt issuances partially offset by a decline in
a rapidly-growing hedge fund and an expanding international investor
high-yield origination volumes.
base. Investors now employ far more developed risk mitigation tools to
Mergers and Acquisitions Stronger stock valuations and the
manage their portfolios. In addition, in recent years the Fed has become
favorable interest rate environment during 2005 kept both strategic
more transparent in communicating its intentions, as evidenced by the
buyers and nancial sponsors very active in M&A. Announced M&A
markets ability to successfully absorb twelve consecutive 25 basis-point
volumes rose 56% in 2005 compared with 2004, while completed M&A
Fed Funds rate hikes from June 1, 2004 through November 30, 2005, to
volumes rose 31% in the period.
bring the Fed Funds rate to 4%.We believe that the Fed will continue
ECONOMIC OUTLOOK
its pattern of raising rates until it reaches 5% in 2006. In addition, the
The nancial services industry is signicantly inuenced by worldwide
size and diversity of the global xed income marketplace has become
economic conditions in both banking and capital markets. We expect
signicantly larger and broader over the last several years. We expect
global GDP growth of 2.6% for 2006, a level that continues to provide
approximately $8.5 trillion of global xed income origination in calen-
a favorable underpinning for this industry. We expect the Fed to con-
dar 2006, staying constant with 2005 issuance levels, but almost double
tinue raising rates to 5% by mid-2006 and then keeping interest rates
the $4.3 trillion issued in calendar 2000.
steady.The end of the Feds rising interest rate cycle in the past has been
Mergers and Acquisitions During scal 2005, M&A activity
positive for our sector.We expect that corporate protability will remain
increased signicantly, and we expect this to continue. Companies are
resilient, and we are looking for corporate earnings to increase by 8% to
still looking to grow, and strategic M&A is an increasingly viable option
10% in 2006. Additionally, U.S. corporate balance sheets remain strong
to achieve these growth objectives, particularly for companies with liq-
and operating cash ows solid, with cash on hand amounting to approx-
uid and strong balance sheets and stronger stock valuations.
imately 10% of total balance sheets, giving corporations a higher degree
During scal 2004 and 2005, activity from strategic buyers
of exibility for mergers and acquisitions, buybacks and dividends.
increased, and we expect the M&A fee pool in scal 2006 to continue
Although we remain wary of geopolitical risk, the growing decits in
to grow compared with scal 2005. Financial sponsor M&A also has
the U.S., and Chinas efforts to rein in growth, we see resiliency in the
been an important factor driving the increase in activity.
global economy as a whole.
40
Asset Management and High Net Worth Capital markets contin-
Equity Markets The environment for the equity markets became
ued to be resilient in 2005, and growing economies translate into
more positive in 2005 compared with 2004. Liquidity remained avail-
wealth.We aspire to be a provider of choice among the high-net-worth
able and industry-wide equity-offering pipelines continued to grow.We
client base, given our growing product breadth and strong performance.
expect the equity offering calendar to remain robust through 2006, as
Our outlook for asset management and services to high-net-worth
reasonably strong corporate protability and a low ination outlook are
individuals is positive, given favorable demographics, higher savings rates
expected to increase condence in the marketplace.
globally and intergenerational wealth transfer. The high-net-worth
Fixed Income Markets We see a continued constructive envi-
client increasingly seeks multiple providers and greater asset diversica-
ronment for xed income origination, given low absolute interest
tion along with a high service component. We believe the signicant
rates, credit spreads remaining in line with historical averages, re-
expansion of our asset management business and the strong investment-
nancings of debt maturing in calendar 2006 and the expected increase
return performance of our asset managers, coupled with our cross-sell-
in M&A and nancial-sponsor-related nancings. We expect both
ing initiatives, position us well for continued growth in 2006.

CONSOLIDATED
RESULTS
OF
OPERATIONS
from the corresponding 2004 and 2003 periods, respectively.
OVERVIEW
We achieved record net revenues, net income and diluted earnings per
Return on average common stockholders equity (3) was 21.6%,
share in 2005 for the second consecutive scal year. Net revenues were
17.9% and 18.2% in 2005, 2004 and 2003, respectively. Return on aver-
$14.6 billion, $11.6 billion and $8.6 billion in 2005, 2004 and 2003,
age tangible common stockholders equity was 27.8%, 24.7% and 19.2%
respectively, up 26% and 34% from the corresponding 2004 and 2003
in 2005, 2004 and 2003, respectively.
periods. Net income totaled $3.3 billion, $2.4 billion and $1.7 billion
Compensation and benets expense as a percentage of net revenues
in 2005, 2004 and 2003, respectively, up 38% and 39% from the corre-
was 49.3%, 49.5% and 49.9% in 2005, 2004 and 2003, respectively. Non-
sponding 2004 and 2003 periods.
personnel expenses as a percentage of net revenues were 17.7%, 20.1%
Diluted earnings per share were $10.87, $7.90 and $6.35 in

2005, 2004 and 2003, respectively, up 38% in 2005 and 24% in 2004
and 20.7% in 2005, 2004 and 2003, respectively. Pre-tax margin was
33.0%, 30.4% and 29.3% in 2005, 2004 and 2003, respectively.
NET REVENUES
IN MILLIONS
Y E A R E N D E D N OV E M B E R 3 0
2005
2004
2003
$ 7,811
$ 5,699
$ 4,272
Investment banking
2,894
2,188
Commissions
1,728
1,537
19,043
Principal transactions
Percent Change
2005/2004
2004/2003
37%
33%
1,722
32
27
1,210
12
27
11,032
9,942
73
11
944
794
141
19
463
Total revenues
32,420
21,250
17,287
53
23
Interest expense
17,790
9,674
8,640
84
12
$14,630
$11,576
$ 8,647
26%
34%
$10,792
$ 8,594
$ 6,784
26%
27%
$ 1,253
$ 1,358
$ 1,302
(8)%
4%
Interest and dividends

Asset management and other
Net revenues
Principal transactions, commissions
and net interest revenue
Net interest revenue
Net revenues totaled $14.6 billion, $11.6 billion and $8.6 billion in
2004, reecting the highest ever net revenues in each of our three busi-
2005, 2004 and 2003, respectively, representing three consecutive years
ness segments and in each geographic region.
of record net revenues. Net revenues grew 26% in 2005 compared with
(3)
Return on average common stockholders equity and return on average tangible common stockholders equity are computed by dividing net income applicable to common stock for the period by average
common stockholders equity and average tangible common stockholders equity, respectively. We believe average tangible common stockholders equity is a meaningful measure because it reflects
the common stockholders equity deployed in our businesses. Average tangible common stockholders equity equals average common stockholders equity less average identifiable intangible assets
and goodwill and is computed as follows:
In millions
Year ended November 30
Average common stockholders equity
Average identifiable intangible assets and goodwill
Average tangible common stockholders equity
2005
2004
2003
$14,741
$12,843
$ 9,061
(3,272)
(3,547)
(471)
$11,469
$ 9,296
$ 8,590

41
PRINCIPAL TRANSACTIONS, COMMISSIONS
term structure of our nancings. Interest and dividends revenue and
AND NET INTEREST REVENUES
Interest expense are integral components of our evaluation of our overall
In both the Capital Markets and Investment Management business seg-
Capital Markets activities. Net interest revenue in 2005 declined 8% com-
ments, we evaluate net revenue performance based on the aggregate of
pared with 2004, due to higher short-term interest rates and a atter yield
Principal transactions, Commissions and Interest and dividends revenue
curve, partially offset by higher levels of interest and dividend earning
net of Interest expense (Net interest revenue). These revenue cate-
assets. Interest and dividends revenue and Interest expense rose 73% and
gories include realized and unrealized gains and losses, commissions
84%, respectively, in 2005 compared with 2004, attributable to higher
associated with client transactions and the interest and dividend revenue
short-term interest rates coupled with higher levels of interest- and divi-
or interest expense associated with nancing or hedging positions.
dend-earning assets and interest-bearing liabilities. Net interest revenue in
Caution should be used when analyzing these revenue categories indi-
2004 rose 4% compared with 2003 principally due to an increase in inter-
vidually because they may not be indicative of the overall performance
est-earning assets. Interest and dividends revenue and Interest expense rose
of the Capital Markets and Investment Management business segments.
11% and 12%, respectively, in 2004 compared with 2003 attributable to
Principal transactions, Commissions and Net interest revenue in the
higher levels of interest- and dividend-earning assets and interest-bearing
aggregate rose 26% in 2005 compared with 2004 and 27% in 2004
liabilities coupled with a modest upward shift in interest rates.
compared with 2003.
Investment banking revenues result from fees and commissions received
with 2004, driven by improvements across both xed income and
for underwriting public and private offerings of xed income and
equity products, including a higher contribution from non-U.S. regions.
equity securities, fees and other revenues associated with advising clients
In Fixed Income Capital Markets the notable increases were in com-
on M&A activities, as well as other corporate nancing activities.
mercial mortgages and real estate, residential mortgages and interest rate
Investment banking revenues rose to record levels in 2005, increasing
products.The 2005 increase in net revenues from equity capital market
32% compared with 2004.The 2005 results reected our highest levels
products was driven by higher trading volumes and improved equity
of revenues in Global FinanceDebt and Global FinanceEquity, and
valuations globally as well as increases in nancing and derivative activ-
the highest level of Advisory Services revenues since scal 2000.
ities. Principal transactions revenue improved 33% in 2004 compared
Investment banking revenues increased 27% in 2004 compared with
with 2003. Then-record xed income revenues in 2004, with notable
2003, reecting substantial revenue increases in Global FinanceEquity
improvements in mortgage and interest rate products over the prior
and Advisory Services and continued strength from our Global
year, contributed to the principal transactions revenue increase, together
FinanceDebt business. See Business SegmentsInvestment Banking in
with stronger equity net revenues, particularly in equity derivatives.
this MD&A for a discussion and analysis of our Investment Banking
Commission revenues rose 12% in 2005 compared with 2004 on
42
INVESTMENT BANKING
Principal transactions revenue improved 37% in 2005 compared
business segment.
higher global trading volumes. Commission revenues increased 27% in
ASSET MANAGEMENT AND OTHER
2004 compared with 2003, reecting commission revenue attributable
Asset management and other revenues primarily result from asset man-
to the acquisition of Neuberger Berman Inc. and its subsidiaries
agement activities in the Investment Management business segment.
(Neuberger) complemented by growth in our trading volumes,
Asset management and other revenues rose 19% in 2005 compared with
despite generally lower market volumes.
2004. The growth in 2005 primarily reects higher asset management
Interest and dividends revenue and Interest expense are a function
fees attributable to the growth in assets under management.The signi-
of the level and mix of total assets and liabilities (primarily nancial
cant increase in 2004 compared with 2003 is attributable primarily to the
instruments owned and sold but not yet purchased, and collateralized bor-
October 31, 2003 acquisition of Neuberger, complemented by higher
rowing and lending activities), the prevailing level of interest rates and the
private equity management and incentive fees.

NON-INTEREST EXPENSES
IN MILLIONS
Percent Change
2005/2004
2004/2003
2005
2004
2003
$7,213
$5,730
$4,318
Technology and communications
834
764
598
28
Brokerage and clearance fees
503
453
367
11
23
Occupancy
490
421
319
16
32
Professional fees
282
252
158
12
59
Business development
234
211
149
11
42
Other
245
208
125
18
66
19
77
(100)
(75)
$2,588
$2,328
$1,793
11%
30%
$9,801
$8,058
$6,111
22%
32%
Compensation and benets
26%
33%
Non-personnel expenses:
Real estate reconguration charge

Total non-personnel expenses
Total non-interest expenses
Compensation and benets/Net revenues
49.3%
49.5%
49.9%
Non-personnel expenses/Net revenues
17.7%
20.1%
20.7%
Non-interest expenses were $9.8 billion, $8.1 billion, and $6.1 billion in
Non-Personnel Expenses Non-personnel expenses totaled $2.6
2005, 2004 and 2003, respectively. Non-interest expenses in 2004 and
billion, $2.3 billion and $1.8 billion in 2005, 2004 and 2003, respec-
2003 include a real estate reconguration charge discussed further below.
tively. Non-personnel expenses as a percentage of net revenues were
Signicant portions of certain expense categories are variable, including
17.7%, 20.1%, and 20.7% in 2005, 2004, and 2003, respectively. The
compensation and benets, brokerage and clearance, and business devel-
increase in non-personnel expenses in 2005 compared with 2004 is pri-
opment.We expect these variable expenses as a percentage of net revenues
marily attributable to increased technology, occupancy and costs associ-
to remain in approximately the same proportions for future periods.We
ated with higher levels of business activity.
continue to maintain a strict discipline in managing expenses.
Technology and communications expenses rose 9% in 2005 com-
Compensation and Benets Compensation and benets totaled
pared with 2004 reecting increased costs associated with the continued
$7.2 billion, $5.7 billion and $4.3 billion in 2005, 2004, and 2003, respec-
expansion and development of our Capital Markets platforms and infra-
tively. Compensation and benets expense as a percentage of net rev-
structure, and increased technology costs to create further efficiencies in
enues continued to decrease and was 49.3%, 49.5%, and 49.9% in 2005,
our mortgage origination businesses. Occupancy expenses increased
2004 and 2003, respectively. Employees totaled approximately 22,900,
16% in 2005 compared with 2004 primarily attributable to growth in
19,600 and 16,200 at November 30, 2005, 2004 and 2003, respectively.
our global space requirements due to higher levels of employees.
The growth in employees in 2005 is primarily attributable to higher lev-
Brokerage and clearance expenses rose 11% in 2005 compared with
els of business activity across the rm, as well as investments in the con-
2004, due primarily to higher transaction volumes in certain Capital
tinued growth of the franchise.The increase in employees in 2004 reects
Markets products. Professional fees and business development expenses
a combination of business acquisitions and organic growth.
increased 12% and 11%, respectively, in 2005 compared with 2004 due
Compensation and benets expense includes both xed and variable
primarily to the higher levels of business activity. Other expenses
components. Fixed compensation, consisting primarily of salaries, bene-
increased 18% in 2005 compared with 2004 due to a number of factors,
ts and amortization of previous years deferred equity awards, totaled
including an increase in mutual fund distribution and administration
$3.2 billion, $2.6 billion and $2.0 billion in 2005, 2004 and 2003, respec-
costs related to the growth in assets under management, as well as an
tively, up 21% in 2005 from 2004 and 30% in 2004 from 2003. The
increase in charitable contributions.
growth of xed compensation in both comparison periods was due pri-
The increase in non-personnel expenses in 2004 is attributable to a
marily to increases in employees.Variable compensation, consisting pri-
number of factors, including business acquisitions coupled with increased
marily of incentive compensation, commissions and severance, totaled
technology initiatives, higher occupancy costs and higher levels of busi-
$4.0 billion, $3.1 billion and $2.3 billion in 2005, 2004 and 2003, respec-
ness activity.Technology and communications expenses rose 28% in 2004
tively, up 30% in 2005 compared to 2004 and 35% in 2004 from 2003,
compared with 2003 reecting the business acquisitions, the depreciation
as higher net revenues resulted in higher incentive compensation.
of technology assets at new facilities, and increased costs associated with
Amortization of deferred stock compensation awards was $1,055 mil-
the continued build-out of Capital Markets platforms and infrastructure.
lion, $800 million and $625 million in 2005, 2004 and 2003, respectively.
Brokerage and clearance expenses rose 23% in 2004 compared with 2003,
43
due primarily to higher volumes in Capital Markets products and expan-
and 2003, respectively. The increases in the effective tax rates in 2005
sion in equities-related businesses. Occupancy expenses increased 32% in
and 2004 compared with the prior years were primarily due to higher
2004 compared with 2003 primarily attributable to the business acquisi-
levels of pre-tax income, which reduced the effect of certain permanent
tions and the increased cost of our new facilities in London and Tokyo.
differences. See Note 16 to the Consolidated Financial Statements for
Professional fees increased 59% in 2004 compared with 2003 due to the
additional information about income taxes.
business acquisitions and higher recruiting and legal fees. Business development expenses increased 42% in 2004 compared with 2003 due to the
Capital Markets During 2004, we acquired three residential mortgage
higher level of business activity and the business acquisitions. Other
origination platforms for an aggregate cost of approximately $184 mil-
expenses increased 66% in 2004 compared with 2003 attributable prim-
lion.We believe these acquisitions add long-term value to our mortgage
arily to the business acquisitions, including mutual fund distribution costs
franchise by allowing further vertical integration of the business plat-
and the amortization of intangible assets.
form. Mortgage loans originated by the acquired companies are
Real Estate Reconguration Charge Non-interest expenses in
intended to provide a more cost-efficient source of loan product for our
2004 and 2003 include pre-tax real estate charges of $19 million and
securitization pipeline.We sold our reverse mortgage originator in 2004
$77 million, respectively ($11 million and $45 million after-tax, respec-
for approximately $42 million. During 2003, we acquired controlling
tively), associated with our 2002 decision to dispose of certain excess
interests in two mortgage loan originators for an aggregate cost of
real estate. In March 2004, we reached an agreement to exit virtually all
approximately $35 million. Net employees added as a result of these
of our remaining leased space at our downtown New York City loca-
acquisitions and disposition totaled approximately 1,300 and 2,000 for
tion, which claried the loss on the location and resulted in the $19 mil-
2004 and 2003, respectively.
lion charge. See Note 17 to the Consolidated Financial Statements for

additional information about the real estate reconguration charge.
Investment Management In October 2003, we purchased

Neuberger as part of our strategic plan to build out our Investment
Insurance Settlement During 2004, we entered into a settlement
Management business segment. The Neuberger acquisition increased
with our insurance carriers relating to several legal proceedings noticed
our revenues from fee-based activities, allowing for reduced cross-
to the carriers and initially occurring prior to January 2003. Under the
cycle earnings volatility, while at the same time the acquisition has
terms of the insurance settlement, the insurance carriers agreed to pay
increased opportunities for revenue synergies across business segments.
us $280 million. During 2004, we also entered into a Memorandum of
We purchased Neuberger for a net purchase price of approximately
Understanding to settle the In re Enron Corporation Securities Litigation
$2.5 billion, including equity consideration of $2.1 billion and cash
class action lawsuit for $223 million.The settlement with our insurance
consideration and incremental costs of $0.7 billion, and excluding cash
carriers and the settlement under the Memorandum of Understanding
and short-term investments acquired of $276 million.
did not result in a net gain or loss in our Consolidated Statement of
In October 2003, we also acquired substantially all of the operat-
Income as the $280 million settlement with our insurance carriers rep-
ing assets of Crossroads, a diversied private equity fund manager, which
resented an aggregate settlement associated with several matters, includ-
expanded our global private equity franchise. In January 2003, we
ing Enron, Worldcom and other matters. See Part I, Item 3Legal
acquired the xed income asset management business of Lincoln
Proceedings in the Form 10-K for additional information about the
Capital Management, a xed income asset management platform. The
Enron securities class action and related matters.
cost of these acquisitions aggregated $137 million.
INCOME TAXES
44
BUSINESS ACQUISITIONS AND DISPOSITIONS
These acquisitions were made as part of our strategic plan to build
The provisions for income taxes totaled $1.6 billion, $1.1 billion and
out our Investment Management business segment. On the dates of
$765 million in 2005, 2004 and 2003, respectively. These provisions
acquisition, employees associated with these entities aggregated
resulted in effective tax rates of 32.5%, 32.0% and 30.2% for 2005, 2004
approximately 1,400.

BUSINESS
SEGMENTS
We operate in three business segments: Investment Banking, Capital
internal allocations, including funding costs and regional transfer pric-
Markets and Investment Management.These business segments gener-
ing which are centrally managed.
ate revenues from institutional, corporate, government and high-networth individual clients across each of the revenue categories in the
The following table summarizes the net revenues of our business

segments:
Consolidated Statement of Income. Net revenues also contain certain
BUSINESS SEGMENTS
IN MILLIONS
Net revenues:
Investment Banking
Capital Markets
Investment Management
Total net revenues
Non-personnel expenses (1)
Income before taxes (1)
(1)
2005
2004
2003
$ 2,894
$ 2,188
7,694
1,694
11,576
5,730
2,328
$ 3,518
$ 1,722
6,018
907
8,647
4,318
1,793
$ 2,536
9,807
1,929
14,630
7,213
2,588
$ 4,829
Percent Change
2005/2004
2004/2003
32%
27
14
26
26
11
37%
27%
28
87
34
33
30
39%
Includes the Real estate reconfiguration charge recognized in 2004 and 2003 which have not been allocated to our segments.
INVESTMENT BANKING
IN MILLIONS
Investment banking revenues

Non-interest expenses (1)
(1)
2005
2004
2003
$ 2,894
$ 2,188
1,601
$ 587
$ 1,722
1,321
$ 401
2,039
$
855
Percent Change
2005/2004
2004/2003
32%
27
46%
27%
21
46%
Excludes Real estate reconfiguration charges.
The Investment Banking business segment is made up of Advisory Services
expertise to meet clients objectives. Specialized product groups within
and Global Finance activities that serve our corporate and government
Advisory Services include M&A and restructuring. Global Finance serves
clients.The segment is organized into global industry groupsCommunica-
our clients capital raising needs through underwriting, private placements,
tions, Consumer/Retailing, Financial Institutions, Financial Sponsors,
leveraged nance and other activities associated with debt and equity prod-
Healthcare, Industrial, Media, Natural Resources, Power, Real Estate and
ucts. Product groups are partnered with relationship managers in the global
Technologythat include bankers who deliver industry knowledge and
industry groups to provide comprehensive nancial solutions for clients.
I N V E S T M E N T B A N K I N G R E V E N U E S (4)
IN MILLIONS
Global FinanceDebt
Global FinanceEquity
Advisory Services
Investment Banking Revenues
(4)
2005
2004
$ 1,304
$ 1,002
560
626
$ 2,188
824
766
$ 2,894
2003
980
363
379
$ 1,722
Percent Change
2005/2004
2004/2003
30%
47
22
32%
2%
54
65
27%
Debt and equity underwriting volumes are based on full credit for single-book managers and equal credit for joint-book managers. Debt underwriting volumes include both publicly registered
and Rule 144A issues of high-grade and high-yield bonds, sovereign, agency and taxable municipal debt, non-convertible preferred stock and mortgage- and asset-backed securities. Equity
underwriting volumes include both publicly registered and Rule 144A issues of common stock and convertibles. Because publicly reported debt and equity underwriting volumes do not
necessarily correspond to the amount of securities actually underwritten and do not include certain private placements and other transactions, and because revenue rates vary among
transactions, publicly reported debt and equity underwriting volumes may not be indicative of revenues in a given period. Additionally, because Advisory Services volumes are based on full
credit to each of the advisors in a transaction, and because revenue rates vary among transactions, Advisory Services volumes may not be indicative of revenues in a given period.

45
46
Investment Banking revenues totaled $2.9 billion, $2.2 billion and $1.7
equity underwriting volumes industry-wide remained relatively at,
billion in 2005, 2004 and 2003, respectively. Investment Banking rev-
IPO and follow-on activity increased. Common stock underwriting
enues increased 32% in 2005 compared with 2004, reecting record
activity in 2005 beneted from increased monetization activity by
Global FinanceDebt and Global FinanceEquity revenues and the
nancial sponsors.We substantially increased our market share for pub-
highest level of Advisory Services revenues since fiscal 2000.
licly reported global equity underwriting transactions for the second
Investment Banking revenues increased 27% in 2004 compared with
consecutive year to 4.8% in calendar 2005 compared with 4.3% for cal-
2003, reecting signicant revenue increases in Global FinanceEquity
endar year 2004 and 3.3% in calendar 2003. Our equity-related fee
and Advisory Services.
backlog (for both led and unled transactions) at November 30, 2005
Global FinanceDebt revenues were a record $1,304 million in
was approximately $305 million on lead volume of $19 billion, up 9%
2005, increasing 30% over 2004 with global debt origination market vol-
and 46%, respectively, over November 30, 2004. Global FinanceEquity
umes and our volumes increasing 13% and 8%, respectively, over the
revenues grew 54% in 2004 compared with 2003 as improved investor
same period. Revenues in 2005 reect strong global investment-grade
condence and corporate protability drove improved equity origina-
underwriting, which beneted from continued low interest rates, strong
tion volumes. Industry-wide equity origination volumes rose 48% in
investor demand across a attening yield curve and credit spreads at his-
2004 compared with 2003, while our equity origination volumes rose
toric average levels. Revenues in 2005 also beneted from a higher level
51% in the same period.
of client-driven derivative and other capital market-related transactions
Advisory Services revenues were at our second highest level ever
with our investment banking clients providing fees of $318 million in
at $766 million in 2005, up 22% compared with 2004. Industry-wide
2005, compared with fees of $140 million in 2004. Our global debt orig-
completed and announced transaction volumes increased 31% and 56%,
ination ranking improved to number two for calendar 2005, up from
respectively, in 2005 compared with 2004 while our completed and
number four for calendar 2004 while our global market share for pub-
announced volumes increased 24% and 98%, respectively, for the period.
licly reported debt origination was 6.6% in calendar year 2005 compared
Increased M&A volumes beneted from stable equity markets, increased
with 6.8% in calendar year 2004. Our debt origination fee backlog at
nancial sponsor activity as well as improved world economies in 2005.
November 30, 2005 was a record $219 million on lead volumes of $51
Our global market share for publicly reported completed transactions
billion, up 48% and 38%, respectively, from November 30, 2004. Debt
declined to 13.8% for calendar 2005 compared with 15.5% in calendar
origination backlog may not be indicative of the level of future business
year 2004. Our M&A fee backlog at November 30, 2005 was $247 mil-
due to the frequent use of the shelf registration process. Global
lion on volume of $236 billion, up 83% and 225%, respectively, over
FinanceDebt revenues were $1,002 million in 2004, up 2% compared
November 30, 2004. M&A advisory fees rose 65% in 2004 compared
with robust 2003 revenue levels. Our global debt origination volumes in
with 2003, as we substantially improved our M&A market position for
2004 rose 6% compared with 2003, consistent with the 6% increase in
completed transactions in calendar 2004 with a 15.5% market share, up
industry-wide global debt origination volumes over the same period, as
from a 9.0% market share for calendar 2003. M&A completed market
clients continued to take advantage of low interest rates and tight credit
transaction volumes increased 34% in scal 2004, driven by an improved
spreads. Improved leveraged nance revenues in 2004 essentially offset a
economy and higher stock market valuation.
decline in high grade revenues. Our global debt origination ranking
Non-interest expenses rose 27% in 2005 compared with 2004,
improved to number four for calendar 2004, up from number ve for
attributable to an increase in compensation and benets expense related
calendar 2003, while our market share declined slightly to 6.8% in cal-
to improved performance, and higher non-personnel expenses related
endar 2004 compared with 7.0% in calendar 2003.
to increased business activity. Non-interest expenses rose 21% in 2004
Global FinanceEquity revenues grew 47% in 2005 to a record
compared with 2003, attributable to an increase in compensation and
$824 million compared with 2004. Our publicly reported equity under-
benets expense related to improved performance coupled with higher
writing volumes rose 7% in 2005 compared with 2004 while industry-
non-personnel expensesprincipally business development expenses.
wide global equity origination market volumes remained relatively at
Income before taxes was $855 million, $587 million and $401 mil-
over the same period. In addition to our increased volume, our 2005
lion in 2005, 2004 and 2003, respectively, up 46% in both the 2005 and
revenues also reect a change in the mix of underwriting revenues
2004 comparison periods. Pre-tax margin increased to 30% in 2005, up
with particular strength in initial public offerings. Although overall 2005
from 27% in 2004 and 23% in 2003.

C A P I TA L M A R K E T S
Percent Change
IN MILLIONS
2005
$ 7,393
Commissions
2004
2003
$ 5,255
$ 3,792
2005/2004
41%
2004/2003
39%
1,132
1,033
911
10
13
18,987
10,999
9,903
73
11
Other
33
49
22
(33)
123
Total revenues
27,545
17,336
14,628
59
19
Interest expense
17,738
9,642
8,610
84
12
Net revenues
9,807
7,694
6,018
27
28
6,235
5,168
4,011
21
29
$ 3,572
$ 2,526
$ 2,007
41%
26%

(1)
Excludes the Real estate reconfiguration charges.
The Capital Markets business segment includes institutional client-ow
and we maintain a major presence in over-the-counter (OTC) U.S.
activities, prime brokerage, research, mortgage origination and securiti-
stocks, major Asian large capitalization stocks, warrants, convertible
zation, and secondary-trading and nancing activities in xed income
debentures and preferred issues. In addition, the secured nancing busi-
and equity products.These products include a wide range of cash, deriv-
ness manages our equity and xed income matched book activities, sup-
ative, secured nancing and structured instruments and investments.We
plies secured nancing to institutional clients and provides secured
are a leading global market-maker in numerous equity and xed income
funding for our inventory of equity and xed income products. The
products including U.S., European and Asian equities, government and
Capital Markets segment also includes proprietary activities as well as
agency securities, money market products, corporate high grade, high
principal investing in real estate and private equity.
yield and emerging market securities, mortgage- and asset-backed secu-
See Consolidated Results of OperationsBusiness Acquisitions
rities, preferred stock, municipal securities, bank loans, foreign exchange,
and Dispositions in this MD&A for information about Capital
nancing and derivative products. We are one of the largest investment
Markets-related business acquisitions and dispositions completed dur-
banks in terms of U.S. and pan-European listed equities trading volume,
ing 2004 and 2003.
C A P I TA L M A R K E T S N E T R E V E N U E S
Percent Change
IN MILLIONS
Fixed Income
2005
2004
2003
$ 7,334
$ 5,739
$ 4,391
Equities
Capital Markets Net Revenues
2,473
1,955
1,627
$ 9,807
$ 7,694
$ 6,018
2005/2004
28%
2004/2003
31%
26
20
27%
28%
Net revenues totaled $9.8 billion, $7.7 billion and $6.0 billion in 2005,
indices, particularly in Europe and Asia, as well as increased prime broker
2004 and 2003, respectively. Capital Markets net revenues in 2005 repre-
activities. Fixed Income revenues improved in 2004 compared with 2003
sent the seventh consecutive year of record performance in Fixed Income
as a favorable interest rate environment helped drive strength in mortgage
and the second highest revenue level in Equities. Fixed Income revenues
originations and securitizations as well as interest rate products and the
rose 28% in 2005 compared with 2004 on improved client-ow activities,
declining dollar drove higher foreign exchange activity. Equities delivered
an increased contribution from the non-U.S. regions and record revenues
improved revenues in 2004 compared with 2003 on higher client-ow
across a number of products. Equities revenues rose 26% in 2005 compared
levels, particularly in equity derivatives and our prime broker business, as
with 2004, beneting from higher global trading volumes and market
equity market valuations improved compared with 2003.

47
48
Fixed Income net revenues were a record $7.3 billion in 2005,
broker business. Equity derivatives business net revenues in 2005 were
increasing 28% compared with 2004 driven by double digit revenue
notably strong beneting from higher volumes as well as improved mar-
increases from each geographic region and record revenues across a
ket opportunities. Our prime broker business continued to benet from
number of businesses including commercial mortgage and real estate,
an expanding client base and growth in client nancing balances, as total
residential mortgage origination and securitization, and interest rate
balances increased 22% in 2005 compared with 2004. Equities net rev-
products. Revenues from our commercial mortgage and real estate
enues grew 20% in 2004 compared with 2003 on higher client-ow
businesses increased substantially in 2005 reaching record levels, as the
levels, particularly in equity derivative products and our prime broker
strong demand for commercial real estate properties, the recovery in
activities, as equity market valuations improved compared with 2003.
certain property markets and relatively low interest rates drove asset
Prime broker activity continued to benet from growth in client
sales and robust levels of securitizations. Revenues from our residential
nancing balances and an expanding client base, as total balances
mortgage origination and securitization businesses increased in 2005
increased 72% compared with November 30, 2003. Our 2004 results
from the robust levels in 2004, reecting record volumes and the con-
also reect higher private equity gains compared with 2003. These
tinued benets associated with the vertical integration of our mortgage
improvements were partially offset by lower revenues from our con-
origination platforms.We originated approximately $85 billion and $65
vertibles business due to a lower level of origination activity and a sharp
billion of residential mortgage loans in 2005 and 2004, respectively.We
drop in market volatility globally, resulting in lower valuations on con-
securitized approximately $133 billion and $101 billion of residential
vertible debt.
mortgage loans in 2005 and 2004, respectively, including both origi-
Interest and dividends revenue and Interest expense are a function
nated loans and those we acquired in the secondary market.While the
of the level and mix of total assets and liabilities (primarily nancial
performance in our mortgage businesses reached record levels, these
instruments owned and collateralized activities), the prevailing level of
businesses were affected by somewhat lower levels of mortgage origi-
interest rates and the term structure of our nancings. Interest and div-
nation volumes and revenues in the U.S. in the latter half of 2005,
idends revenue and Interest expense are integral components of our
partly offset by stronger volumes and revenues outside the U.S. We
evaluation of our overall Capital Markets activities. Net interest revenue
originated approximately $27 billion and $13 billion of commercial
in 2005 declined 8% compared with 2004, due to higher short-term
mortgage loans in 2005 and 2004, respectively, the majority of which
interest rates and a atter yield curve, partially offset by higher levels of
has been sold through securitization or syndication activities during
interest and dividend-earning assets. Interest and dividends revenue and
both 2005 and 2004. Interest rate product revenues increased in 2005
Interest expense rose 73% and 84%, respectively, in 2005 compared with
on higher activity levels, as clients repositioned portfolios in light of ris-
2004, attributable to higher short-term interest rates coupled with
ing global interest rates and a attening U.S. yield curve. Credit prod-
higher levels of interest- and dividend-earning assets and interest-bear-
uct revenues also increased in 2005 as compared to 2004 driven by
ing liabilities. Net interest revenue in 2004 rose 5% compared with 2003
strength in both high yield and high grade credit products. Fixed
primarily due to an increase in interest earning assets. Interest and div-
Income net revenues increased 31% in 2004 compared with 2003,
idends revenue and Interest expense rose 11% and 12%, respectively, in
reecting generally favorable market conditions.The mortgage securi-
2004 compared with 2003 attributable to higher levels of interest- and
tization business was notably strong, with revenues in mortgage prod-
dividend-earning assets and interest-bearing liabilities coupled with a
ucts beneting from the low rate environment as well as the continued
modest upward shift in interest rates.
vertical integration of our mortgage origination platforms. Interest rate
Non-interest expenses increased to $6.2 billion in 2005 from $5.2
products beneted from robust client-ow activity as investors sought
billion in 2004 and $4.0 billion in 2003. The growth in non-interest
derivative hedging solutions amid an environment of increased interest
expenses in both periods reects higher Compensation and benets
rate volatility in the rst half of 2004. Foreign exchange revenues also
expense related to improved revenue performance coupled with higher
rose as the U.S. dollar weakened in the latter half of 2004. Partially off-
non-personnel expenses. Non-personnel expenses in both periods grew
setting these increases were reduced contributions from high-grade and
primarily due to increased technology and communications expenses,
high-yield credit products in 2004 compared with 2003.
attributable to the continued investments in our trading platforms as
Equities net revenues rose 26% in 2005 compared with 2004, ben-
well as the integration of the business acquisitions, and higher broker-
eting from increased client activity from rising global equity indices
age and clearance costs and professional fees on increased business activ-
and higher trading volumes. Global equities indices advanced 16.5% in
ities. Occupancy expenses also increased due to growth in the number
local currency terms in 2005 beneting from positive economic data
of employees and our new facilities in London and Tokyo in 2004.
and strong earnings reports, despite volatile oil prices and concerns
Income before taxes totaled $3,572 million, $2,526 million and
about ination and rising interest rates. Equities net revenues in 2005
$2,007 million in 2005, 2004 and 2003, respectively, up 41% in 2005
reect improved client-ow activities across most products, higher net
compared with 2004 and 26% in 2004 compared with 2003. Pre-tax
revenues in equity derivatives and the continued growth in our prime
margin was 36%, 33% and 33% in 2005, 2004 and 2003, respectively.

INVESTMENT MANAGEMENT
Percent Change
IN MILLIONS
Commissions
Total revenues
Interest expense
Net revenues
(1)
2005
2004
2003
2005/2004
418
$ 444
$ 480
596
504
299
18
69
56
33
39
70
(15)
911
745
119
22
526
1,981
1,726
937
15
84
(6)%
2004/2003
(8)%
52
32
30
63
1,929
1,694
907
14
87
20
1,527
1,270
702
402
$ 424
$ 205
81
(5)%
107%
Excludes Real estate reconfiguration charges.
The Investment Management business segment consists of the Asset
Private Investment Management provides comprehensive investment,
Management and Private Investment Management businesses. Asset
wealth advisory and capital markets execution services to high-net-
Management generates fee-based revenues from customized investment
worth and middle market clients.
management services for high-net-worth clients, as well as fees from
See Consolidated Results of OperationsBusiness Acquisitions and
mutual fund and other institutional investors. Asset Management also
Dispositions in this MD&A and Note 5 to the Consolidated Financial
generates management and incentive fees from our role as general part-
Statements for information about Investment Management-related
ner for private equity and other alternative investment partnerships.
business acquisitions completed during 2003.
INVESTMENT MANAGEMENT NET REVENUES

Percent Change
IN MILLIONS
Asset Management
2005
2004
2003
$1,026
$ 840
$ 141
903
854
766
$1,929
$1,694
$ 907
Private Investment Management

Investment Management Net Revenues
2005/2004
2004/2003
22%
496%
11
14%
87%
CHANGES IN ASSETS UNDER MANAGEMENT

Percent Change
IN BILLIONS
N OV E M B E R 3 0
Opening balance
2005
2004
137
$ 120
2003
2005/2004
14%
2004/2003
1,233%
Net additions
26
110
333
(95)
Net market appreciation
12
11
1,000
124
(85)
Total increase
Assets Under Management, November 30
38
17
111
175
$ 137
$ 120
28%
14%

49
COMPOSITION OF ASSETS UNDER MANAGEMENT
IN BILLIONS
N OV E M B E R 3 0
2004
2003
$ 75
$ 54
$ 43
Fixed income
55
52
Money markets
29
19
Alternative investments
16
$175
Equity
Assets Under Management, November 30
2005/2004
2004/2003
39%
26%
49
18
53
12
10
33
20
$137
$120
28%
14%
Net revenues totaled $1.9 billion, $1.7 billion and $0.9 billion in 2005,
activity, as investors shifted asset allocations. Fixed income-related activ-
2004 and 2003, respectively. Net revenues rose 14% in 2005 compared
ity declined 11% in 2005 compared to 2004 as a result of clients asset
with 2004, as both Asset Management and Private Investment
reallocations into equity products. Private Investment Management net
Management achieved record results in 2005. Net revenues increased
revenues rose 11% to $854 million in 2004 compared with 2003, driven
87% in 2004 compared with 2003, primarily due to business acquisi-
by sales of equity products, which beneted from improved market con-
tions completed during 2003, most notably the Neuberger acquisition
ditions, partially offset by modestly lower sales of xed income products
completed in October 2003.
attributable to rising interest rates.
Asset Management net revenues in 2005 increased 22% compared
Non-interest expenses totaled $1.5 billion, $1.3 billion and $0.7
with 2004, driven by a 28% increase in assets under management.Assets
billion in 2005, 2004 and 2003, respectively.The increase in non-interest
under management increased to a record $175 billion at November 30,
expense in 2005 was principally driven by higher compensation and
2005, up from $137 billion at November 30, 2004, with nearly 70% of
benets associated with higher level of earnings, as well as increased non-
the increase resulting from net inows.Asset Management net revenues
personnel expenses, as we continue to build the business.The increase in
increased to $840 million in 2004 compared with $141 million in 2003,
non-interest expenses in 2004 compared with 2003 was primarily due to
primarily as a result of business acquisitions as well as increased private
business acquisitions, including higher compensation and benets,
equity fees.Total fees from private equity were $148 million, $117 mil-
mutual fund distribution costs and the amortization of intangible assets.
lion and $28 million in 2005, 2004 and 2003, respectively. Private equity
Income before taxes totaled $402 million, $424 million and $205
fees increased in 2005 as a result of higher management fees from new
million in 2005, 2004 and 2003, respectively. Income before taxes
fund offerings. Private equity fees increased in 2004 as a result of new
decreased 5% in 2005 compared with 2004. Income before taxes
fund offerings as well as higher incentive fees, which totaled $63 mil-
increased 107% in 2004 compared with 2003. Pre-tax margin was 21%,
lion and $2 million in 2004 and 2003, respectively.
25% and 23% in 2005, 2004 and 2003, respectively.
Private Investment Management net revenues increased 6% in 2005

compared with 2004, primarily driven by an increase in equity-related
50
Percent Change
2005

GEOGRAPHIC
REVENUES
NET REVENUES BY GEOGRAPHIC REGION

Percent Change
IN MILLIONS
Europe
2005
2004
2003
2005/2004
2004/2003
$ 3,601
$ 2,104
$ 1,864
71%
13%
Asia Pacic and other
1,759
1,247
875
41
43
Total Non-U.S.
5,360
3,351
2,739
60
22
U.S.
9,270
8,225
5,908
13
39
$14,630
$11,576
$ 8,647
26%
34%
Net revenues
Non-U.S. net revenues rose 60% in 2005 compared with 2004 to a
Capital Markets and Investment Banking.The Capital Markets improve-
record $5.4 billion. Non-U.S. net revenues represented 37% of total net
ment reects strong mortgage securitization and foreign exchange
revenues in 2005, compared with 29% in 2004.The improved net rev-
results as well as equity cash and derivatives results.These improvements
enues in 2005 compared with 2004 reects signicant growth in Capital
were partially offset by lower results in real estate attributable to the fur-
Markets and Investment Banking in both Europe and Asia Pacic and
ther softening of certain sectors within the commercial real estate mar-
other regions. Non-U.S. net revenues grew 22% to a then-record $3.4
ket and lower results in convertibles as the rising interest rate
billion in 2004 compared with 2003. Revenues in 2004 compared with
environment in the second half of 2004 negatively affected the con-
2003 reect improvements in both Capital Markets and Investment
vertible market. Investment Banking revenues were up signicantly as
Banking and represent strength in revenues in both the Asia Pacic and
we continued to gain market share in both equity and debt origination,
other and Europe regions.
although M&A market share declined.
Net revenues in Europe rose 71% in 2005 compared with 2004
Net revenues in Asia Pacic and other rose 41% in 2005 compared
reecting higher revenues in Investment Banking and Capital Markets,
with 2004, reecting strong Investment Banking and Capital Markets
as well as a growing Investment Management presence. Investment
net revenues. Investment Banking beneted from several non-public
Banking beneted from a signicant increase in completed M&A trans-
structured equity transactions for clients in 2005. Capital Markets net
actions and increased client-driven derivative-solution transactions in
revenues increased in 2005 primarily from strong performances in high
2005. In Fixed Income Capital Markets, our strong performance in
yield and equity derivatives. Net revenues in Asia Pacic and other
2005 was driven by commercial mortgages and real estate, interest rate
increased 43% in 2004 compared with 2003 due to strong revenue
products and residential mortgages. In Equities Capital Markets, higher
growth in both Capital Markets and Investment Banking. Fixed Income
net revenues reect strong results in equity derivatives, cash products,
Capital Markets client activity increased in high yield and foreign
and equity arbitrage activities. Net revenues in Europe increased 13% in
exchange. Equities Capital Markets results improved in 2004 compared
2004 compared with 2003, attributable to improvements in both
with 2003, reecting higher volumes in the Asian equity markets.

51
L I Q U I D I T Y,
FUNDING
AND
RESOURCES
Managements Finance Committee is responsible for developing, imple-
The funding of commitments to extend credit made by
menting and enforcing our liquidity, funding and capital policies.These
Holdings and its unregulated subsidiaries based on a probabilis-
policies include recommendations for capital and balance sheet size as
tic analysis of these drawdowns. The funding of commitments
well as the allocation of capital and balance sheet to the business units.
to extend credit made by our regulated subsidiaries is covered
Managements Finance Committee oversees compliance with policies
by the liquidity pools maintained by these subsidiaries. (See
and limits with the goal of ensuring we are not exposed to undue liq-
Summary of Contractual Obligations and Commitments
uidity, funding or capital risk.
Lending-Related Commitments in this MD&A and Note 10 to
LIQUIDITY RISK MANAGEMENT
the Consolidated Financial Statements).
We view liquidity and liquidity management as critically important to
The impact of adverse changes on secured fundingeither in
the Company. Our liquidity strategy seeks to ensure that we maintain
the form of wider haircuts (the difference between the mar-
sufficient liquidity to meet all of our funding obligations in all market
ket and pledge value of assets) or in the form of reduced bor-
environments. Our liquidity strategy is centered on ve principles:
rowing availability.
We maintain a liquidity pool available to Holdings that is of suf-
The anticipated funding requirements of equity repurchases as
cient size to cover expected cash outows over the next twelve
we manage our equity base (including offsetting the dilutive
months in a stressed liquidity environment.
effect of our employee incentive plans) (See Liquidity, Funding
We rely on secured funding only to the extent that we believe
and Capital ResourcesEquity Management in this MD&A).
it would be available in all market environments.
In addition, the liquidity pool is sized to cover the impact of a one
We aim to diversify our funding sources to minimize reliance
notch downgrade of Holdings long-term debt ratings, including the
on any given providers.
additional collateral required for our derivative contracts and other
Liquidity is assessed at the entity level. For example, because
secured funding arrangements. (See Liquidity, Funding and Capital
our legal entity structure can constrain liquidity available to
ResourcesCredit Ratings in this MD&A).
Holdings, our liquidity pool excludes liquidity that is restricted
The liquidity pool is primarily invested in highly liquid instru-
from availability to Holdings.
ments including: money market funds, bank deposits, U.S., European
We maintain a comprehensive Funding Action Plan that rep-
and Japanese Government bonds, and U.S. agency securities, with the
resents a detailed action plan to manage a stress liquidity
balance invested in liquid securities that we believe have a highly reli-
event, including a communication plan for regulators, credi-
able pledge value.We calculate our liquidity pool on a daily basis.
tors, investors and clients.
At November 30, 2005, the estimated pledge value of the liquid-
Liquidity Pool We maintain a liquidity pool available to Holdings
ity pool available to Holdings was $18.3 billion, which is in excess of
that covers expected cash outows for twelve months in a stressed liq-
the items discussed above. Additionally, our regulated subsidiaries, such
uidity environment. In assessing the required size of our liquidity pool,
as our broker-dealers and bank institutions maintain their own liquidity
we assume that assets outside the liquidity pool cannot be sold to gen-
pools to cover their stand-alone one year expected cash funding needs
erate cash, unsecured debt cannot be issued, and any cash and unen-
in a stressed liquidity environment. The estimated pledge value of the
cumbered liquid collateral outside of the liquidity pool cannot be used
liquidity pools held by our regulated subsidiaries totaled an additional
to support the liquidity of Holdings. Our liquidity pool is sized to cover
$35.7 billion at November 30, 2005.
expected cash outows associated with the following items:

The repayment of all unsecured debt maturing in the next
twelve months ($11.4 billion at November 30, 2005).
52
CAPITAL

Funding of Assets We fund assets based on their liquidity charac-
Our policy is to operate with an excess of long-term funding
teristics, and utilize cash capital for our long-term funding needs. Our
sources over our long-term funding requirements.We seek to maintain
funding strategy incorporates the following factors:
a cash capital surplus at Holdings of at least $2 billion. As of November
Liquid assets (i.e., assets for which a reliable secured funding
30, 2005 and November 30, 2004, our cash capital surplus at Holdings
market exists across all market environments including govern-
totaled $6.2 billion and $7.1 billion, respectively. Additionally, cash cap-
ment bonds, U.S. agency securities, corporate bonds, asset-
ital surpluses in regulated entities at November 30, 2005 and 2004
backed securities and high quality equity securities) are primarily
amounted to $8.1 billion and $2.8 billion, respectively.

Diversication of Funding Sources We seek to diversify our fund-
funded on a secured basis.

(5)
Secured funding haircuts are funded with cash capital .
ing sources.We issue long-term debt in multiple currencies and across a
Illiquid assets (e.g., xed assets, intangible assets, and margin
wide range of maturities to tap many investor bases, thereby reducing
postings) and less liquid inventory positions (e.g., derivatives,
our reliance on any one source.
private equity investments, certain corporate loans, certain com-
During 2005, we issued $23.7 billion of Long-term borrow-
mercial mortgages and real estate positions) are funded with
ings. Long-term borrowings increased to $62.3 billion at
cash capital.
November 30, 2005 from $56.5 billion at November 30, 2004,
Unencumbered assets, irrespective of asset quality, that are not
with weighted average maturities of 5.9 years and 5.2 years,
part of the liquidity pool are also funded with cash capital.These
respectivelyabove our targeted minimum weighted average
assets are typically unencumbered because of operational and
maturity of four years.
asset-specic factors (e.g., securities moving between depots).
We diversify our issuances geographically to minimize renancing
We do not assume a change in these factors during a stressed
risk and broaden our debt-holder base. As of November 30, 2005,
liquidity event.
47% of our long-term debt was issued outside the United States.
As part of our funding strategy, we also take steps to mitigate our main
We typically issue in a single maturity in sufficient size to cre-
sources of contingent liquidity risk as follows:
ate a liquid benchmark issuance (i.e., sufficient size to be
Commitments to extend creditCash capital is utilized to cover
included in the Lehman Bond Index, a widely used index for
expected funding of commitments to extend credit. See Summary
xed income asset managers).
of Contractual Obligations and CommitmentsLending-
In order to minimize renancing risk, we set limits for the
Related Commitments in this MD&A.
amount of Long-term borrowings maturing over any three, six
Ratings downgradeCash capital is utilized to cover the liquidity
and twelve month horizon at 10%, 15% and 25% of outstand-
impact of a one notch downgrade on Holdings. A rating
ing Long-term borrowings, respectivelythat is, $6.2 billion, $9.3
downgrade would increase the amount of collateral to be
billion and $15.6 billion, respectively, at November 30, 2005. If
posted against our derivative contracts and other secured fund-
we were to operate with debt above these levels, we would not
ing arrangements. See Liquidity, Funding and Capital
include the additional amount as a source of cash capital.
ResourcesCredit Ratings in this MD&A.

Customer nancingWe provide secured nancing to our
clients typically through repurchase and prime broker agreements.These nancing activities can create liquidity risk if the
availability and terms of our secured borrowing agreements
adversely change during a stressed liquidity event and we are
unable to reect these changes in our customer nancing agreements.We mitigate this risk by entering into term secured borrowing agreements, in which we can fund different types of
collateral at pre-determined collateralization levels, and by the
liquidity pools maintained at our broker-dealers.
(5)
Cash capital consists of stockholders equity, core deposit liabilities at our bank subsidiaries, the
undrawn portion of committed credit facilities with greater than one-year remaining life and
liabilities with remaining terms of over one year.

53
Extendible issuances (in which, unless debt holders instruct us to

redeem their debt instruments at least one year prior to stated maturity,
beyond their earliest maturity date in a normal market environment and

roll through the Long-term borrowings maturity prole.
the maturity date of these instruments is automatically extended) are

included in these limits at their earliest maturity date. Based on experi-
The quarterly Long-term borrowings maturity schedule over the

next ve years at November 30, 2005 is as follows:
ence, we expect the majority of these extendibles to remain outstanding
L O N G - T E R M B O R R O W I N G S M AT U R I T Y P R O F I L E
$4,500
IN MILLIONS
4,000
Extendible
LTD
3,500
3,000
2,500
2,000
1,500
1,000
500
54
2010 Q4
2010 Q3
2010 Q2
2010 Q1
2009 Q4
2009 Q3
2009 Q2
2009 Q1
2008 Q4
2008 Q3
2008 Q2
2008 Q1
2007 Q4
2007 Q3
2007 Q2
2007 Q1
2006 Q4
2006 Q3
2006 Q2
2006 Q1
We use both committed and uncommitted bilateral and syndi-
generally insulated from a Company-specic or market liquid-
cated long-term bank facilities to complement our long-term
ity event, thereby providing a reliable funding source for our
debt issuance. In particular, Holdings maintains an unsecured
mortgage products and selected loan assets and increasing our
revolving credit agreement (the Credit Agreement) with a
funding diversication. Overall, these bank institutions have
syndicate of banks under which the banks have committed to
raised $14.8 billion and $10.2 billion of customer deposit liabil-
provide up to $1.5 billion to Holdings through April 2007.We
ities as of November 30, 2005 and 2004, respectively.
also maintain a $1.0 billion multi-currency unsecured commit-
Legal Entity Structure Our legal entity structure can constrain
ted revolving credit facility with a syndicate of banks for
liquidity available to Holdings. Some of our legal entities, particularly
Lehman Brothers Bankhaus (the Facility). The Facility has a
our regulated broker-dealers and bank institutions, are restricted in the
term of three and a half years expiring in April 2008. There
amount of funds that they can distribute or lend to Holdings.
were no borrowings outstanding under either the Credit
As of November 30, 2005, Holdings Total Equity Capital
Agreement or the Facility at November 30, 2005.
(dened as total stockholders equity of $16.8 billion plus $2.0
Bank facilities provide us with further diversication and exi-
billion of junior subordinated notes) amounted to $18.8 billion.
bility. For example, we draw on our committed syndicated
We believe Total Equity Capital to be a more meaningful meas-
credit facilities described above on a regular basis (typically 25%
ure of our equity than stockholders equity because junior sub-
to 30% of the time on a weighted average basis) to provide us
ordinated notes are deeply subordinated and have maturities of
with additional sources of cash capital on an as-needed basis.
at least 30 years at issuance. Leading rating agencies view these
We own three bank entities: Lehman Brothers Bank, a U.S.-
securities as equity capital for purposes of calculating net lever-
based thrift institution, Lehman Brothers Commercial Bank,
age. (See Note 8 to the Consolidated Financial Statements).We
a U.S.-based industrial bank, and Lehman Brothers Bankhaus,
aim to maintain a primary equity double leverage ratio (the
a German bank. These regulated bank entities operate in
ratio of equity investments in Holdings subsidiaries to its Total
a deposit-protected environment and are able to source low-
Equity Capital) of 1.0x or below. Our primary equity double
cost unsecured funds that are primarily term deposits.These are
leverage ratio was 0.85x as of November 30, 2005 and 2004.

Certain regulated subsidiaries are funded with subordinated
activities of $7.5 billionattributable primarily to growth in nancial
debt issuances and/or subordinated loans from Holdings, which
instruments and other inventory positions ownedcoupled with net
are counted as regulatory capital for those subsidiaries. Our
cash used in investing activities of $447 million exceeded net cash pro-
policy is to fund subordinated debt advances by Holdings to
vided by nancing activities of $7.4 billion. Cash and cash equivalents
subsidiaries for use as regulatory capital with long-term debt
declined $2.5 billion at November 30, 2004 compared with November
issued by Holdings having a maturity at least one year greater
30, 2003, as net cash used in operating activities of $11.5 billionattrib-
than the maturity of the subordinated debt advance.
utable primarily to growth in secured nancing activitiescoupled with
Funding Action Plan We have developed and regularly update a

Funding Action Plan, which represents a detailed action plan to manage
net cash used in investing activities of $531 million exceeded net cash
provided by nancing activities of $9.5 billion.
a stress liquidity event, including a communication plan for regulators,
BALANCE SHEET AND FINANCIAL LEVERAGE
creditors, investors and clients.The Funding Action Plan considers two
Assets Our balance sheet consists primarily of Cash and cash equiva-
types of liquidity stress eventsa Company-specic event, where there
lents, Financial instruments and other inventory positions owned, and
are no issues with the overall market liquidity; and a broader market-
collateralized nancing agreements. The liquid nature of these assets
wide event, which affects not just our Company but the entire market.
provides us with exibility in nancing and managing our business.
In a Company-specic event, we assume we would lose access to
The majority of these assets are funded on a secured basis through col-
the unsecured funding market for a full year and have to rely on the liq-
lateralized nancing agreements.
uidity pool available to Holdings to continue to fund our balance sheet.
Our total assets at November 30, 2005 increased 15% to $410 bil-
In a market liquidity event, in addition to the pressure of a
lion at November 30, 2005 compared with $357 billion at November
Company-specic event, we also assume that, because the event is mar-
30, 2004, primarily due to an increase in secured nancing transactions
ket wide, some counterparties to whom we have extended liquidity
and net assets. Net assets at November 30, 2005 increased $36 billion
facilities draw on these facilities.To mitigate the effect of a market liq-
primarily due to increases in mortgages and mortgage-backed inven-
uidity event, we have developed access to additional liquidity sources
tory positions, equities and corporate debt. We believe net assets is a
beyond the liquidity pool at Holdings.These sources include unutilized
more useful measure than total assets when comparing companies in
funding capacity in our bank entities, a conduit pre-funded with short-
the securities industry because it excludes certain assets considered to
term liquid instruments, and unutilized capacity in our bank facilities.
have a low risk prole (including Cash and securities segregated and on
(See Liquidity Risk ManagementFunding of Assets in this MD&A.)
deposit for regulatory and other purposes, Securities received as collat-
We perform regular assessments of our funding requirements in
eral, Securities purchased under agreements to resell and Securities
stress liquidity scenarios to best ensure we can meet all our funding
borrowed) and Identiable intangible assets and goodwill.This deni-
obligations in all market environments.
tion of net assets is used by many of our creditors and a leading rating
CASH FLOWS
agency to evaluate companies in the securities industry. Under this def-
Cash and cash equivalents declined $0.5 billion at November 30, 2005
inition, net assets were $211 billion and $175 billion at November 30,
compared with November 30, 2004, as net cash used in operating
2005 and November 30, 2004, respectively, as follows:
NET ASSETS
IN MILLIONS
N OV E M B E R 3 0
Total assets
2005
$410,063
2004
$357,168
Cash and securities segregated and on deposit for regulatory and other purposes
(5,744)
(4,085)
Securities received as collateral
(4,975)
(4,749)
(106,209)
(95,535)
(78,455)
(74,294)
Securities purchased under agreements to resell

Securities borrowed
Identiable intangible assets and goodwill
Net assets
(3,256)
$211,424
(3,284)
$175,221

55
Our net assets consist of inventory necessary to facilitate client
assets as dened above (which excludes certain assets considered to
ow activities and, to a lesser degree, proprietary activities. As such, our
have a low risk prole and Identiable intangible assets and goodwill)
mix of net assets is subject to change depending primarily on client
divided by tangible equity capital (Total stockholders equity plus
demand. In addition, due to the nature of our client ow activities and
Junior subordinated notes less Identiable intangible assets and good-
based on our business outlook, the overall size of our balance sheet will
will), to be a more meaningful measure of leverage in evaluating com-
uctuate from time to time and, at specic points in time, may be higher
panies in the securities industry. Our net leverage ratio of 13.6x at
than the year-end or quarter-end amounts. Our total assets at quarter-
November 30, 2005 declined from 13.9x at November 30, 2004 as we
ends were, on average, approximately 5% lower than amounts based on
increased our tangible equity capital proportionately more than we
a monthly average over both the four and eight quarters ended
increased our net assets.We believe tangible equity capital to be a more
November 30, 2005. Our net assets at quarter-ends were, on average,
representative measure of our equity for purposes of calculating net
approximately 7% lower than amounts based on a monthly average over
leverage because Junior subordinated notes are subordinated and have
both the four and eight quarters ended November 30, 2005.
maturities at issuance from 30 to 49 years and we do not view the
Leverage Ratios Balance sheet leverage ratios are one measure
amount of equity used to support Identiable intangible assets and
used to evaluate the capital adequacy of a company.The gross leverage
goodwill as available to support our remaining net assets. This deni-
ratio is calculated as total assets divided by total stockholders equity.
tion of net leverage is used by many of our creditors and a leading rat-
Our gross leverage ratios were 24.4x and 23.9x at November 30, 2005
ing agency. Tangible equity capital and net leverage are computed as
and 2004, respectively. However, we believe net leverage based on net
follows at November 30, 2005 and 2004:
TA N G I B L E E Q U I T Y C A P I TA L A N D N E T L E V E R A G E
IN MILLIONS
N OV E M B E R 3 0
2005
$16,794
Junior subordinated notes (1)

Tangible equity capital
2,026
1,000
(3,256)
(3,284)
$15,564
$12,636
Gross leverage
24.4x
23.9x
Net leverage
13.6x
13.9x
(1)
56
2004
$14,920
See Note 8 to the Consolidated Financial Statements.
Net assets, tangible equity capital and net leverage as presented above
We maintain a stock repurchase program to manage our equity
are not necessarily comparable to similarly titled measures provided by
capital. Our stock repurchase program is effected through regular open-
other companies in the securities industry because of different meth-
market purchases, as well as through employee transactions where
ods of calculation.
employees tender shares of common stock to pay for the exercise price
EQUITY MANAGEMENT
of stock options, and the required tax withholding obligations upon
The management of equity is a critical aspect of our capital management.
option exercises and conversion of restricted stock units to freely-trad-
The determination of the appropriate amount of equity is affected by a
able common stock. During 2005, we repurchased approximately 30
number of factors, including the amount of risk equity needed, the cap-
million shares of our common stock through open-market purchases at
ital required by our regulators, balance sheet leverage and the dilutive
an aggregate cost of $3.0 billion, or $99.98 per share. In addition, we
effects of equity-based employee awards. Equity requirements constantly
withheld approximately 10.3 million shares of common stock from
are changing, and we actively monitor risk requirements and potential
employees at an equivalent cost of $1.2 billion, principally done in the
investment opportunities.We continuously look at investment alternatives
last quarter of 2005.
for our equity with the objective of maximizing shareholder value. In
For 2006, our Board of Directors has authorized the repurchase,
addition, in managing our capital, returning capital to shareholders by
subject to market conditions, of up to 40 million shares of Holdings
repurchasing shares is among the alternatives considered.
common stock for the management of our equity capital, including

offsetting 2006 dilution due to equity-based award plans. Our Board
award plans.This authorization supersedes the stock repurchase program
also authorized the repurchase in 2006, subject to market conditions, of
authorized in January 2005.
up to an additional 15 million shares, for the possible acceleration of

repurchases to offset a portion of 2007 dilution due to equity-based
Included below are the changes in our Tangible Equity Capital

during the years ended November 30, 2005 and November 30, 2004:
TA N G I B L E E Q U I T Y C A P I TA L
IN MILLIONS
Beginning tangible equity capital
2005
2004
$12,636
$10,681
3,260
2,369
Net income
Dividends on common stock
(186)
(233)
Dividends on preferred stock
(69)
(72)
Common stock open-market repurchases
(2,994)
(1,693)
Common stock withheld from employees (1)
(1,163)
Equity-based award plans (2)
(574)
1,894
3,305
Net change in preferred stock
300
(250)
Net change in junior subordinated notes included in tangible equity (3)
(68)
1,026
Other, net
(15)
46
Ending tangible equity capital
$12,636
$15,564
(1)
Represents shares of common stock withheld in satisfaction of the exercise price of stock options and tax withholding obligations upon option exercises and conversion of restricted stock units.
(2)
This represents the sum of (i) proceeds received from employees upon the exercise of stock options, (ii) the incremental tax benefits from the issuance of stock-based awards and (iii) the value
of employee services received as represented by the amortization of deferred stock compensation.
(3)
Junior subordinated notes are subordinated and have maturities at issuance from 30 to 49 years and are utilized in calculating equity capital by a leading rating agency.
CREDIT RATINGS
Like other companies in the securities industry, we rely on external sources
At November 30, 2005, the Short- and Long-term borrowings

ratings of Holdings and LBI were as follows:
to nance a signicant portion of our day-to-day operations.The cost and

C R E D I T R AT I N G S
availability of unsecured nancing are affected by our short-term and longterm credit ratings. Factors that may be signicant to the determination of
Holdings
Short-term Long-term
our credit ratings or otherwise affect our ability to raise short-term and
long-term nancing include our prot margin, our earnings trend and
volatility, our cash liquidity and liquidity management, our capital structure,
our risk level and risk management, our geographic and business diversication, and our relative positions in the markets in which we operate. A
deterioration in any of these factors or combination of these factors may
lead rating agencies to downgrade our credit ratings.This may increase the
cost of, or possibly limit our access to, certain types of unsecured nancings
and trigger additional collateral requirements in derivative contracts and
Standard & Poors

Ratings Services
Moodys Investors
Service
A-1
A+
LBI
Short-term Long-term (1)
A-1+
AA-
P-1
A1
P-1
Aa3
Fitch Ratings
F-1+
A+
F-1+
A+
Dominion Bond
Rating Service
Limited
R-1
R-1
AA / A
(middle)
(high)
(middle)
(low) / (high)
(1)
Senior/subordinated.
other secured funding arrangements. In addition, our debt ratings can affect
certain capital markets revenues, particularly in those businesses where
At November 30, 2005, counterparties had the right to require us to
longer-term counterparty performance is critical, such as OTC derivative
post additional collateral pursuant to derivative contracts and other
transactions, including credit derivatives and interest rate swaps.
secured funding arrangements of approximately $0.8 billion.
In October 2005, Standard & Poors Ratings Services (S&P)
Additionally, at that date we would have been required to post addi-
raised its long-term counterparty credit rating on Holdings to A+ with
tional collateral pursuant to such arrangements of approximately $0.2
a stable outlook from A with a positive outlook, and also raised Lehman
billion in the event we were to experience a downgrade of our senior
Brothers Inc.s (LBI) short- and long-term ratings by one notch. In
debt rating of one notch and $1.6 billion in the event we were to
July 2005, Fitch Ratings upgraded Holdings and LBIs short-term debt
experience a downgrade of our senior debt rating of two notches.
ratings from F-1 to F-1+, Fitchs highest short-term rating.

57
SUMMARY
OF
CONTRACTUAL
OBLIGATIONS
AND
COMMITMENTS
In the normal course of business, we enter into various commitments
grade) exposures as securities of or loans to companies rated BB+ or
and guarantees, including lending commitments to high grade and high
lower or equivalent ratings by recognized credit rating agencies, as well
yield borrowers, private equity investment commitments, liquidity com-
as non-rated securities or loans that, in managements opinion, are non-
mitments and other guarantees. In all instances, we mark to market these
investment grade. In addition, our residential and commercial mortgage
commitments and guarantees, with changes in fair value recognized in
platforms in our Capital Markets business make commitments to extend
Principal transactions in the Consolidated Statement of Income.
mortgage loans. From time to time, we may also provide contingent
LENDING-RELATED COMMITMENTS
commitments to investment and non-investment grade counterparties
Through our high grade and high yield sales, trading, underwriting and
related to acquisition nancing. Our expectation is, and our past practice
mortgage origination activities, we make commitments to extend credit
has been, to distribute through loan syndications to investors substantially
in loan syndication transactions. We use various hedging and funding
all the credit risk associated with these acquisition nancing loans, if
strategies to actively manage our market, credit and liquidity exposures
closed, consistent with our credit facilitation framework. We do not
on these commitments.We do not believe total commitments necessar-
believe these commitments are necessarily indicative of our actual risk
ily are indicative of actual risk or funding requirements because the com-
because the borrower may not complete a contemplated acquisition or,
mitments may not be drawn or fully used and such amounts are reported
if the borrower completes the acquisition, often will raise funds in the
before consideration of hedges. These commitments and any related
capital markets instead of drawing on our commitment. In addition, our
drawdowns of these facilities typically have xed maturity dates and are
Capital Markets businesses enter into secured nancing commitments.
contingent on certain representations, warranties and contractual conditions applicable to the borrower.We dene high yield (non-investment
Lending-related commitments at November 30, 2005 and 2004

were as follows:
L E N D I N G - R E L AT E D C O M M I T M E N T S
Total
Contractual Amount
Amount of Commitment Expiration per Period

20082009
20102011
November
30, 2005
November
30, 2004
571
$ 14,039
$ 10,677
631
5,172
4,438
9,417
12,835
3,915
1,475
4,738
4,244
873
995
65,782
105,879
2006
2007
High grade (1)
$ 2,405
$ 1,624
$ 3,270
$ 6,169
High yield (2)
1,289
1,159
645
1,448
Mortgage commitments
9,024
176
209
Investment-grade contingent acquisition facilities
3,915
Non-investment-grade contingent acquisition facilities
4,738
62,470
1,124
320
IN MILLIONS
Secured lending transactions, including forward

starting resale and repurchase agreements
2012 and
Later
(1)
We view our net credit exposure for high grade commitments, after consideration of hedges, to be $5.4 billion and $4.1 billion at November 30, 2005 and 2004, respectively.
(2)
We view our net credit exposure for high yield commitments, after consideration of hedges, to be $4.4 billion and $3.5 billion at November 30, 2005 and 2004, respectively.
See Note 10 to the Consolidated Financial Statements for additional information about our lending-related commitments.
Contractual obligations at November 30, 2005 and 2004 were as follows:
C O N T R A C T U A L O B L I G AT I O N S
Amount of Obligation Expiration per Period

IN MILLIONS
Total
Contractual Amount
2006
2007
20082009
2010 and
Later
November
30, 2005
November
30, 2004
$ 8,410
$13,503
$13,939
$26,457
$62,309
$56,486
173
165
308
1,069
1,715
1,740
maturities
Operating lease obligations
Capital lease obligations
Purchase obligations
58

61
61
154
2,497
2,773
2,900
366
148
107
43
664
604
See Note 8 to the Consolidated Financial Statements for additional
the table based on the minimum contractual amounts. Certain pur-
information about long-term borrowings maturities. See Note 10 to
chase obligations contain termination or renewal provisions.The table
the Consolidated Financial Statements for additional information
reects the minimum contractual amounts likely to be paid under these
about operating and capital lease obligations. Purchase obligations
agreements assuming the contracts are not terminated. Excluded from
include agreements to purchase goods or services that are enforceable
the table are a number of obligations recorded in the Consolidated
and legally binding and that specify all signicant terms, including:
Statement of Financial Condition that generally are short-term in
xed or minimum quantities to be purchased; xed, minimum or vari-
nature, including securities nancing transactions, trading liabilities,
able price provisions; and the approximate timing of the transaction.
deposits, commercial paper and other short-term borrowings and other
Purchase obligations with variable pricing provisions are included in
payables and accrued liabilities.
OFF-BALANCE-SHEET
ARRANGEMENTS
In the normal course of business we engage in a variety of off-balance-
are a market maker in a number of foreign currencies. Counterparties
sheet arrangements, including derivative contracts.
to our derivative product transactions primarily are U.S. and foreign
DERIVATIVES
banks, securities rms, corporations, governments and their agencies,
Derivatives often are referred to as off-balance-sheet instruments
nance companies, insurance companies, investment companies and
because neither their notional amounts nor the underlying instruments
pension funds. We manage the risks associated with derivatives on an
are reected as assets or liabilities in our Consolidated Statement of
aggregate basis, along with the risks associated with our non-derivative
Financial Condition. Instead, the market or fair values related to the
trading and market-making activities in cash instruments, as part of our
derivative transactions are reported in the Consolidated Statement of
rmwide risk management policies.We use industry standard derivative
Financial Condition as assets or liabilities in Derivatives and other con-
contracts whenever appropriate.
tractual agreements, as applicable.

In the normal course of business, we enter into derivative transactions both in a trading capacity and as an end-user. We use derivative
See Notes 1 and 2 to the Consolidated Financial Statements for

additional information about our accounting policies and our TradingRelated Derivative Activities.
products in a trading capacity as a dealer to satisfy the nancial needs of
SPECIAL PURPOSE ENTITIES
clients and to manage our own exposure to market and credit risks
In the normal course of business, we establish special purpose entities
resulting from our trading activities (collectively, Trading-Related
(SPEs), sell assets to SPEs, transact derivatives with SPEs, own securi-
Derivative Activities). In this capacity, we transact extensively in deriv-
ties or residual interests in SPEs and provide liquidity or other guaran-
atives including interest rate, credit (both single name and portfolio),
tees for SPEs. SPEs are corporations, trusts or partnerships that are
foreign exchange and equity derivatives. Additionally, in 2005 the
established for a limited purpose.There are two types of SPEs-qualifying
Company began trading in commodity derivatives. The use of deriva-
special purpose entities (QSPEs) and variable interest entities
tive products in our trading businesses is combined with transactions in
(VIEs). SPEs, by their nature, generally are not controlled by their
cash instruments to allow for the execution of various trading strategies.
equity owners, because the establishing documents govern all material
Derivatives are recorded at market or fair value in the Consolidated
decisions. Our primary involvement with SPEs relates to securitization
Statement of Financial Condition on a net-by-counterparty basis when
transactions through QSPEs, in which transferred assets are sold to an
a legal right of set-off exists and are netted across products when such
SPE that issues securities supported by the cash ows generated by the
provisions are stated in the master netting agreement.As an end-user, we
assets (i.e., securitized). A QSPE can generally be described as an entity
use derivative products to adjust the interest rate nature of our funding
with signicantly limited powers that are intended to limit it to passively
sources from xed to oating interest rates and to change the index on
holding nancial assets and distributing cash ows to investors on pre-set
which oating interest rates are based (e.g., Prime to LIBOR).
terms. Under SFAS 140, we are not required to, and do not, consolidate
We conduct our derivative activities through a number of wholly-
QSPEs. Rather, we account for our involvement with QSPEs under a
owned subsidiaries. Our xed income derivative products business is
nancial components approach in which we recognize any interest we
principally conducted through our subsidiary Lehman Brothers Special
retain after securitization at fair value, with changes in fair value reported
Financing Inc., and separately capitalized AAA rated subsidiaries,
in Principal transactions in the Consolidated Statement of Income.
Lehman Brothers Financial Products Inc. and Lehman Brothers
We are a market leader in mortgage (both residential and commer-
Derivative Products Inc. Our equity derivative products business is con-
cial), municipal and other asset-backed securitizations that are principally
ducted through Lehman Brothers Finance S.A. and Lehman Brothers
transacted through QSPEs. See Note 3 to the Consolidated Financial
OTC Derivatives Inc. In addition, as a global investment bank, we also
Statements for additional information about our securitization activities.

59
In addition, we transact extensively with VIEs which do not meet
losses or a majority of the expected residual returns of such entity, as
the QSPE criteria due to their permitted activities not being sufficiently
dened. Examples of our involvement with VIEs include collateralized
limited, or because the assets are not deemed qualifying nancial instru-
debt obligations, synthetic credit transactions, real estate investments
ments (e.g., real estate). Under FIN 46R, we consolidate such VIEs if
through VIEs, and other structured nancing transactions. For additional
we are deemed to be the primary beneciary of such entity. The pri-
information about our involvement with VIEs, see Note 3 to the
mary beneciary is the party that has either a majority of the expected
Consolidated Financial Statements.
Other commitments and guarantees at November 30, 2005 and 2004 were as follows:
OTHER COMMITMENTS AND GUARANTEES
Notional/
Maximum Amount

2007
20082009
20102011
2012 and
Later
November
30, 2005
November
30, 2004
$120,805 $ 68,171
2006
IN MILLIONS
Derivative contracts (1)
$ 97,075
$ 89,813
$163,597
$539,461
$470,641
680
16
34
744
2,631
4,105
7,179
Other commitments with special purpose entities
3,257
248
606
485
1,725
6,321
5,261
Standby letters of credit
2,608
2,608
1,703
328
243
316
40
927
695
Municipal-securities-related commitments
Private equity and other principal

investment commitments
(1)
We believe the fair value of these derivative contracts is a more relevant measure of the obligations because we believe the notional amount overstates the expected payout. At November 30,
2005 and 2004 the fair value of these derivative contracts approximated $9.4 billion and $9.0 billion, respectively.
See Note 10 to the Consolidated Financial Statements for additional
OTHER OFF-BALANCE-SHEET ACTIVITIES
In the ordinary course of business we enter into various other types of off-
information about our other commitments and guarantees.
balance-sheet arrangements. For additional information about our lendingrelated commitments and guarantees and our contractual obligations see
Summary of Contractual Obligations and Commitments in this MD&A.
RISK
MANAGEMENT
As a leading global investment bank, risk is an inherent part of our busi-
We also seek to reduce risk through the diversication of our busi-
ness. Global markets, by their nature, are prone to uncertainty and subject
nesses, counterparties and activities in geographic regions. We accom-
participants to a variety of risks. The principal risks we face are credit,
plish this objective by allocating the usage of capital to each of our
market, liquidity, legal, reputation and operational risks. Risk management
businesses, establishing trading limits and setting credit limits for indi-
is considered to be of paramount importance in our day-to-day opera-
vidual counterparties. Our focus is balancing risk versus return.We seek
tions. Consequently, we devote signicant resources (including invest-
to achieve adequate returns from each of our businesses commensurate
ments in employees and technology) to the measurement, analysis and
with the risks they assume. Nonetheless, the effectiveness of our
management of risk.
approach to managing risks can never be completely assured. For exam-
While risk cannot be eliminated, it can be mitigated to the greatest
ple, unexpected large or rapid movements or disruptions in one or more
extent possible through a strong internal control environment. Essential
markets or other unforeseen developments could have an adverse effect
in our approach to risk management is a strong internal control envi-
on our results of operations and nancial condition.The consequences
ronment with multiple overlapping and reinforcing elements. We have
of these developments can include losses due to adverse changes in
developed policies and procedures to identify, measure and monitor the
inventory values, decreases in the liquidity of trading positions, increases
risks involved in our global trading, brokerage and investment banking
in our credit exposure to clients and counterparties and increases in
activities. Our approach applies analytical procedures overlaid with sound
general systemic risk.
practical judgment working proactively with the business areas before

transactions occur to ensure that appropriate risk mitigants are in place.
60

Our overall risk limits and risk management policies are estab-
aggregate obligor risk, portfolio concentrations, reputation risk and,
lished by the Executive Committee. On a weekly basis, our Risk
importantly, the impact any particular transaction under consideration
Committee, which consists of the Executive Committee, the Chief
would have on our overall risk appetite. Exceptional transactions and/or
Risk Officer and the Chief Financial Officer, reviews all risk expo-
situations are addressed and discussed with senior management includ-
sures, position concentrations and risk-taking activities. The Global
ing, when appropriate, the Executive Committee.
Risk Management Division (the Division) is independent of the
See Critical Accounting Policies and EstimatesDerivatives and
trading areas and reports directly to the Firms Chief Administrative
other contractual agreements in this MD&A and Note 2 to the
Officer. The Division includes credit risk management, market risk
Consolidated Financial Statements for additional information about net
management, quantitative risk management, sovereign risk manage-
credit exposure on OTC derivative contracts.
ment and operational risk management. Combining these disciplines
MARKET RISK
facilitates a fully integrated approach to risk management. The
Market risk represents the potential change in value of a portfolio of
Division maintains staff in each of our regional trading centers as well
nancial instruments due to changes in market rates, prices and volatil-
as in key sales offices. Risk management personnel have multiple lev-
ities. Market risk management also is an essential component of our
els of daily contact with trading staff and senior management at all lev-
overall risk management framework. The Market Risk Management
els within the Company. These discussions include reviews of trading
Department (the MRM Department) has global responsibility for
positions and risk exposures.
developing and implementing our overall market risk management
CREDIT RISK
framework.To that end, it is responsible for developing the policies and
Credit risk represents the possibility that a counterparty or an issuer of
procedures of the market risk management process; determining the
securities or other nancial instruments we hold will be unable to honor
market risk measurement methodology in conjunction with the
its contractual obligations to us. Credit risk management is therefore an
Quantitative
integral component of our overall risk management framework. The
Department); monitoring, reporting and analyzing the aggregate mar-
Credit Risk Management Department (the CRM Department) has
ket risk of trading exposures; administering market risk limits and the
global responsibility for implementing our overall credit risk manage-
escalation process; and communicating large or unusual risks as appro-
ment framework.
priate. Market risks inherent in positions include, but are not limited to,
The CRM Department manages the credit exposure related to
Risk
Management
Department
(the
QRM
interest rate, equity and foreign exchange exposures.
trading activities by giving credit approval for counterparties, assigning
The MRM Department uses qualitative as well as quantitative
internal risk ratings, establishing credit limits by counterparty, country
information in managing trading risk, believing a combination of the
and industry group and requiring master netting agreements and collat-
two approaches results in a more robust and complete approach to the
eral in appropriate circumstances.The CRM Department considers the
management of trading risk. Quantitative information is developed
transaction size, the duration of a transaction and the potential credit
from a variety of risk methodologies based on established statistical
exposure for complex derivative transactions in making our credit deci-
principles.To ensure high standards of analysis, the MRM Department
sions. The CRM Department is responsible for the continuous moni-
has retained seasoned risk managers with the requisite experience and
toring and review of counterparty risk ratings, current credit exposures
academic and professional credentials.
and potential credit exposures across all products and recommending
Market risk is present in cash products, derivatives and contingent
valuation adjustments, when appropriate. Credit limits are reviewed
claim structures that exhibit linear as well as non-linear price behavior.
periodically to ensure that they remain appropriate in light of market
Our exposure to market risk varies in accordance with the volume of
events or the counterpartys nancial condition.
client-driven market-making transactions, the size of our proprietary
The CRM Department also has responsibility for portfolio man-
positions and the volatility of nancial instruments traded. We seek
agement of counterparty credit risks. This includes monitoring and
to mitigate, whenever possible, excess market risk exposures through
reporting large exposures (current credit exposure and maximum
appropriate hedging strategies.
potential exposure) and concentrations across countries, industries and
We participate globally in interest rate, equity and foreign
products, as well as ensuring risk ratings are current and performing
exchange markets and, beginning in 2005, commodity markets. Our
asset quality portfolio trend analyses.
Fixed Income Division has a broadly diversied market presence in
Our Chief Risk Officer is a member of the Investment Banking
U.S. and foreign government bond trading, emerging market securities,
Commitment, Investment and Bridge Loan Approval Committees.
corporate debt (investment and non-investment grade), money market
Members of Credit and Market Risk Management participate in com-
instruments, mortgages and mortgage- and asset-backed securities, real
mittee meetings, vetting and reviewing transactions. Decisions on
estate, municipal bonds and interest rate derivatives. Our Equities
approving transactions not only take into account the creditworthiness
Division facilitates domestic and foreign trading in equity instruments,
of the transaction on a stand-alone basis, but they also consider our
indices and related derivatives. Our foreign exchange businesses are

61
involved in trading currencies on a spot and forward basis as well as
recorded, evaluated or accounted for. Our businesses are highly depend-
through derivative products and contracts.
ent on our ability to process, on a daily basis, a large number of transac-
We incur short-term interest rate risk in the course of facilitating
tions across numerous and diverse markets in many currencies, and the
the orderly ow of client transactions through the maintenance of gov-
transactions we process have become increasingly complex. Consequently,
ernment and other bond inventories. Market-making in high-grade cor-
we rely heavily on our nancial, accounting and other data processing sys-
porate bonds and high-yield instruments exposes us to additional risk
tems. In recent years, we have substantially upgraded and expanded the
due to potential variations in credit spreads.Trading in international mar-
capabilities of our data processing systems and other operating technol-
kets exposes us to spread risk between the term structure of interest rates
ogy, and we expect that we will need to continue to upgrade and expand
in different countries. Mortgages and mortgage-related securities are
in the future to avoid disruption of, or constraints on, our operations.
subject to prepayment risk.Trading in derivatives and structured products
Operational Risk Management (the ORM Department) is
exposes us to changes in the volatility of interest rates.We actively man-
responsible for implementing and maintaining our overall global opera-
age interest rate risk through the use of interest rate futures, options,
tional risk management framework, which seeks to minimize these risks
swaps, forwards and offsetting cash-market instruments. Inventory hold-
through assessing, reporting, monitoring and mitigating operational risks.
ings, concentrations and agings are monitored closely and used by man-
We have a company-wide business continuity plan (BCP Plan).
agement to selectively hedge or liquidate undesirable exposures.
operations with limited processing interruption in the event of a busi-
through our market making in U.S. and non-U.S. equity securities and
ness disruption. The BCP group manages our internal incident
derivatives, including common stock, convertible debt, exchange-
response process and develops and maintains continuity plans for crit-
traded and OTC equity options, equity swaps and warrants. These
ical business functions and infrastructure. This includes determining
activities expose us to market risk as a result of equity price and volatil-
how vital business activities will be performed until normal processing
ity changes. Inventory holdings also are subject to market risk resulting
capabilities can be restored.The BCP group is also responsible for facil-
from concentrations and changes in liquidity conditions that may
itating disaster recovery and business continuity training and prepared-
adversely affect market valuations. Equity market risk is actively man-
ness for our employees.
aged through the use of index futures, exchange-traded and OTC

options, swaps and cash instruments.
REPUTATIONAL RISK
We recognize that maintaining our reputation among clients, investors,
We enter into foreign exchange transactions through our market-
regulators and the general public is an important aspect of minimizing
making activities.We are exposed to foreign exchange risk on our hold-
legal and operational risks. Maintaining our reputation depends on a
ings of non-dollar assets and liabilities. We are active in many foreign
large number of factors, including the selection of our clients and the
exchange markets and have exposure to the Euro, Japanese yen, British
conduct of our business activities. We seek to maintain our reputation
pound, Swiss franc and Canadian dollar, as well as a variety of developed
by screening potential clients and by conducting our business activities
and emerging market currencies. We hedge our risk exposures prima-
in accordance with high ethical standards.
rily through the use of currency forwards, swaps, futures and options.
62
The BCP Plan objective is to ensure that we can continue critical
We are a signicant intermediary in the global equity markets
Potential clients are screened through a multi-step process that
If any of the strategies used to hedge or otherwise mitigate exposures
begins with the individual business units and product groups. In
to the various types of risks described above are not effective, we could
screening clients, these groups undertake a comprehensive review of
incur losses. See Notes 1 and 2 to the Consolidated Financial Statements
the client and its background and the potential transaction to deter-
for additional information about our use of derivative nancial instruments
mine, among other things, whether they pose any risks to our reputa-
to hedge interest rate, currency, equity and other market risks.
tion. Potential transactions are screened by independent committees in
OPERATIONAL RISK
the Firm, which are composed of senior members from various cor-
Operational risk is the risk of loss resulting from inadequate or failed
porate divisions of the Company including members of the Global
internal processes, people and systems, or from external events. We face
Risk Management Division. These committees review the nature of
operational risk arising from mistakes made in the execution, conrma-
the client and its business, the due diligence conducted by the business
tion or settlement of transactions or from transactions not being properly
units and product groups and the proposed terms of the transaction to

determine overall acceptability of the proposed transaction. In doing
to be a comprehensive risk measurement tool because it incorporates
so, the committees evaluate the appropriateness of the transaction,
virtually all of our trading activities and types of risk including market,
including a consideration of ethical and social responsibility issues and
credit and event risks. The table below presents VaR for each compo-
the potential effect of the transaction on our reputation.
nent of risk using historical daily net trading revenues. Under this
VALUE AT RISK
method, we estimate a reporting daily VaR using actual daily net trad-
Value-at-risk (VaR) measures the potential mark-to-market loss over a
ing revenues over the previous 250 trading days. Such VaR is measured
specied time horizon and is expressed at a given condence level.We
as the loss, relative to the median daily trading net revenue, at a 95%
report an empirical VaR calculated based upon the distribution of
condence level.This means there is a 1-in-20 chance that such loss on
actual trading revenue.We consider VaR based on net revenue volatility
a particular day could exceed the reported VaR number.
VA L U E AT R I S K R E V E N U E V O L AT I L I T Y
VaR At
November 30
Year ended November 30

2005
2004
IN MILLIONS
2005
2004
Average
High
Low
Average
High
Low
Interest rate risk
$24.5
$22.0
$24.0
$26.2
$21.9
$21.5
$24.2
$18.2
Equity price risk
14.0
11.0
11.7
14.2
11.0
9.6
11.0
6.7
Foreign exchange risk
2.5
2.8
2.5
3.0
2.2
3.4
3.8
2.7
Diversication benet
(5.2)
(7.9)
(6.8)
$30.0
$21.7
$35.8
$27.9
$31.4
(7.7)
$36.1
$27.9
$26.8
Average VaR for 2005 of $31.4 million increased from $26.8 million for
It is implicit in a historical simulation VaR methodology that posi-
the comparable 2004 period reecting the increased scale of our xed
tions will have offsetting risk characteristics, referred to as diversication
income and equity capital markets businesses, as well as a lower diversi-
benet. We measure the diversication benet within our portfolio of
cation benet across these businesses.
nancial instruments by historically simulating how the positions in our
VaR based on net revenue volatility is just one tool we use in eval-
current portfolio would have behaved in relation to each other (as
uating rmwide risk. Another risk measurement tool is a model-based
opposed to using a static estimate of a diversication benet, which
approach, using end-of-day positions, and modeling market risk, coun-
remains relatively constant from period to period). Thus, from time to
terparty credit risk and event risk. Using this model-based approach, our
time there will be changes in our historical simulation VaR due to changes
average rmwide risk for 2005 declined compared with 2004, primarily
in the diversication benet across our portfolio of nancial instruments.
due to reduced event risk, partially offset by slightly higher market risk.
Historical simulation VaR was $38.4 million at November 30, 2005,
The market risk component of the model-based risk measurement
up from $29.6 million at November 30, 2004 primarily attributable to
approach is based on a historical simulation VaR using end-of-day posi-
higher equity price risk and a lower diversication benet.Average his-
tions to determine the revenue loss at a 95% condence level over a
torical simulation VaR was $38.7 million for 2005, up from $29.3 mil-
one-day time horizon. Specically, the historical simulation approach
lion in 2004 reecting the increased scale of our xed income and
involves constructing a distribution of hypothetical daily changes in the
equity capital markets businesses as well as a lower diversication bene-
value of our nancial instruments based on risk factors embedded in the
t in relative terms.
current portfolio and historical observations of daily changes in these
As with any predictive model,VaR measures have inherent limi-
risk factors. Our method uses four years of historical data weighted to
tations, and we could incur losses greater than the VaR reported above.
give greater impact to more recent time periods in simulating potential
These limitations include: historical market conditions and historical
changes in market risk factors.
changes in market risk factors may not be accurate predictors of future

63
market conditions or future market risk factors and VaR measurements
DAILY TRADING NET REVENUES
are based on current positions, while future risk depends on future

positions. In addition, a one day historical simulation VaR does not
N U M B E R O F DAY S
90
fully capture the market risk of positions that cannot be liquidated or

IN MILLIONS
hedged within one day.

In addition, because there is no uniform industry methodology for
80
2004
2005
estimating VaR, different assumptions and methodologies could produce
70
materially different results and therefore caution should be used when

60
comparing such risk measures across rms.We believe our methods and
assumptions used in these calculations are reasonable and prudent.
50
DISTRIBUTION OF DAILY NET REVENUES
Substantially all of the Companys inventory positions are marked-to-mar-
40
ket daily with changes recorded in net revenues.The following chart sets
30
forth the frequency distribution for daily net revenues for our Capital
Markets and Investment Management business segments (excluding asset
20
management fees) for the years ended November 30, 2005 and 2004.
As discussed throughout this MD&A, we seek to reduce risk
10
through the diversication of our businesses and a focus on client-ow

activities. This diversication and focus, combined with our risk man-
<$0
$0-15
$15-30
$30-45
$45-60
$60-75
>$75
agement controls and processes, helps mitigate the net revenue volatility inherent in our trading activities.Although historical performance is
not necessarily indicative of future performance, we believe our focus
In both 2004 and 2005, daily trading net revenues did not exceed losses
on business diversication and client-ow activities should continue to
of $30 million on any single day.
reduce the volatility of future net trading revenues.
CRITICAL
64
ACCOUNTING
POLICIES
AND
ESTIMATES
Generally accepted accounting principles require management to make
the accounting treatment of QSPEs and VIEs, the outcome of litiga-
estimates and assumptions that affect the amounts reported in the
tion, the fair value of equity-based compensation awards and deter-
nancial statements and accompanying notes. Management estimates
mining the allocation of the cost of acquired businesses to identiable
are required in determining the valuation of inventory positions, par-
intangible assets and goodwill and determining the amount of the real
ticularly over-the-counter (OTC) derivatives, certain commercial
estate reconguration charges. Management believes the estimates used
mortgage loans and investments in real estate, certain high-yield posi-
in preparing the nancial statements are reasonable and prudent.Actual
tions, private equity and other principal investments, and non-invest-
results could differ from these estimates.
ment-grade retained interests. Additionally, signicant management
The following is a summary of our critical accounting policies and
estimates are required in assessing the realizability of deferred tax assets,
estimates. See Note 1 to the Consolidated Financial Statements for a full
the fair value of assets and liabilities acquired in a business acquisition,
description of these and other accounting policies.

FAIR VALUE
Consolidated Statement of Income. In all instances, we believe we have
The determination of fair value is a critical accounting policy that is
established rigorous internal control processes to ensure we use reason-
fundamental to our nancial condition and results of operations. We
able and prudent measurements of fair value on a consistent basis.
record nancial instruments classied as Financial instruments and other
When evaluating the extent to which estimates may be required in
inventory positions owned and Financial instruments and other inven-
determining the fair values of assets and liabilities reected in our nan-
tory positions sold but not yet purchased at market or fair value, with
cial statements, we believe it is useful to analyze the balance sheet as
unrealized gains and losses reected in Principal transactions in the
shown in the following table:
SUMMARY BALANCE SHEET

November 30, 2005
IN MILLIONS
ASSETS
Financial instruments and other inventory positions owned
$177,438

Collateralized agreements
Cash, Receivables and PP&E
Other assets
Total assets
43%
4,975
1%
184,664
45%
35,172
9%
4,558
1%
3,256
1%
$410,063
100%
$110,577
27%
LIABILITIES AND EQUITY
Financial instruments and other inventory positions sold but not yet purchased
Obligation to return securities received as collateral
Collateralized nancing
Payables and other accrued liabilities
Total capital
(1)
Total liabilities and equity

(1)
4,975
1%
152,425
37%
62,983
16%
79,103
19%
$410,063
100%
Total capital includes long-term borrowings (including junior subordinated notes) and total stockholders equity, and at November 30, 2003 and prior year ends, preferred securities subject to
mandatory redemption. We adopted FIN 46R effective February 29, 2004, which required us to deconsolidate trusts that issue preferred securities subject to mandatory redemption. Accordingly,
at February 29, 2004 and subsequent period ends, Long-term borrowings include junior subordinated notes that at November 30, 2003 and prior period ends, were classified as preferred
securities subject to mandatory redemption. We believe Total capital is useful to investors as a measure of our financial strength because it aggregates our long-term funding sources.
The majority of our assets and liabilities are recorded at amounts for
do not result in fair value estimates affecting the Consolidated
which significant management estimates are not used.The following
Statement of Income. Financial instruments and other inventory
balance sheet categories, comprising 54% of total assets and 72% of
positions owned and Financial instruments and other inventory
total liabilities and equity, are valued either at historical cost or at
positions sold but not yet purchased (long and short inventory posi-
contract value (including accrued interest) which, by their nature, do
tions, respectively), are recorded at market or fair value, the compo-
not require the use of significant estimates: Collateralized agree-
nents of which may require, to varying degrees, the use of estimates
ments, Cash, Receivables and PP&E, Collateralized financing,
in determining fair value.
Payables and other accrued liabilities and Total capital. Securities
When evaluating the extent to which management estimates may
received as collateral and Obligation to return securities received as
be used in determining the fair value for long and short inventory, we
collateral are recorded at fair value, but due to their offsetting nature
believe it is useful to consider separately derivatives and cash instruments.

65
Derivatives and Other Contractual Agreements The fair values
respectively, for which fair value is determined based on quoted market
of derivative assets and liabilities at November 30, 2005 were $18.0 bil-
prices. The fair values of our OTC derivative assets and liabilities at
lion and $15.6 billion, respectively (See Note 2 to the Consolidated
November 30, 2005 were $15.4 billion and $13.2 billion, respectively.
Financial Statements). Included within these amounts were exchange-
The following table sets forth the fair value of OTC derivatives by
traded derivative assets and liabilities of $2.6 billion and $2.4 billion,
contract type and by remaining contractual maturity:
FA I R VA L U E O F O T C D E R I VAT I V E C O N T R A C T S B Y M AT U R I T Y
IN MILLIONS
N OV E M B E R 3 0 , 2 0 0 5
Greater
than 10
Years
Cross
Maturity
and Cash
Collateral
Netting (1)
Less
than
1 Year
1 to 5
Years
5 to 10
Years
OTC
Derivatives
Net
Credit
Exposure
$ 1,677
$ 6,794
$ 7,907
$ 5,620
$ 8,273
$ 6,261
6,828
1,497
303
45
(6,703)
1,970
1,447
3,415
139
(1,313)
2,241
1,876
ASSETS
Interest rate, currency and credit

default swaps and options
Foreign exchange forward contracts and options
Other xed income securities contracts
Equity contracts
$(13,725)
1,548
2,201
446
216
(1,453)
2,958
878
$13,468
$10,631
$ 8,656
$ 5,881
$(23,194)
$15,442
$10,462
$ 1,194
$ 4,939
$ 4,636
$ 4,025
$ (7,666)
$ 7,128
7,068
2,131
498
181
(7,874)
2,004
LIABILITIES
Interest rate, currency and credit

default swaps and options
Other xed income securities contracts
Equity contracts
(1)
66
2,230
13
(1,347)
896
1,634
2,404
686
273
(1,847)
3,150
$12,126
$ 9,487
$ 5,820
$ 4,479
$(18,734)
$13,178
Cross-maturity netting represents the netting of receivable balances with payable balances for the same counterparty across maturity and product categories. Receivable and payable balances
with the same counterparty in the same maturity category are netted within the maturity category when appropriate. Cash collateral received or paid is netted on a counterparty basis, provided
legal right of offset exists. Assets and liabilities at November 30, 2005 were netted down for cash collateral of approximately $10.5 billion and $6.1 billion, respectively.

Presented below is an analysis of net credit exposure at November

30, 2005 for OTC contracts based on actual ratings made by external
rating agencies or by equivalent ratings established and used by our

Credit Risk Management Department.
NET CREDIT EXPOSURE
Counterparty
Risk Rating
S&P/Moodys
Equivalent
Less
than
1 Year
5 to 10
Years
Greater
than
10 Years
Total
2005
2004
iAAA
AAA/Aaa
4%
3%
4%
19%
15%
iAA
AA/Aa
11
29
37
iA
A/A
10
10
32
31
iBBB
BBB/Baa
15
12
iBB
BB/Ba
B/B1 or lower
36%
22%
15%
27%
100%
100%
iB or lower
8%
1 to 5
Years
The majority of our OTC derivatives are transacted in liquid trading
When quoted prices are not available, fair value is determined
markets for which fair value is determined using pricing models with
based on pricing models or other valuation techniques, including the
readily observable market inputs. Examples of such derivatives include
use of implied pricing from similar instruments. Pricing models typically
interest rate swap contracts,TBAs, foreign exchange forward and option
are used to derive fair value based on the net present value of estimated
contracts in G-7 currencies and equity swap and option contracts on
future cash ows including adjustments, when appropriate, for liquidity,
listed securities. However, the determination of fair value of certain less
credit and/or other factors. For the vast majority of instruments valued
liquid derivatives required the use of signicant estimates. Such deriva-
through pricing models, signicant estimates are not required because
tives include certain credit derivatives, equity option contracts with terms
the market inputs to such models are readily observable and liquid trad-
greater than ve years, and certain other complex derivatives we provide
ing markets provide clear evidence to support the valuations derived
to clients.We strive to limit the use of signicant estimates by using con-
from such pricing models. Examples of inventory valued using pricing
sistent pricing assumptions between reporting periods and using
models or other valuation techniques for which the use of management
observed market data for model inputs whenever possible.As the market
estimates are necessary include certain mortgages and mortgage-backed
for complex products develops, we rene our pricing models based on
positions, real estate inventory, non-investment-grade retained interests,
market experience to use the most current indicators of fair value.
certain derivative and other contractual agreements, as well as certain
Cash Instruments The majority of our non-derivative long and
high yield and certain private equity and other principal investments.
short inventory (i.e., cash instruments) is recorded at market value based
Mortgages, Mortgage-Backed and Real Estate Inventory Positions
on listed market prices or using third-party broker quotes and therefore
Mortgages and mortgage-backed positions include mortgage loans (both
does not incorporate signicant estimates. Examples of inventory valued
residential and commercial), non-agency mortgage-backed securities and
in this manner include government securities, agency mortgage-backed
real estate investments.We are a market leader in mortgage-backed securities
securities, listed equities, money market instruments, municipal securi-
trading.We originate residential and commercial mortgage loans as part of
ties and corporate bonds. However, in certain instances we may deem
our mortgage trading and securitization activities. We originated approxi-
such quotations to be unrealizable (e.g., when the instruments are thinly
mately $85 billion and $65 billion of residential mortgage loans in 2005 and
traded or when we hold a substantial block of a particular security such
2004, respectively.We securitized approximately $133 billion and $101 bil-
that the listed price is not deemed to be readily realizable). In such
lion of residential mortgage loans in 2005 and 2004, respectively, including
instances, we determine fair value based on, among other factors, man-
both originated loans and those we acquired in the secondary market. In
agements best estimate giving appropriate consideration to reported
addition, we originated approximately $27 billion and $13 billion of com-
prices and the extent of public trading in similar securities, the discount
mercial mortgage loans in 2005 and 2004,respectively,the majority of which
from the listed price associated with the cost at date of acquisition and
has been sold through securitization or syndicate activities during both 2005
the size of the position held in relation to the liquidity in the market.
and 2004. See Note 3 to the Consolidated Financial Statements for addi-
When the size of our holding of a listed security is likely to impair our
tional information about our securitization activities. We record mortgage
ability to realize the quoted market price, we record the position at a
loans at fair value, with related mark-to-market gains and losses recognized
discount to the quoted price reecting our best estimate of fair value.

67
Management estimates are generally not required in determining
in the Consolidated Statement of Income. Such instruments at
the fair value of residential mortgage loans because these positions are
November 30, 2005 and 2004 included long positions with an aggre-
securitized frequently. Certain commercial mortgage loans and invest-
gate fair value of approximately $4.5 billion at both periods. At
ments, due to their less liquid nature, may require management esti-
November 30, 2005 and 2004, the largest industry concentrations were
mates in determining fair value. Fair value for these positions is
22% and 17%, respectively, categorized within the nance and insurance
generally based on analyses of both cash ow projections and underly-
and manufacturing industrial classications, respectively. The largest
ing property values. We use independent appraisals to support our
geographic concentrations at November 30, 2005 and 2004 were 65%
assessment of the property in determining fair value for these positions.
and 54%, respectively, in the United States.The majority of these posi-
Fair value for approximately $3.6 billion and $3.8 billion at November
tions are valued using broker quotes or listed market prices. However, at
30, 2005 and 2004, respectively, of our total mortgage loan inventory is
November 30, 2005 and November 30, 2004, approximately $610 mil-
determined using the above valuation methodologies, which may
lion and $650 million, respectively, of these positions were valued using
involve the use of signicant estimates. Because a portion of these assets
other valuation techniques because there was little or no trading activ-
have been nanced on a non-recourse basis, our net investment posi-
ity. In such instances, we use prudent judgment in determining fair
tion is limited to $3.5 billion and $2.9 billion at November 30, 2005
value, which may involve using analyses of credit spreads associated with
and 2004, respectively.
pricing of similar instruments, or other valuation techniques. We miti-
We invest in real estate through direct investments in equity and

debt.We record real estate held for sale at the lower of cost or fair value.
68
gate our aggregate and single-issuer net exposure through the use of
derivatives, non-recourse nancing and other nancial instruments.
The assessment of fair value generally requires the use of management
Private Equity and Other Principal Investments Our Private
estimates and generally is based on property appraisals provided by third
Equity business operates in ve major asset classes: Merchant Banking,
parties and also incorporates an analysis of the related property cash ow
Real Estate, Venture Capital, Fixed Income Related Investments and
projections.We had real estate investments of approximately $7.9 billion
Private Funds Investments.We have raised privately-placed funds in all
and $10.7 billion at November 30, 2005 and 2004, respectively. Because
of these classes, for which we act as general partner and in which we
signicant portions of these assets have been nanced on a non-recourse
have general and in some cases limited partner interests. In addition,
basis, our net investment position was limited to $4.8 billion and $4.1
we generally co-invest in the investments made by the funds or may
billion at November 30, 2005 and 2004, respectively.
make other non-fund-related direct investments.We carry our private
High Yield We underwrite, invest and make markets in high yield
equity investments, including our partnership interests, at fair value
corporate debt securities.We also syndicate, trade and invest in loans to
based on our assessment of each underlying investment. At November
below-investment-grade-rated companies. For purposes of this discus-
30, 2005 and 2004, our private equity related investments totaled $1.6
sion, high yield debt instruments are dened as securities of or loans to
billion and $1.5 billion, respectively. The real estate industry repre-
companies rated BB+ or lower or equivalent ratings by recognized
sented the highest concentrations at 27% and 25% at November 30,
credit rating agencies, as well as non-rated securities or loans that, in
2005 and November 30, 2004, respectively, and the largest single-
managements opinion, are non-investment grade. Non-investment
investment exposures were $180 million and $101 million, at those
grade securities generally involve greater risks than investment grade
respective dates.
securities due to the issuers creditworthiness and the lower liquidity of
The determination of fair value for these investments often
the market for such securities. In addition, these issuers generally have
requires the use of estimates and assumptions because these investments
relatively higher levels of indebtedness resulting in an increased sensitiv-
generally are less liquid and often contain trading restrictions. At
ity to adverse economic conditions. We recognize these risks and seek
November 30, 2005 and November 30, 2004, we estimate that approx-
to reduce market and credit risk through the diversication of our prod-
imately $172 million and $229 million, respectively, of these invest-
ucts and counterparties. High yield debt instruments are carried at fair
ments have readily determinable fair values because they are
value, with unrealized gains and losses reected in Principal transactions
publicly-traded securities with limited remaining trading restrictions.

For the remainder of these positions, fair value is based on our assess-
SPES
ment of the underlying investments incorporating valuations that con-
The Company is a market leader in securitization transactions, includ-
sider expected cash ows, earnings multiples and/or comparisons to
ing securitizations of residential and commercial loans, municipal
similar market transactions.Valuation adjustments, which may involve
bonds and other asset backed transactions. The vast majority of such
the use of signicant management estimates, are an integral part of
securitization transactions are designed to be in conformity with the
pricing these instruments, reecting consideration of credit quality,
SFAS 140 requirements of a QSPE. Securitization transactions meeting
concentration risk, sale restrictions and other liquidity factors.
the requirements of a QSPE are deemed to be off-balance-sheet. The
Additional information about our private equity and other principal
assessment of whether a securitization vehicle meets the accounting
investment activities, including related commitments, can be found in
requirements of a QSPE requires signicant judgment, particularly in
Note 10 to the Consolidated Financial Statements.
evaluating whether servicing agreements meet the conditions of per-
Non-Investment Grade Retained Interests We held approximately

$700 million and $900 million of non-investment grade retained inter-
mitted activities under SFAS 140 and whether or not derivatives are
considered to be passive.
ests at November 30, 2005 and 2004, respectively. Because these interests
In addition, the evaluation of whether an entity is subject to the
primarily represent the junior interests in securitizations for which there
requirements of FIN46R as a variable interest entity (VIE) and the
are not active trading markets, estimates generally are required in deter-
determination of whether the Company is deemed to be the primary
mining fair value.We value these instruments using prudent estimates of
beneciary of such VIE is a critical accounting policy that requires sig-
expected cash ows and consider the valuation of similar transactions in
nicant management judgment.
the market. See Note 3 to the Consolidated Financial Statements for

additional information about the effect of adverse changes in assumptions on the fair value of these interests.
See Note 1 to the Consolidated Financial Statements for additional information about the Companys accounting policies.
REAL ESTATE RECONFIGURATION CHARGES
IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL
In connection with our decision to recongure certain of our global real
In October 2003 we acquired Neuberger for a net purchase price of
estate facilities, we recognized real estate reconguration charges in 2004
approximately $2.5 billion, including equity consideration of $2.1 bil-
and 2003.The recognition of these charges required signicant manage-
lion and cash consideration and incremental costs of $0.7 billion, and
ment estimates including estimates of the vacancy periods prior to sub-
excluding cash and short-term investments acquired of approximately
leasing, the anticipated rates of subleases and the amounts of incentives
$276 million.The excess of the purchase price over the fair values of the
(e.g., free rent periods) that may be required to induce sub-lessees. See
net assets acquired (which included certain intangible assets) was
Note 17 to the Consolidated Financial Statements for additional infor-
recorded as goodwill.
mation about the real estate reconguration charges.
Determining the fair values and useful lives of certain assets

acquired
and
liabilities
assumed
associated
with
LEGAL RESERVES
business
In the normal course of business we have been named as a defendant in
acquisitionsintangible assets in particularrequires signicant judg-
a number of lawsuits and other legal and regulatory proceedings. Such
ment. In addition, we are required to assess for impairment goodwill and
proceedings include actions brought against us and others with respect
other intangible assets with indenite lives at least annually using fair
to transactions in which we acted as an underwriter or nancial advi-
value measurement techniques. Periodically estimating the fair value of
sor, actions arising out of our activities as a broker or dealer in securi-
a reporting unit and intangible assets with indenite lives involves sig-
ties and commodities and actions brought on behalf of various classes of
nicant judgment and often involves the use of signicant estimates and
claimants against many securities rms, including us. In addition, our
assumptions. These estimates and assumptions could have a signicant
business activities are reviewed by various taxing authorities around the
effect on whether or not an impairment charge is recognized and the
world with regard to corporate income tax rules and regulations. We
magnitude of such a charge. We completed our last goodwill impair-
provide for potential losses that may arise out of legal, regulatory and tax
ment test as of August 31, 2005, and no impairment was identied.
proceedings to the extent such losses are probable and can be estimated.

69
ACCOUNTING
AND
REGULATORY
DEVELOPMENTS
FSP FAS 109-2 In December 2004, the FASB issued FSP FAS 109-2
transition method applied in the adoption of SFAS 123(R), compen-
Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
sation cost will be recognized for the unamortized portion of out-
Provision within the American Jobs Creation Act of 2004, (FSP FAS
standing awards granted prior to the adoption of SFAS 123. Upon
109-2) which provides guidance on the accounting implications of the
adoption of SFAS 123(R) on December 1, 2005, we will recognize
American Jobs Creation Act of 2004 (the Act) related to the one-time
an after-tax gain of approximately $47 million as the cumulative
tax benet for the repatriation of foreign earnings. The Act creates a
effect of a change in accounting principle, primarily attributable to
temporary incentive for U.S. corporations to repatriate accumulated
the requirement to estimate forfeitures at the date of grant instead of
income earned outside the U.S. by providing an 85 percent dividends
recognizing them as incurred. We do not expect adoption of SFAS
received deduction for certain dividends from controlled foreign cor-
123(R) otherwise will have a material effect on our consolidated
porations. We have reviewed the Act to determine the implications of
nancial statements.
repatriating all or a portion of our accumulated non-U.S. retained earn-
SFAS 123(R) generally requires equity-based awards granted to
ings pool and determined that we would not generate any material tax
retirement-eligible employees, and those employees with non-substan-
benets associated with the Act, as any amounts able to be repatriated
tive non-compete agreements to be expensed immediately. For stock-
under the Act would not be material.
based awards granted prior to our adoption of SFAS 123(R)
SFAS 123(R) In December 2004, the FASB issued Statement of
compensation cost for retirement eligible employees and employees
Financial Accounting Standards (SFAS) No. 123(R), Share-Based
subject to non-compete agreements, is recognized over the service
Payment, (SFAS 123(R)), which we will adopt on December 1,
period specied in the award. We accelerate the recognition of com-
2005. SFAS 123(R) requires public companies to recognize expense in
pensation cost if and when a retirement-eligible employee or an
the income statement for the grant-date fair value of awards of equity
employee subject to a non-compete agreement leaves the Company.
instruments granted to employees. Expense is to be recognized over the

period during which employees are required to provide service.
The following table sets forth the pro forma net income that
would have been reported for the years ended November 30, 2005,
SFAS 123(R) also claries and expands the guidance in SFAS 123
2004 and 2003 if equity-based awards granted to retirement-eligible
in several areas, including measuring fair value and attributing com-
employees, and those with non-substantive non-compete agreements
pensation cost to reporting periods. Under the modied prospective
had been expensed immediately as required by SFAS 123(R):
PRO FORMA NET INCOME
IN MILLIONS
Net income, as reported

Add: stock-based employee compensation expense included in reported net income, net of related tax effect
Deduct: stock-based employee compensation expense, net of related tax effect, determined under SFAS 123(R)
Pro forma net income
70

2005
2004
2003
$3,260
$2,369
$1,699
611
464
362
(867)
$3,004
(643)
(447)
$2,190
$1,614
EITF Issue No. 04-5 In June 2005, the FASB ratied the consensus
EFFECTS
OF
INFLATION
reached in EITF Issue No. 04-5, Determining Whether a General

Partner, or the General Partners as a Group, Controls a Limited Partnership
Because our assets are, to a large extent, liquid in nature, they are not
or Similar Entity When the Limited Partners Have Certain Rights,
signicantly affected by ination. However, the rate of ination affects
(EITF 04-5) which requires general partners (or managing members
such expenses as employee compensation, office space leasing costs and
in the case of limited liability companies) to consolidate their partner-
communications charges, which may not be readily recoverable in the
ships or to provide limited partners with rights to remove the general
prices of services we offer.To the extent ination results in rising inter-
partner or to terminate the partnership. As the general partner of
est rates and has other adverse effects on the securities markets, it may
numerous private equity, merchant banking and asset management part-
adversely affect our consolidated nancial condition and results of oper-
nerships, we adopted EITF 04-5 immediately for partnerships formed
ations in certain businesses.
or modied after June 29, 2005. For partnerships formed on or before

June 29, 2005 that have not been modied, we are required to adopt
EITF 04-5 on December 1, 2006 in a manner similar to a cumulativeeffect-type adjustment or by retrospective application.We do not expect
adoption of EITF 04-5 for partnerships formed on or before June 29,
2005 that have not been modied will have a material effect on our
consolidated nancial statements.
Consolidated Supervised Entity In June 2004, the SEC
approved a rule establishing a voluntary framework for comprehensive, group-wide risk management procedures and consolidated supervision of certain nancial services holding companies.The framework
is designed to minimize the duplicative regulatory burdens on U.S.
securities rms resulting from the European Union (the EU)
Directive (2002/87/EC) concerning the supplementary supervision
of nancial conglomerates active in the EU. The rule also allows companies to use an alternative method, based on internal risk models, to
calculate net capital charges for market and derivative-related credit
risk. Under this rule, the SEC will regulate the holding company and
any unregulated affiliated registered broker-dealer pursuant to an
undertaking to be provided by the holding company, including subjecting the holding company to capital requirements generally consistent with the International Convergence of Capital Measurement and
Capital Standards published by the Basel Committee on Banking
Supervision. On November 9, 2005 the SEC approved our application
to become a consolidated supervised entity (CSE) effective
December 1, 2005.
As of December 1, 2005, Holdings became regulated by the SEC as
a CSE. As such, Holdings is subject to group-wide supervision and examination by the SEC and, accordingly, we are subject to minimum capital
requirements on a consolidated basis. LBI is authorized to calculate its net
capital under provisions as specied by the SEC applicable rules.

71
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Stockholders of Lehman Brothers Holdings Inc.
We have audited managements assessment, included in the accompanying Managements Assessment of Internal Control over
Financial Reporting, that Lehman Brothers Holdings Inc. (the Company) maintained effective internal control over nancial
reporting as of November 30, 2005, based on criteria established in Internal ControlIntegrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).The Companys management
is responsible for maintaining effective internal control over nancial reporting and for its assessment of the effectiveness of
internal control over nancial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the Companys internal control over nancial reporting based on our audit.
We conducted our audit 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
effective internal control over nancial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over nancial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in
the circumstances.We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over nancial reporting is a process designed to provide reasonable assurance regarding
the reliability of nancial reporting and the preparation of nancial statements for external purposes in accordance with
generally accepted accounting principles. A companys internal control over nancial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of nancial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the nancial statements.
Because of its inherent limitations, internal control over nancial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Lehman Brothers Holdings Inc. maintained effective internal control
over nancial reporting as of November 30, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also,
in our opinion, Lehman Brothers Holdings Inc. maintained, in all material respects, effective internal control over nancial
reporting as of November 30, 2005, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated statement of nancial condition of Lehman Brothers Holdings Inc. as of November 30, 2005 and
2004 and the related consolidated statements of income, changes in stockholders equity and cash ows for each of the three
years in the period ended November 30, 2005 of Lehman Brothers Holdings Inc. and our report dated February 13, 2006
expressed an unqualied opinion thereon.
New York, New York

February 13, 2006
72

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
MANAGEMENTS ASSESSMENT OF
INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Lehman Brothers Holdings Inc. (the Company) is responsible for establishing and maintaining
adequate internal control over nancial reporting.The Companys internal control system is designed to provide reasonable
assurance to the Companys management and Board of Directors regarding the preparation and fair presentation of published nancial statements. All internal control systems, no matter how well designed, have inherent limitations.Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to nancial statement
preparation and presentation.
The Companys management assessed the effectiveness of the Companys internal control over nancial reporting as
of November 30, 2005. In making this assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal ControlIntegrated Framework. Based on our assessment we believe
that, as of November 30, 2005, the Companys internal control over nancial reporting is effective based on those criteria.
The Companys independent registered public accounting rm that audited the accompanying Consolidated Financial
Statements has issued an attestation report on our assessment of the Companys internal control over nancial reporting.
Their report appears on the preceding page.

MANAGEMENTS ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING
73
The Board of Directors and Stockholders of Lehman Brothers Holdings Inc.
We have audited the accompanying consolidated statement of nancial condition of Lehman Brothers Holdings Inc. (the
Company) as of November 30, 2005 and 2004, and the related consolidated statements of income, changes in stockholders equity, and cash ows for each of the three years in the period ended November 30, 2005. These nancial statements
are the responsibility of the Companys management. Our responsibility is to express an opinion on these nancial 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 nancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the nancial statements. An audit also includes assessing the accounting principles used and
signicant estimates made by management, as well as evaluating the overall nancial statement presentation.We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the nancial statements referred to above present fairly, in all material respects, the consolidated nancial
position of Lehman Brothers Holdings Inc. at November 30, 2005 and 2004, and the consolidated results of its operations and
its cash ows for each of the three years in the period ended November 30, 2005, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the effectiveness of Lehman Brothers Holdings Inc.s internal control over nancial reporting as of November 30, 2005,
based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 13, 2006 expressed an unqualied opinion thereon.
New York, New York

February 13, 2006
74

C O N S O L I D AT E D S TAT E M E N T O F I N C O M E
I N M I L L I O N S , E X C E P T P E R S H A R E DATA
2005
2004
2003
$ 7,811
$ 5,699
$ 4,272
Investment banking
2,894
2,188
1,722
Commissions
1,728
1,537
1,210
19,043
11,032
9,942
944
794
141
REVENUES

Total revenues
32,420
21,250
17,287
Interest expense
17,790
9,674
8,640
Net revenues
14,630
11,576
8,647
7,213
5,730
4,318
Technology and communications
834
764
598
Brokerage and clearance fees
503
453
367
Occupancy
490
421
319
Professional fees
282
252
158
Business development
234
211
149
Other
245
208
125
NON-INTEREST EXPENSES
19
77
Total non-personnel expenses
2,588
2,328
1,793
9,801
8,058
6,111
Income before taxes and dividends on trust preferred securities
4,829
3,518
2,536
Provision for income taxes
1,569
1,125
765
24
72
Net income
$ 3,260
$ 2,369
$ 1,699
Net income applicable to common stock
$ 3,191
$ 2,297
$ 1,649
Basic
$ 11.47
$ 8.36
$ 6.71
Diluted
$ 10.87
$ 7.90
$ 6.35
Dividends on trust preferred securities
EARNINGS PER SHARE
See Notes to Consolidated Financial Statements.

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
75
C O N S O L I D AT E D S TAT E M E N T O F F I N A N C I A L C O N D I T I O N
IN MILLIONS
N OV E M B E R 3 0
2005
2004
4,900
$ 5,440
5,744
4,085
177,438
144,468
4,975
4,749
106,209
95,535
78,455
74,294
7,454
3,400
12,887
13,241
1,302
2,122
2,885
2,988
4,558
3,562
3,256
3,284
$410,063
$357,168
ASSETS
Cash and cash equivalents

Financial instruments and other inventory positions owned:

(includes $36,369 in 2005 and $27,418 in 2004 pledged as collateral)
Collateralized agreements:
Securities purchased under agreements to resell
Securities borrowed
Receivables:
Brokers, dealers and clearing organizations
Customers
Others
Property, equipment and leasehold improvements
(net of accumulated depreciation and amortization of $1,448 in 2005
and $1,187 in 2004)
Other assets
(net of accumulated amortization of $257 in 2005 and $212 in 2004)
Total assets
76

C O N S O L I D AT E D S TAT E M E N T O F F I N A N C I A L C O N D I T I O N
(continued)
N OV E M B E R 3 0
2005
2004
2,941
$ 2,857
110,577
96,281
4,975
4,749
116,155
105,956
Securities loaned
13,154
14,158
Other secured borrowings
23,116
11,621
1,870
1,705
47,210
37,824
10,962
10,611
LIABILITIES AND STOCKHOLDERS EQUITY
Short-term borrowings
Obligation to return securities received as collateral
Collateralized nancings:
Securities sold under agreements to repurchase
Payables:
Brokers, dealers and clearing organizations
Customers
Accrued liabilities and other payables
Total liabilities
62,309
56,486
393,269
342,248
1,095
1,345
30
30
6,314
5,865
Commitments and contingencies

STOCKHOLDERS EQUITY
Preferred stock
Common stock, $0.10 par value;
Shares authorized: 600,000,000 in 2005 and 2004;
Shares issued: 302,668,973 in 2005 and 297,796,197 in 2004;
Shares outstanding: 271,437,103 in 2005 and 274,159,411 in 2004
Additional paid-in capital
Accumulated other comprehensive income (net of tax)
Retained earnings
Other stockholders equity, net
(16)
(19)
12,198
9,240
765
741
Common stock in treasury, at cost: 31,231,870 shares in 2005 and

23,636,786 shares in 2004
(3,592)
(2,282)
Total common stockholders equity
15,699
13,575
16,794
14,920
$410,063
$357,168
Total liabilities and stockholders equity


77
C O N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N S T O C K H O L D E R S E Q U I T Y
IN MILLIONS
2005
2004
2003
250
$ 250
$ 250
200
200
200
250
250
250
250
250
345
345
345
345
345
345
300
300
PREFERRED STOCK
5.94% Cumulative, Series C:

Beginning and ending balance
5.67% Cumulative, Series D:

Beginning and ending balance
7.115% Fixed/Adjustable Rate Cumulative, Series E:
Beginning balance
Redemptions
(250)
Ending balance
6.50% Cumulative, Series F:
Beginning balance
Issuances
Ending balance
Floating Rate (3% Minimum) Cumulative, Series G:
Beginning balance
Issuances
Ending balance
Total preferred stock, ending balance
300
300
1,095
1,345
1,045
30
29
25
COMMON STOCK, PAR VALUE $0.10 PER SHARE
Beginning balance
Issuances in connection with Neuberger acquisition
Other Issuances
Ending balance
30
30
29
5,865
6,164
3,628
184
135
(36)
(760)
(585)
(352)
468
543
2,371
(307)
ADDITIONAL PAID-IN CAPITAL
Beginning balance
RSUs exchanged for Common Stock
Employee stock-based awards
Tax benet from the issuance of stock-based awards
1,005
Share issuances in connection with Neuberger acquisition
Neuberger nal purchase price adjustment
Other, net
Ending balance
20
6,314
(10)
10
5,865
6,164
(16)
(13)
(3)
(3)
$ (19)
$ (16)
ACCUMULATED OTHER COMPREHENSIVE INCOME
Beginning balance
(19)
Translation adjustment, net (1)

Ending balance
(1)
Net of income taxes of $1 in 2005, $(2) in 2004 and $(1) in 2003.
78

3
$
(16)
C O N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N S T O C K H O L D E R S E Q U I T Y
(continued)
IN MILLIONS
2005
2004
2003
$ 9,240
$ 7,129
$ 5,608
3,260
2,369
1,699
RETAINED EARNINGS
Beginning balance
Net income
Dividends declared:
5.94% Cumulative, Series C Preferred Stock
(15)
(15)
(15)
5.67% Cumulative, Series D Preferred Stock
(11)
(11)
(11)
(9)
(18)
(18)
(22)
(23)
(6)
7.115% Fixed/Adjustable Rate Cumulative, Series E Preferred Stock

6.50% Cumulative, Series F Preferred Stock
Floating Rate (3% Minimum) Cumulative, Series G Preferred Stock
Common Stock
Ending balance
(12)
(5)
(233)
(186)
(128)
12,198
9,240
7,129
3,874
3,353
2,822
(585)
(425)
1,182
957
COMMON STOCK ISSUABLE
Beginning balance
Deferred stock awards granted
Other, net
(832)
1,574
(76)
(1)
3,874
3,353
(1,353)
(852)
(754)
(676)
(876)
(518)
549
401
444
Other, net
(30)
(26)
(24)
(1,510)
(1,353)
(852)
Beginning balance
(1,780)
(1,470)
(1,119)
Deferred stock awards granted
(1,574)
(1,182)
(999)
773
625
Ending balance
(68)
4,548
COMMON STOCK HELD IN RSU TRUST
Beginning balance
Ending balance
DEFERRED STOCK COMPENSATION
Amortization of deferred compensation, net

Other, net
988
99
23
(2,273)
(1,780)
(1,470)
Beginning balance
(2,282)
(2,208)
(1,955)
Repurchases of Common Stock
(2,994)
(1,693)
(967)
Shares reacquired from employee transactions
(1,163)
(574)
(541)
49
18
Ending balance
93
COMMON STOCK IN TREASURY, AT COST

Ending balance
99
2,748
2,144
1,237
(3,592)
(2,282)
(2,208)
$14,920
$13,174
$16,794

79
C O N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S
IN MILLIONS
2005
2004
2003
3,260
$ 2,369
$ 1,699
426
428
315
(502)
(74)
(166)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization
Deferred tax benet
Tax benet from the issuance of stock-based awards
1,005
468
543
Amortization of deferred stock compensation
1,055
800
625
19
77
173
85
(26)

Other adjustments
Net change in:
Resale agreements, net of repurchase agreements
(1,659)
(985)
(297)
(36,652)
(8,936)
(14,736)
(475)
(9,467)
19,504
Securities borrowed, net of securities loaned
(5,165)
(22,728)
(25,048)
Other secured borrowings
11,495
Receivables from brokers, dealers and clearing organizations
(4,054)
Receivables from customers
354
14,156
Payables to brokers, dealers and clearing organizations
Other operating assets and liabilities, net

Net cash provided by (used in) operating activities
(1,100)
(4,432)
(530)
23,471
5,326
(1,362)
1,280
10,189
(801)
520
1,195
345
(370)
346
(11,484)
1,896
334
110
9,386
Accrued liabilities and other payables
2,700
1,475
10,158
165
Payables to customers
(2,923)
(7,488)
CASH FLOWS FROM FINANCING ACTIVITIES
Derivative contracts with a nancing element
140
Issuance (payments) of short-term borrowings, net

Issuance of long-term borrowings
Principal payments of long-term borrowings
Issuance of preferred securities subject to mandatory redemption
Issuance of common stock
Issuance (retirement) of preferred stock
84
526
(38)
23,705
20,485
13,383
(14,233)
(10,820)
(10,137)
600
230
108
57
(250)
300
345
Issuance of treasury stock
1,015
551
260
Purchase of treasury stock
(2,994)
(1,693)
(967)
(302)
(258)
(178)
9,533
3,435
(409)
(401)
(451)
(38)
(130)
(657)
Net cash used in investing activities
(447)
(531)
(1,108)
Net change in cash and cash equivalents
(540)
(2,482)
4,223
Dividends paid
Net cash provided by nancing activities
7,395
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, equipment and leasehold improvements, net

Business acquisitions, net of cash acquired
Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN MILLIONS):
Interest paid totaled $17,893, $9,534 and $8,654 in 2005, 2004 and 2003, respectively.
Income taxes paid totaled $789, $638 and $717 in 2005, 2004 and 2003, respectively.
80

5,440
7,922
3,699
4,900
$ 5,440
$ 7,922
N OT E S TO C O N S O L I DAT E D
F I N A N C I A L S TAT E M E N T S
81 Note 1
Summary of Signicant Accounting Policies
NOTE
SUMMARY
ACCOUNTING
OF
SIGNIFICANT
POLICIES
87 Note 2
Financial Instruments
89 Note 3
Securitizations and Other Off-Balance-Sheet
Lehman Brothers Holdings Inc. (Holdings) and subsidiaries (collec-
Arrangements
tively, the Company,Lehman Brothers,we,us or our) is one of
DESCRIPTION OF BUSINESS
the leading global investment banks serving institutional, corporate,

91 Note 4
Securities Received and Pledged as Collateral
92 Note 5
Business Combinations
93 Note 6
Identiable Intangible Assets and Goodwill
government and high-net-worth individual clients. Our 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 Pacic
region. We are engaged primarily in providing nancial services. The
94 Note 7
Short-Term Borrowings
94 Note 8
Long-Term Borrowings
97 Note 9
Fair Value of Financial Instruments
97 Note 10
Commitments, Contingencies and Guarantees
principal U.S., European, and Asian subsidiaries of Holdings are Lehman

Brothers Inc. (LBI), a U.S. registered broker-dealer, Lehman Brothers
International (Europe) (LBIE), an authorized investment rm in the
United Kingdom and Lehman Brothers Japan, a registered securities
100 Note 11
Stockholders Equity
company in Japan, respectively.

BASIS OF PRESENTATION
The Consolidated Financial Statements are prepared in conformity with

generally accepted accounting principles, and include the accounts of
Holdings, our subsidiaries, and all other entities in which we have a con-
102 Note 12
Regulatory Requirements
103 Note 13
Earnings per Share
103 Note 14
Employee Incentive Plans
106 Note 15
Employee Benet Plans
109 Note 16
Income Taxes
trolling nancial interest or are considered to be the primary beneciary. All material intercompany accounts and transactions have been
eliminated in consolidation. Certain prior-period amounts reect
reclassications to conform to the current years presentation.
USE OF ESTIMATES
Generally accepted accounting principles require management to make

estimates and assumptions that affect the amounts reported in the nancial statements and accompanying notes. Management estimates are
required in determining the valuation of inventory positions, particu110 Note 17
Real Estate Reconguration Charge
larly over-the-counter (OTC) derivatives, certain commercial mortgage loans and investments in real estate, certain high-yield positions,
111 Note 18
Business Segments and Geographic Information
113 Note 19
Quarterly Information (unaudited)
private equity and other principal investments, and non-investmentgrade retained interests. Additionally, signicant management estimates
are required in assessing the realizability of deferred tax assets, the fair
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
81
value of assets and liabilities acquired in a business acquisition, the
nancial risk or to make an investment in real estate. In the normal course
accounting treatment of QSPEs and VIEs, the outcome of litigation, the
of business we may establish VIEs, sell assets to VIEs, underwrite, distrib-
fair value of equity-based compensation awards and determining the
ute, and make a market in securities issued by VIEs, transact derivatives
allocation of the cost of acquired businesses to identiable intangible
with VIEs, own securities or residual interests in VIEs, and provide liquid-
assets and goodwill and determining the amount of the real estate
ity or other guarantees to VIEs. Under FIN 46(R), we are required to
reconguration charges. Management believes the estimates used in
consolidate a VIE if we are deemed to be the primary beneciary of such
preparing the nancial statements are reasonable and prudent. Actual
entity.The primary beneciary is the party that has either a majority of
results could differ from these estimates.
the expected losses or a majority of the expected residual returns of such
CONSOLIDATION ACCOUNTING POLICIES
entity, as dened. In 2004 we adopted FIN 46(R) for all VIEs in which
Operating Companies Financial Accounting Standards Board (FASB)
we hold a variable interest. The effect of adopting FIN 46(R) in scal
Interpretation No. 46(R), Consolidation of Variable Interest Entities (revised
2004 was not material to our nancial condition or results of operations.
December 2003)an interpretation of ARB No. 51, (FIN 46(R)), denes
For a further discussion of our securitization activities and our
the criteria necessary to be considered an operating company (i.e., a vot-
involvement with VIEs see Note 3 to the Consolidated Financial
ing-interest entity) for which the consolidation accounting guidance of
Statements.
Statement of Financial Accounting Standards (SFAS) No. 94,
REVENUE RECOGNITION POLICIES
Consolidation of All Majority-Owned Subsidiaries, (SFAS 94) should
Principal Transactions Financial instruments classied as Financial
be applied.As required by SFAS 94, we consolidate operating companies
instruments and other inventory positions owned and Financial instru-
in which we have a controlling nancial interest.The usual condition for
ments and other inventory positions sold but not yet purchased (both of
a controlling nancial interest is ownership of a majority of the voting
which are recorded on a trade-date basis) are valued at market or fair
interest. FIN 46(R) denes operating companies as businesses that have
value, as appropriate, with unrealized gains and losses reected in
sufficient legal equity to absorb the entities expected losses (presumed to
Principal transactions in the Consolidated Statement of Income.
require minimum 10% equity) and, in each case, for which the equity
Investment Banking Underwriting revenues, net of related under-
holders have substantive voting rights and participate substantively in the
writing expenses, and revenues for merger and acquisition advisory and
gains and losses of such entities. Operating companies in which we exer-
other investment-banking-related services are recognized when services for
cise signicant inuence but do not control are accounted for under the
the transactions are completed. Direct costs associated with advisory serv-
equity method. Signicant inuence generally is deemed to exist when
ices are recorded as non-personnel expenses, net of client reimbursements.
we own 20% to 50% of the voting equity of a corporation, or when we

hold at least 3% of a limited partnership interest.
Special Purpose Entities Special purpose entities (SPEs) are
82
Commissions Commissions primarily include fees from executing and clearing client transactions on stocks, options and futures markets worldwide.These fees are recognized on a trade-date basis.
corporations, trusts or partnerships that are established for a limited pur-
Interest and Dividends Revenue and Interest Expense We recog-
pose. SPEs by their nature generally do not provide equity owners with
nize contractual interest on Financial instruments and other inventory
signicant voting powers because the SPE documents govern all mate-
positions owned and Financial instruments and other inventory posi-
rial decisions. There are two types of SPEs: qualifying special purpose
tions sold but not yet purchased on an accrual basis as a component of
entities (QSPEs) and variable interest entities (VIEs).
Interest and dividends revenue and Interest expense, respectively.
A QSPE generally can be described as an entity whose permitted
Interest ows on derivative transactions are included as part of the
activities are limited to passively holding nancial assets and distributing
mark-to-market valuation of these contracts in Principal transactions in
cash ows to investors based on pre-set terms. Our primary involvement
the Consolidated Statement of Income and are not recognized as a
with SPEs relates to securitization transactions in which transferred
component of interest revenue or expense.We account for our secured
assets, including mortgages, loans, receivables and other assets, are sold to
nancing activities and short- and long-term borrowings on an accrual
an SPE that qualies as a QSPE under SFAS No. 140, Accounting for
basis with related interest recorded as interest revenue or interest
Transfers and Servicing of Financial Assets and Extinguishments of
expense, as applicable.
Liabilities, (SFAS 140). In accordance with SFAS 140 we do not
Asset Management and Other Investment advisory fees are
consolidate QSPEs. Rather, we recognize only our retained interests in
recorded as earned. Generally, high-net-worth and institutional clients
the QSPEs, if any.We account for such retained interests at fair value.
are charged or billed quarterly based on the accounts net asset value at
Certain SPEs do not meet the QSPE criteria because their permit-
the end of a quarter. Investment advisory and administrative fees earned
ted activities are not sufficiently limited or because the assets are not
from our mutual fund business (the Funds) are charged monthly to the
deemed qualifying nancial instruments (e.g., real estate). Such SPEs are
Funds based on average daily net assets under management. In certain
referred to as VIEs and we typically use them to create securities with a
circumstances, we receive asset management incentive fees when the
unique risk prole desired by investors, as a means of intermediating
return on assets under management exceeds specied benchmarks. Such

incentive fees generally are based on investment performance over a
index (e.g., S&P 500) or reference rate (e.g., LIBOR), and include futures,
twelve-month period and are not subject to adjustment after the meas-
forwards, swaps, option contracts, or other nancial instruments with sim-
urement period ends. Accordingly, such incentive fees are recognized
ilar characteristics.A derivative contract generally represents a future com-
when the measurement period ends.We receive private equity incentive
mitment to exchange interest payment streams or currencies based on the
fees when the return on certain private equity funds investments
contract or notional amount or to purchase or sell other nancial instru-
exceeds specied threshold returns. Such incentive fees typically are
ments at specied terms on a specied date. OTC derivative products are
based on investment periods in excess of one year, and future investment
privately-negotiated contractual agreements that can be tailored to meet
underperformance could require amounts previously distributed to us to
individual client needs and include forwards, swaps and certain options
be returned to the funds.Accordingly, these incentive fees are recognized
including caps, collars and oors. Exchange-traded derivative products are
when all material contingencies have been substantially resolved.
standardized contracts transacted through regulated exchanges and include
FINANCIAL INSTRUMENTS AND

OTHER INVENTORY POSITIONS
futures and certain option contracts listed on an exchange.

Derivatives are recorded at market or fair value in the Consolidated
Financial instruments classied as Financial instruments and other
Statement of Financial Condition on a net-by-counterparty basis when
inventory positions owned, including loans, and Financial instruments
a legal right of offset exists and are netted across products when such
and other inventory positions sold but not yet purchased are recognized
provisions are stated in the master netting agreement. Cash collateral
on a trade-date basis and are carried at market or fair value, or amounts
received is netted on a counterparty basis, provided legal right of offset
which approximate fair value, with unrealized gains and losses reected
exists. Derivatives often are referred to as off-balance-sheet instruments
because neither their notional amounts nor the underlying instruments
Lending commitments also are recorded at fair value, with unrealized
are reected as assets or liabilities of the Company. Instead, the market or
gains or losses recognized in Principal transactions in the Consolidated
fair values related to the derivative transactions are reported in the
Statement of Income.
Consolidated Statement of Financial Condition as assets or liabilities, in
We follow the American Institute of Certied Public Accountants
Derivatives and other contractual agreements, as applicable. Margin on
(AICPA) Audit and Accounting Guide, Brokers and Dealers in
futures contracts is included in receivables and payables from/to brokers,
Securities, (the Guide) when determining market or fair value for
dealers and clearing organizations, as applicable. Changes in fair values of
nancial instruments. Market value generally is determined based on
derivatives are recorded in Principal transactions in the Consolidated
listed prices or broker quotes. In certain instances, such price quotations
Statement of Income. Market or fair value generally is determined either
may be deemed unreliable when the instruments are thinly traded or
by quoted market prices (for exchange-traded futures and options) or
when we hold a substantial block of a particular security and the listed
pricing models (for swaps, forwards and options). Pricing models use a
price is not deemed to be readily realizable. In accordance with the
series of market inputs to determine the present value of future cash
Guide, in these instances we determine fair value based on manage-
ows with adjustments, as required, for credit risk and liquidity risk.
ments best estimate, giving appropriate consideration to reported prices
Credit-related valuation adjustments incorporate historical experience
and the extent of public trading in similar securities, the discount from
and estimates of expected losses.Additional valuation adjustments may be
the listed price associated with the cost at the date of acquisition, and
recorded, as deemed appropriate, for new or complex products or for
the size of the position held in relation to the liquidity in the market,
positions with signicant concentrations.These adjustments are integral
among other factors.When listed prices or broker quotes are not avail-
components of the mark-to-market process.
able, we determine fair value based on pricing models or other valua-
We follow Emerging Issues Task Force (EITF) Issue No. 02-3,
tion techniques, including the use of implied pricing from similar
Issues Involved in Accounting for Derivative Contracts Held for Trading
instruments.We typically use pricing models to derive fair value based
Purposes and Contracts Involved in Energy Trading and Risk Management
on the net present value of estimated future cash ows including adjust-
Activities, (EITF 02-3) when marking to market our derivative con-
ments, when appropriate, for liquidity, credit and/or other factors. We
tracts. Under EITF 02-3, recognition of a trading prot at inception of
account for real estate positions held for sale at the lower of cost or fair
a derivative transaction is prohibited unless the fair value of that deriv-
value with gains or losses recognized in Principal transactions in the
ative is obtained from a quoted market price, supported by comparison
Consolidated Statement of Income.
to other observable market transactions or based on a valuation tech-
All rm-owned securities pledged to counterparties that have the
nique incorporating observable market data. Subsequent to the transac-
right, by contract or custom, to sell or repledge the securities are classi-
tion date, we recognize trading prots deferred at inception of the
ed as Financial instruments and other inventory positions owned, and
derivative transaction in the period in which the valuation of such
are disclosed as pledged as collateral, as required by SFAS 140.
instrument becomes observable.
Derivative Financial Instruments Derivatives are nancial instru-
As an end user, we primarily use derivatives to modify the inter-
ments whose value is based on an underlying asset (e.g.,Treasury bond),
est rate characteristics of our long-term debt and secured nancing

83
activities. We also use equity derivatives to hedge our exposure to
SECURED FINANCING ACTIVITIES
equity price risk embedded in certain of our debt obligations and for-
Repurchase and Resale Agreements Securities purchased under
eign exchange forwards to manage the currency exposure related to
agreements to resell and Securities sold under agreements to repur-
our net investment in non-U.S.-dollar functional currency operations
chase, which are treated as nancing transactions for nancial report-
(collectively, End-User Derivative Activities). In many hedging rela-
ing purposes, are collateralized primarily by government and
tionships both the derivative and the hedged item are marked to mar-
government agency securities and are carried net by counterparty,
ket through earnings (fair value hedge). In these instances, the hedge
when permitted, at the amounts at which the securities subsequently
relationship is highly effective and the mark to market on the deriva-
will be resold or repurchased plus accrued interest. It is our policy to
tive and the hedged item virtually offset. Certain derivatives embedded
take possession of securities purchased under agreements to resell.We
in long-term debt are bifurcated from the debt and marked to market
monitor the market value of the underlying positions on a daily basis
through earnings.
compared with the related receivable or payable balances, including
We use fair value hedges primarily to convert a substantial portion
accrued interest. We require counterparties to deposit additional col-
of our xed-rate debt and certain long-term secured nancing activities
lateral or return collateral pledged, as necessary, to ensure the market
to oating interest rates. Any hedge ineffectiveness in these relationships
value of the underlying collateral remains sufficient. Financial instru-
is recorded in Interest expense in the Consolidated Statement of Income.
ments and other inventory positions owned that are nanced under
Gains or losses from revaluing foreign exchange contracts associated with
repurchase agreements are carried at market value, with unrealized
hedging our net investments in non-U.S.-dollar functional currency
gains and losses reected in Principal transactions in the Consolidated
operations are reported within Accumulated other comprehensive
income in Stockholders equity. Unrealized receivables/payables resulting
We use interest rate swaps as an end-user to modify the interest
from the mark to market of end-user derivatives are included in Financial
rate exposure associated with certain xed-rate resale and repurchase
instruments and other inventory positions owned or Financial instru-
agreements. We adjust the carrying value of these secured nancing
ments and other inventory positions sold but not yet purchased.
transactions that have been designated as the hedged item.
Private Equity Investments We carry our private equity invest-
Securities Borrowed and Loaned Securities borrowed and securi-
ments, including our partnership interests, at fair value. Certain of our
ties loaned are carried at the amount of cash collateral advanced or
private equity positions are less liquid and often contain trading restric-
received plus accrued interest. It is our policy to value the securities bor-
tions. Fair value is determined based upon our assessment of the under-
rowed and loaned on a daily basis and to obtain additional cash as nec-
lying investments incorporating valuations that consider expected cash
essary to ensure such transactions are adequately collateralized.
ows, earnings multiples and/or comparisons to similar market transac-
Other Secured Borrowings Other secured borrowings principally
tions. Valuation adjustments reecting consideration of credit quality,
reects non-recourse nancing, and is recorded at contractual amounts
concentration risk, sales restrictions and other liquidity factors are an
plus accrued interest.
integral part of pricing these instruments.
84
LONG-LIVED ASSETS
Securitization Activities In accordance with SFAS 140, we rec-
Property, equipment and leasehold improvements are recorded at histor-
ognize transfers of nancial assets as sales provided control has been
ical cost, net of accumulated depreciation and amortization. Depreciation
relinquished. Control is deemed to be relinquished only when all of the
is recognized using the straight-line method over the estimated useful
following conditions have been met: (i) the assets have been isolated
lives of the assets. Buildings are depreciated up to a maximum of 40 years.
from the transferor, even in bankruptcy or other receivership (true-sale
Leasehold improvements are amortized over the lesser of their useful lives
opinions are required); (ii) the transferee has the right to pledge or
or the terms of the underlying leases, ranging up to 30 years. Equipment,
exchange the assets received and (iii) the transferor has not maintained
furniture and xtures are depreciated over periods of up to 15 years.
effective control over the transferred assets (e.g., a unilateral ability to
Internal-use software that qualies for capitalization under AICPA
repurchase a unique or specic asset).
Statement of Position 98-1, Accounting for the Costs of Computer Software
SECURITIES RECEIVED AS COLLATERAL AND OBLIGATION
Developed or Obtained for Internal Use, is capitalized and subsequently
TO RETURN SECURITIES RECEIVED AS COLLATERAL
amortized over the estimated useful life of the software, generally three
When we act as the lender in a securities-lending agreement and we
years, with a maximum of seven years. We review long-lived assets for
receive securities that can be pledged or sold as collateral, we recognize
impairment periodically and whenever events or changes in circum-
in the Consolidated Statement of Financial Condition an asset, repre-
stances indicate the carrying amounts of the assets may be impaired. If
senting the securities received (Securities received as collateral) and a
the expected future undiscounted cash ows are less than the carrying
liability, representing the obligation to return those securities
amount of the asset, an impairment loss would be recognized to the
(Obligation to return securities received as collateral).
extent the carrying value of such asset exceeded its fair value.

IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL
fair value of stock options and RSUs granted for 2004 and future years
Identiable intangible assets with nite lives are amortized over their
over the related service periods. Stock options granted for the years
expected useful lives. Identiable intangible assets with indenite lives
ended November 30, 2003 and before continue to be accounted for
and goodwill are not amortized. Instead, these assets are evaluated at
under APB 25. Adoption of SFAS 123 also required us to change the
least annually for impairment. Goodwill is reduced upon the recogni-
fair value measurement method for RSUs. Under SFAS 123, the fair
tion of certain acquired net operating loss carryforward benets.
value measurement of an RSU must include a discount from the mar-
EQUITY-BASED COMPENSATION
ket value of an unrestricted share of common stock on the RSU grant
SFAS No. 123, Accounting for Stock-Based Compensation, (SFAS
date for selling restrictions subsequent to the vesting date. RSUs granted
123) established nancial accounting and reporting standards for
prior to 2004 continue to be measured in accordance with APB 25 and,
equity-based employee and non-employee compensation. SFAS 123
accordingly, a discount from the market value of an unrestricted share of
permits companies to account for equity-based employee compensation
common stock on the RSU grant date is not recognized for selling
using the intrinsic-value method prescribed by Accounting Principles
restrictions subsequent to the vesting date. Under both APB 25 and
Board (APB) Opinion No. 25, Accounting for Stock Issued to
SFAS 123, compensation expense for RSUs with future service require-
Employees, (APB 25), or using the fair-value method prescribed by
ments is recognized over the relevant stated vesting periods of the
SFAS 123. Through November 30, 2003, we followed APB 25 and its
awards. See Accounting Developments below for a discussion of SFAS
related interpretations to account for equity-based employee compen-
No. 123(R), Share-Based Payment (SFAS 123(R)), which we are
sation. Accordingly, no compensation expense was recognized for stock
required to adopt on December 1, 2005.
option awards because the exercise price equaled or exceeded the market value of our common stock on the grant date.
In 2004, we adopted the fair value recognition provisions of SFAS
Our equity-based employee award plans provide for the accrual of

non-cash dividend equivalents on outstanding RSUs. These dividend
equivalents on RSUs are charged to retained earnings as declared.
123 as amended by SFAS No. 148, Accounting for Stock-Based
The following table illustrates the effect on net income and earn-
CompensationTransition and Disclosure, an amendment of FASB
ings per share for the years ended November 30, 2005, 2004, and 2003
Statement No. 123, using the prospective adoption method. Under this
if the fair-value-based retroactive method prescribed by SFAS 123 had
method of adoption, compensation expense is recognized based on the
been applied to all awards granted prior to scal year 2004:
E Q U I T Y B A S E D C O M P E N S AT I O N P R O F O R M A
NET INCOME AND EARNINGS PER SHARE
2005
2004
2003
$ 3,260
$2,369
$1,699
611
464
362
Add: stock-based employee compensation expense

included in reported net income, net of related tax effect
Deduct: stock-based employee compensation expense determined under
the fair-value-based method for all awards, net of related tax effect
(623)
(534)
$ 3,177
$2,210
$1,527
Basic, as reported
$ 11.47
$ 8.36
$ 6.71
Basic, pro forma
$ 11.17
$ 7.78
$ 6.01
Diluted, as reported
$ 10.87
$ 7.90
$ 6.35
Diluted, pro forma
$ 10.64
$ 7.42
$ 5.77
(694)
Earnings per share:

85
We used the Black-Scholes option-pricing model to measure the fair value
ing during 2005, 2004 and 2003. Based on the results of the model, the
of the stock options granted during 2005 and 2004, as well as for the meas-
weighted average fair values of the stock options granted were $26.48,
urement of fair value utilized to quantify the pro forma effects on net
$19.26, and $22.02 for 2005, 2004 and 2003, respectively. The weighted
income and earnings per share of the fair value of stock options outstand-
average assumptions used for 2005, 2004 and 2003 were as follows:
WEIGHTED AVERAGE BLACK-SCHOLES ASSUMPTIONS

2005
2004
2003
Risk-free interest rate
3.97%
3.04%
3.10%
Expected volatility
23.73%
28.09%
35.00%
Dividends per share
$0.80
$0.64
$0.48
3.9 years
3.7 years
4.6 years
Expected life
The increase in the weighted average fair value price of stock options
translated at average exchange rates during the period. The gains or
granted in 2005 compared with 2004 resulted primarily from the higher
losses resulting from translating foreign currency nancial statements
price of the Companys stock on the grant dates.The expected volatil-
into U.S. dollars, net of hedging gains or losses and taxes, are included
ity declined due to lower volatility in our stock over the historical and
in Accumulated other comprehensive income, a component of
future periods the Company uses to determine volatility.
Stockholders equity. Gains or losses resulting from foreign currency
EARNINGS PER SHARE
We compute earnings per share (EPS) in accordance with SFAS No.
ACCOUNTING DEVELOPMENTS
128, Earnings per Share. Basic EPS is computed by dividing net
FSP FAS 109-2 In December 2004, the FASB issued FSP FAS 109-2
income applicable to common stock by the weighted average number
Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
of common shares outstanding, which includes restricted stock units
Provision within the American Jobs Creation Act of 2004, (FSP FAS
for which service has been provided. Diluted EPS includes the com-
109-2) which provides guidance on the accounting implications of
ponents of basic EPS and also includes the dilutive effects of restricted
the American Jobs Creation Act of 2004 (the Act) related to the one-
stock units for which service has not yet been provided and employee
time tax benet for the repatriation of foreign earnings. The Act cre-
stock options. See Notes 13 and 14 to the Consolidated Financial
ates a temporary incentive for U.S. corporations to repatriate
Statements for additional information about EPS.
accumulated income earned outside the U.S. by providing an 85 per-
INCOME TAXES
cent dividends received deduction for certain dividends from con-
We account for income taxes in accordance with SFAS No. 109,
trolled foreign corporations. We have reviewed the Act to determine
Accounting for Income Taxes, (SFAS 109).We recognize the current
the implications of repatriating all or a portion of our accumulated
and deferred tax consequences of all transactions that have been recog-
non-U.S. retained earnings pool and determined that we would not
nized in the nancial statements using the provisions of the enacted tax
generate any material tax benets associated with the Act, as any
laws. Deferred tax assets are recognized for temporary differences that
amounts able to be repatriated under the Act would not be material.
will result in deductible amounts in future years and for tax loss carry-
SFAS 123(R) In December 2004, the FASB issued SFAS No.
forwards.We record a valuation allowance to reduce deferred tax assets
123(R),Share-Based Payment,(SFAS 123(R)),which we will adopt on
to an amount that more likely than not will be realized. Deferred tax
December 1, 2005. SFAS 123(R) requires public companies to recognize
liabilities are recognized for temporary differences that will result in
expense in the income statement for the grant-date fair value of awards of
taxable income in future years. Contingent liabilities related to income
equity instruments granted to employees. Expense is to be recognized over
taxes are recorded when probable and reasonably estimable in accor-
the period during which employees are required to provide service.
dance with SFAS No. 5, Accounting for Contingencies.
86
transactions are included in the Consolidated Statement of Income.
SFAS 123(R) also claries and expands the guidance in SFAS 123
CASH EQUIVALENTS
in several areas, including measuring fair value and attributing com-
Cash equivalents include highly liquid investments not held for resale
pensation cost to reporting periods. Under the modied prospective
with maturities of three months or less when we acquire them.
transition method applied in the adoption of SFAS 123(R), compensa-
FOREIGN CURRENCY TRANSLATION
tion cost will be recognized for the unamortized portion of outstand-
Assets and liabilities of foreign subsidiaries having non-U.S.-dollar func-
ing awards granted prior to the adoption of SFAS 123. Upon adoption
tional currencies are translated at exchange rates at the Consolidated
of SFAS 123(R) on December 1, 2005, we will recognize an after-tax
Statement of Financial Condition date. Revenues and expenses are
gain of approximately $47 million as the cumulative effect of a change

in accounting principle, primarily attributable to the requirement to
subject to non-compete agreements, is recognized over the service
estimate forfeitures at the date of grant instead of recognizing them as
period specied in the award. We accelerate the recognition of com-
incurred. We do not expect adoption of SFAS 123(R) otherwise will
pensation cost if and when a retirement-eligible employee or an
have a material effect on our consolidated nancial statements.
employee subject to a non-compete agreement, leaves the Company.
SFAS 123(R) generally requires equity-based awards granted to
The following table sets forth the pro forma net income that
retirement-eligible employees, and those employees with non-substan-
would have been reported for the years ended November 30, 2005,
tive non-compete agreements to be expensed immediately. For stock-
2004 and 2003 if equity-based awards granted to retirement-eligible
based awards granted prior to our adoption of SFAS 123(R),
employees, and those with non-substantive non-compete agreements
compensation cost for retirement eligible employees and employees
had been expensed immediately as required by SFAS 123(R):
PRO FORMA NET INCOME
IN MILLIONS
2005
2004
2003
$3,260
$2,369
$1,699
611
464
362
(867)
(643)
(447)
$2,190
$1,614
Add: stock-based employee compensation expense

included in reported net income, net of related tax effect
Deduct: stock-based employee compensation expense,
net of related tax effect, determined under SFAS 123(R)
$3,004
EITF Issue No. 04-5 In June 2005, the FASB ratied the consensus
banking and asset management partnerships,we adopted EITF 04-5 imme-
reached in EITF Issue No. 04-5, Determining Whether a General Partner,
diately for partnerships formed or modied after June 29, 2005. For part-
or the General Partners as a Group, Controls a Limited Partnership or Similar
nerships formed on or before June 29, 2005 that have not been modied,
Entity When the Limited Partners Have Certain Rights, (EITF 04-5)
we are required to adopt EITF 04-5 on December 1, 2006 in a manner
which requires general partners (or managing members in the case of lim-
similar to a cumulative-effect-type adjustment or by retrospective appli-
ited liability companies) to consolidate their partnerships or to provide
cation.We do not expect adoption of EITF 04-5 for partnerships formed
limited partners with rights to remove the general partner or to terminate
on or before June 29, 2005 that have not been modied will have a
the partnership.As the general partner of numerous private equity,merchant
material effect on our consolidated nancial statements.
NOTE
FINANCIAL
FINANCIAL INSTRUMENTS AND OTHER INVENTORY POSITIONS
Financial instruments and other inventory positions owned and
INSTRUMENTS
Financial instruments and other inventory positions sold but not yet
purchased were comprised of the following:
FINANCIAL INSTRUMENTS AND OTHER INVENTORY POSITIONS

Sold But Not
IN MILLIONS
N OV E M B E R 3 0
Mortgages, mortgage-backed and real estate inventory positions
Owned
Yet Purchased
2005
2004
$ 62,216
$ 43,831
Corporate equities
33,426
26,772
Corporate debt and other
30,182
Government and agencies
30,079
Derivatives and other contractual agreements

Certicates of deposit and other money market instruments
2005
63
2004
246
21,018
23,019
24,948
8,997
10,988
29,829
64,743
46,697
18,045
17,459
15,560
15,242
3,490
1,629
196
89
$177,438
$144,468
$110,577
$ 96,281

87
MORTGAGES, MORTGAGE-BACKED AND

REAL ESTATE INVENTORY POSITIONS
funding sources from xed to oating rates and to change the index on
which oating interest rates are based (e.g., Prime to LIBOR).
Mortgages and mortgage-backed positions include mortgage loans (both
Derivatives are subject to various risks similar to other nancial
residential and commercial), non-agency mortgage-backed securities and
instruments, including market, credit and operational risks. In addition,
real estate investments held for sale. We originate residential and com-
we may be exposed to legal risks related to derivative activities, includ-
mercial mortgage loans as part of our mortgage trading and securitiza-
ing the possibility a transaction may be unenforceable under applicable
tion activities and are a market leader in mortgage-backed securities
law. The risks of derivatives should not be viewed in isolation, but
trading. We securitized approximately $133 billion and $101 billion of
rather should be considered on an aggregate basis along with our other
residential mortgage loans in 2005 and 2004, respectively, including both
trading-related activities. We manage the risks associated with deriva-
originated loans and those we acquired in the secondary market. We
tives on an aggregate basis along with the risks associated with propri-
originated approximately $85 billion and $65 billion of residential mort-
etary trading and market-making activities in cash instruments, as part
gage loans in 2005 and 2004, respectively. In addition, we originated
of our rmwide risk management policies.
approximately $27 billion and $13 billion of commercial mortgage loans
We record derivative contracts at fair value with realized and
in 2005 and 2004, respectively, the majority of which has been sold
unrealized gains and losses recognized in Principal transactions in the
through securitization or syndication activities. See Note 3 to the
Consolidated Statement of Income. Unrealized gains and losses on
Consolidated Financial Statements for additional information about our
derivative contracts are recorded on a net basis in the Consolidated
securitization activities. We record mortgage loans at fair value, with
Statement of Financial Condition for those transactions with counter-
related mark-to-market gains and losses recognized in Principal transac-
parties executed under a legally enforceable master netting agreement
tions in the Consolidated Statement of Income.
and are netted across products when such provisions are stated in the
At November 30, 2005 and 2004, we owned approximately $7.9 bil-
master netting agreement. We offer equity, xed income, commodity
lion and $10.7 billion, respectively, of real estate held for sale. Our net
and foreign exchange derivative products to clients. Because of the
investment position after giving effect to non-recourse nancing was $4.8
integrated nature of the market for such products, each product area
billion and $4.1 billion at November 30, 2005 and 2004, respectively.
trades cash instruments as well as derivative products.
DERIVATIVE FINANCIAL INSTRUMENTS
The following table presents the fair value of derivatives at
In the normal course of business, we enter into derivative transactions
November 30, 2005 and 2004. Assets included in the table represent
both in a trading capacity and as an end-user. Our derivative activities
unrealized gains, net of unrealized losses, for situations in which we have
(both trading and end-user) are recorded at fair value in the
a master netting agreement. Similarly, liabilities represent net amounts
Consolidated Statement of Financial Condition. Acting in a trading
owed to counterparties. The fair value of assets/liabilities related to
capacity, we enter into derivative transactions to satisfy the needs of our
derivative contracts at November 30, 2005 and 2004 represents our net
clients and to manage our own exposure to market and credit risks
receivable/payable for derivative nancial instruments before consider-
resulting from our trading activities (collectively, Trading-Related
ation of securities collateral. At November 30, 2005 and 2004, the fair
Derivative Activities). As an end-user, we primarily enter into interest
value of derivative assets included $2.6 billion and $3.4 billion, respec-
rate swap and option contracts to adjust the interest rate nature of our
tively, related to exchange-traded option and warrant contracts.
FA I R VA L U E O F D E R I VAT I V E S A N D
OTHER CONTRACTUAL AGREEMENTS
IN MILLIONS
N OV E M B E R 3 0
Interest rate, currency and credit default swaps and options
88
2005
2004
Assets
Liabilities
Assets
Liabilities
$ 8,273
$ 7,128
$ 7,927
$ 6,664
1,970
2,004
2,155
2,494
Other xed income securities contracts (including TBAs and forwards)
2,241
896
1,633
275
Equity contracts (including equity swaps, warrants and options)
5,561
5,532
5,744
5,809
$18,045
$15,560
$17,459
$15,242
The primary difference in risks between OTC and exchange-traded
exposure to be $10.5 billion and $11.3 billion at November 30, 2005
contracts is credit risk. OTC contracts contain credit risk for unrealized
and 2004, respectively, representing the fair value of OTC contracts in
gains, net of collateral, from various counterparties for the duration of
an unrealized gain position, after consideration of collateral.
the contract. With respect to OTC contracts, we view our net credit
Counterparties to our OTC derivative products primarily are U.S. and

foreign banks, securities rms, corporations, governments and their
institutional investors, including other brokers and dealers. Our expo-
agencies, nance companies, insurance companies, investment compa-
sure to credit risk associated with the non-performance of these
nies and pension funds. Collateral held related to OTC contracts gen-
clients and counterparties in fullling their contractual obligations
erally includes U.S. government and federal agency securities.
pursuant to securities transactions can be directly affected by volatile
We also are subject to credit risk related to exchange-traded

derivative contracts. Exchange-traded contracts, including futures and
or illiquid trading markets, which may impair the ability of clients and
counterparties to satisfy their obligations to us.
certain options, are transacted directly on exchanges.To protect against
the potential for a default, all exchange clearinghouses impose net cap-
include U.S. government and agency securities, and securities issued
ital requirements for their membership. Additionally, exchange clear-
by non-U.S. governments, which in the aggregate, represented 7% of
inghouses require counterparties to futures contracts to post margin
total assets at November 30, 2005. In addition, collateral held for
upon the origination of the contracts and for any changes in the mar-
resale agreements represented approximately 26% of total assets at
ket value of the contracts on a daily basis (certain foreign exchanges
November 30, 2005, and primarily consisted of securities issued by
provide for settlement within three days). Therefore, the potential for
the U.S. government, federal agencies or non-U.S. governments. Our
credit losses from exchange-traded products is limited.
most significant industry concentration is financial institutions,
CONCENTRATIONS OF CREDIT RISK
which includes other brokers and dealers, commercial banks and
A substantial portion of our securities transactions are collateralized
institutional clients. This concentration arises in the normal course
and are executed with, and on behalf of, commercial banks and other
of business.
NOTE
SECURITIZATIONS
OFF-BALANCE-SHEET
AND
OTHER
ARRANGEMENTS
We are a market leader in mortgage- and asset-backed securitizations
lion of commercial mortgages and $6 billion and $11 billion of munic-
and other structured nancing arrangements. In connection with our
ipal and other asset-backed nancial instruments, respectively. At
securitization activities, we use SPEs primarily for the securitization of
November 30, 2005 and 2004, we had approximately $700 million and
commercial and residential mortgages, home equity loans, municipal
$900 million, respectively, of non-investment grade retained interests
and corporate bonds, and lease and trade receivables. The majority of
from our securitization activities (primarily junior security interests in
our involvement with SPEs relates to securitization transactions meet-
securitizations).We record inventory positions held prior to securitiza-
ing the SFAS 140 denition of a QSPE. Based on the guidance in
tion, including residential and commercial loans, at fair value, as well as
SFAS 140, we do not consolidate such QSPEs.We derecognize nan-
any retained interests post-securitization. Mark-to-market gains or
cial assets transferred in securitizations, provided we have relinquished
losses are recorded in Principal transactions in the Consolidated
control over such assets.We may retain an interest in the nancial assets
Statement of Income. Fair value is determined based on listed market
we securitize (retained interests), which may include assets in the
prices, if available. When market prices are not available, fair value is
form of residual interests in the SPEs established to facilitate the secu-
determined based on valuation pricing models that take into account
ritization. Retained interests are included in Financial instruments and
relevant factors such as discount, credit and prepayment assumptions,
other inventory positions owned (primarily Mortgages and mortgage-
and also considers comparisons to similar market transactions.
backed) in the Consolidated Statement of Financial Condition. For
The following table presents the fair value of retained interests at
further information regarding the accounting for securitization trans-
November 30, 2005 and 2004, the key economic assumptions used in
actions, refer to Note 1, Summary of Signicant Accounting Policies-
measuring the fair value of retained interests, and the sensitivity of the
Consolidation Accounting Policies.
fair value of the retained interests to immediate 10% and 20% adverse
During 2005 and 2004, we securitized approximately $152 billion
changes in the valuation assumptions, as well as the cash ows received
and $120 billion of nancial assets, including approximately $133 bil-
on such retained interests from securitization trusts for the years ended
lion and $101 billion of residential mortgages, $13 billion and $8 bil-
November 30, 2005 and 2004.

89
S E C U R I T I Z AT I O N A C T I V I T Y
2005
DOLLARS IN MILLIONS
N OV E M B E R 3 0
2004
Municipal
Municipal
and Other
and Other
Residential
Commercial
Asset-
Residential
Commercial
Asset-
Mortgages
Mortgages
Backed
Mortgages
Mortgages
Backed
$ 0.5
$ 0.2
$ 0.5
$ 0.1
$ 0.3
16
Non-investment grade
Retained interests (in billions)
Weighted average life (years)
Average CPR
(1)
28.2
Effect of 10% adverse change
$ 10
$ 18

Credit loss assumption
0.1%9.2%
5.2
33.0
3.5
$ 4
0.14%
$ 11
0.59%
01.2%
14%
$ 23
$ 13
$ 7
$ 44
$ 11
$ 28
$ 4
$ 14
Weighted average discount rate
15%
$ 22
$ 41
5%
24%
$ 21
$ 16
$ 42
$ 28
2005
Y E A R E N D E D N OV E M B E R 3 0 ,
Cash ows received on retained interests

(1)
$138
15%
3%
$ 2
$ 26
$ 3
$ 52
2004
$ 75
$172
$ 8
$165
Constant prepayment rate.
The sensitivity analysis is hypothetical and should be used with caution
the securitization of residential mortgage loans that we originate, and to
because the stresses are performed without considering the effect of
a lesser extent from the purchase of MSRs from other servicers. MSRs
hedges, which serve to reduce our actual risk. In addition, these results
are included in Financial instruments and other inventory positions
are calculated by stressing a particular economic assumption independ-
owned on the Consolidated Statements of Financial Condition, and are
ent of changes in any other assumption (as required by U.S. GAAP); in
reported at the lower of amortized cost or market value. At November
reality, changes in one factor often result in changes in another factor
30, 2005 and 2004 the Company has MSRs of approximately $561 mil-
(for example, changes in discount rates will often affect expected pre-
lion and $400 million, respectively. MSRs are amortized in proportion
payment speeds). Further, changes in the fair value based on a 10% or
to and over the period of estimated net servicing income. MSRs are
20% variation in an assumption should not be extrapolated because the
periodically evaluated for impairment based on the fair value of those
relationship of the change in the assumption to the change in fair value
rights determined by using market-based models which discount antic-
may not be linear.
ipated future net cash ows considering loan prepayment predictions,
Mortgage Servicing Rights Mortgage servicing rights (MSRs)
interest rates, default rates, servicing costs and other economic factors.
represent the Companys right to a future stream of cash ows based
The excess of amortized cost over market value is reected as a valua-
upon the contractual servicing fee associated with servicing mortgage
tion allowance at the balance sheet dates.The Companys MSRs activ-
loans and mortgage-backed securities. Our MSRs generally arise from
ities for the years ended November 30, 2005 and 2004 were as follows:
MORTGAGE SERVICING RIGHTS

IN MILLIONS
N OV E M B E R 3 0
2005
2004
Balance, beginning of period
$400
$314
Additions
509
467
Sales
(237)
(294)
Amortization
(151)
(104)
Net change in valuation allowance

Balance, end of period
90

40
17
$561
$400
Non-QSPE Activities Substantially all of our securitization activities
30, 2005 and 2004, respectively. In addition, our default swaps are
are transacted through QSPEs, including residential and commercial
secured by the value of the underlying investment-grade collateral held
mortgage securitizations. However, we also are actively involved with
by the SPEs which was $5.7 billion and $4.4 billion at November 30,
SPEs that do not meet the QSPE criteria due to their permitted activ-
2005 and 2004, respectively. Because the results of our expected loss cal-
ities not being sufficiently limited or because the assets are not deemed
culations generally demonstrate the investors in the SPE bear a major-
qualifying nancial instruments (e.g., real estate). Our involvement with
ity of the entitys expected losses (because the investors assume default
such SPEs includes collateralized debt obligations (CDOs), credit-
risk associated with both the reference portfolio and the SPEs assets),
linked notes and other structured nancing transactions designed to
we generally are not deemed to be the primary beneciary of these
meet clients investing or nancing needs.
transactions and therefore do not consolidate such SPEs. However, in
A CDO transaction involves the purchase by an SPE of a diversied
certain credit default transactions, generally when we participate in the
portfolio of securities and/or loans that are then managed by an inde-
xed interest rate risk associated with the underlying collateral through
pendent asset manager. Interests in the SPE (debt and equity) are sold to
an interest rate swap, we are deemed to be the primary beneciary of
third party investors. Our primary role is limited to acting as structuring
such transaction and therefore have consolidated the SPEs. At
and placement agent, warehouse provider, underwriter and market maker
November 30, 2005 and 2004 we consolidated approximately $0.6 bil-
in the related CDO securities. In a typical CDO, at the direction of a third
lion and $0.7 billion of such credit default transactions, respectively.We
party asset manager, we temporarily will warehouse securities or loans on
record the assets associated with such consolidated credit default trans-
our balance sheet pending the sale to the SPE once the permanent
actions as a component of long inventory for which principally all of
nancing is completed in the capital markets.At November 30, 2005 and
such assets are nanced on a non-recourse basis.
2004, we owned approximately $42 million and $114 million of equity
We also invest in real estate directly through controlled subsidiaries
securities in CDOs, respectively. Because our investments do not repre-
and through variable interest entities.We consolidate our investments in
sent a majority of any CDO equity class, we are not deemed the primary
variable interest real estate entities when we are deemed to be the pri-
beneciary of the CDOs and therefore we do not consolidate such SPEs.
mary beneciary. At November 30, 2005 and 2004, we consolidated
We are a dealer in credit default swaps and, as such, we make a
approximately $4.6 billion and $4.8 billion, respectively, of real estate-
market in buying and selling credit protection on single issuers as well
related investments in VIEs for which we did not have a controlling
as on portfolios of credit exposures. One of the mechanisms we use to
nancial interest.We record the assets associated with such consolidated
mitigate credit risk is to enter into default swaps with SPEs, in which
real estate-related investments in VIEs as a component of long inventory.
we purchase default protection. In these transactions, the SPE issues
After giving effect to non-recourse nancing our net investment posi-
credit-linked notes to investors and uses the proceeds to invest in high
tion in such consolidated VIEs was $2.9 billion and $1.8 billion at
quality collateral.We pay a premium to the SPE for assuming credit risk
November 30, 2005 and 2004, respectively. See Note 2 to the
under the default swap. Third-party investors in these SPEs are subject
Consolidated Financial Statements for a further discussion of our real
to default risk associated with the referenced obligations under the
estate held for sale.
default swap as well as the credit risk of the assets held by the SPE. Our
In addition, we enter into other transactions with SPEs designed
maximum loss associated with our involvement with such credit-linked
to meet clients investment and/or funding needs. See Note 10 to the
note transactions is the fair value of our credit default swaps with such
Consolidated Financial Statements for additional information about
SPEs, which amounted to $156 million and $110 million at November
these transactions and SPE-related commitments.
NOTE
SECURITIES
RECEIVED
AND
PLEDGED
AS
COLLATERAL
We enter into secured borrowing and lending transactions to nance
Amounts Related to Certain Repurchase and Reverse Repurchase
inventory positions, obtain securities for settlement and meet clients
Agreements (FIN 41).
needs. We receive collateral in connection with resale agreements,
At November 30, 2005 and 2004, the fair value of securities
securities borrowed transactions, borrow/pledge transactions, client
received as collateral and Financial instruments and other inventory
margin loans and derivative transactions. We generally are permitted
positions owned that have not been sold, repledged or otherwise
to sell or repledge these securities held as collateral and use the secu-
encumbered totaled approximately $87 billion and $90 billion,
rities to secure repurchase agreements, enter into securities lending
respectively. At November 30, 2005 and 2004, the gross fair value of
transactions or deliver to counterparties to cover short positions. We
securities received as collateral that we were permitted to sell or
carry secured nancing agreements on a net basis when permitted
repledge was approximately $528 billion and $524 billion, respectively.
under the provisions of FASB Interpretation No. 41, Offsetting of
Of this collateral, approximately $499 billion and $487 billion at

91
November 30, 2005 and 2004, respectively, has been sold or repledged,
inventory positions owned, pledged as collateral, in the Consolidated
generally as collateral under repurchase agreements or to cover Financial
Statement of Financial Condition as required by SFAS 140.
instruments and other inventory positions sold but not yet purchased.
The carrying value of Financial instruments and other inventory
We also pledge our own assets, primarily to collateralize certain
positions owned that have been pledged or otherwise encumbered to
nancing arrangements. These pledged securities, where the counter-
counterparties where those counterparties do not have the right to sell
party has the right, by contract or custom, to rehypothecate the nan-
or repledge was approximately $66 billion and $47 billion at November
cial instruments are classied as Financial instruments and other
30, 2005 and 2004, respectively.
NOTE
BUSINESS
COMBINATIONS
In October 2003, we acquired Neuberger Berman Inc. and its sub-
During 2003, we also acquired two originators and servicers of
sidiaries (Neuberger) by means of a merger into a wholly-owned
residential loans, a diversified private equity fund investment man-
subsidiary of Holdings. The results of Neubergers operations are
ager, and a fixed income asset management business for an aggregate
included in the Consolidated Financial Statements since that date.
cost of $172 million, which was paid in cash and notes.
Neuberger is an investment advisory company that engages in
During 2004, we acquired three mortgage origination plat-
wealth management services including private asset management,
forms for an aggregate cost of $184 million.These acquisitions com-
tax and financial planning, and personal and institutional trust serv-
pleted early in 2004 were included in substantially all of our 2004
ices, mutual funds, institutional management and alternative invest-
results and were not material to our 2003 results.
ments, and professional securities services.We purchased Neuberger
The following table sets forth unaudited pro forma combined
for a net purchase price of $2.5 billion, including equity consider-
operating results for the year ended November 30, 2003 as if the
ation of $2.1 billion and cash consideration and incremental costs
2003 acquisitions discussed above had been completed at the begin-
of $0.7 billion, and excluding cash and short-term investments
ning of 2003. These pro forma amounts do not consider any antici-
acquired of $276 million.
pated revenue or expense saving synergies.

P R O F O R M A C O N S O L I D AT E D
S TAT E M E N T O F I N C O M E I N F O R M AT I O N
92
2003
Net revenues
$9,383
Net income
1,722
Basic earnings per share
6.24
Diluted earnings per share
5.93

N O T E 6 I D E N T I F I A B L E I N TA N G I B L E A S S E T S A N D G O O D W I L L
Aggregate amortization expense for the years ended November 30,
November 30, 2006 through 2008 is approximately $45 million.
2005, 2004 and 2003 was $49 million, $47 million, and $11 million,
Estimated amortization expense for both the years ending November
respectively. Estimated amortization expense for each of the years ending
30, 2009 and 2010 is approximately $35 million.
I D E N T I F I A B L E I N TA N G I B L E A S S E T S
2005
2004
Gross
IN MILLIONS
N OV E M B E R 3 0
Gross
Carrying
Accumulated
Carrying
Accumulated
Amount
Amortization
Amount
Amortization
$496
$ 93
$490
$ 47
Amortizable intangible assets:

Customer lists
Other
100
37
96
34
$596
$130
$586
$ 81
Intangible assets not subject to amortization:

Mutual fund customer-related intangibles
$395
$395
Trade name
125
125
$520
$520
The changes in the carrying amount of goodwill for the years ended November 30, 2005 and 2004, are as follows:
GOODWILL
Capital
Investment
IN MILLIONS
Markets
Management
Total
Balance (net) at November 30, 2003
$2,527
154
$2,373
Goodwill acquired
34
41
75
Goodwill disposed
(23)
(23)
Recognition of acquired tax benet
(13)
(13)
Neuberger nal purchase price valuation adjustment

(307)
(307)
152
2,107
2,259
Goodwill acquired
13
Purchase price valuation adjustment
(2)
(2)
160
$2,110
$2,270
During 2004, we finalized the purchase price valuation and alloca-
securities we issued that were restricted from resale for periods
tion of our October 31, 2003 acquisition of Neuberger, based on an
extending through 2011.The initial allocation of the purchase price
independent third-party study.As a result, we reduced the valuation of
to identifiable tangible and intangible assets acquired and liabilities
the purchase price by approximately $307 million related to certain
assumed did not change.

93
NOTE
S H O RT- T E R M
BORROWINGS
We obtain short-term nancing on both a secured and unsecured
The unsecured nancing is generally obtained through short-term
basis. Secured nancing is obtained through the use of repurchase
debt and the issuance of commercial paper.
agreements and securities loaned agreements, which are primarily col-
Short-term borrowings consist of the following:
lateralized by government, government agency and equity securities.

S H O R T- T E R M B O R R O W I N G S
IN MILLIONS
N OV E M B E R 3 0
Commercial paper
Other short-term debt
2005
2004
$1,776
$1,670
1,165
1,187
$2,941
$2,857
At November 30, 2005 and 2004, the weighted average interest rates for Short-term borrowings, including commercial paper, were 3.93% and
2.0%, respectively.
NOTE
LONG-TERM
BORROWINGS
Long-term borrowings consist of the following:

LONG-TERM BORROWINGS
IN MILLIONS
N OV E M B E R 3 0
Senior notes
2005
2004
$58,599
$53,561
Subordinated notes
1,684
1,925
Junior subordinated notes
2,026
1,000
$62,309
$56,486
The maturity dates of Long-term borrowings are as follows:

M AT U R I T Y P R O F I L E
U.S. Dollar
IN MILLIONS
N OV E M B E R 3 0
Maturing in scal 2005
94
Non-U.S. Dollar
Fixed
Floating
Fixed
Floating
Rate
Rate
Rate
Rate
Total
2005
2004
$ 7,121
3,423
2,968
842
1,177
8,410
12,619
2,051
6,617
2,539
2,296
13,503
7,070
3,939
1,875
110
2,361
8,285
6,550
1,572
1,231
407
2,444
5,654
5,839
3,653
776
1,071
707
6,207
2,850
December 1, 2010 and thereafter
6,822
2,974
3,753
6,701
20,250
14,437
$21,460
$16,441
$ 8,722
$15,686
$62,309
$56,486

The weighted average contractual interest rates on U.S. dollar and non-
(including industry baskets of stocks, commodities or credit events).
U.S. dollar borrowings were 5.11% and 2.96%, respectively, at November
Generally, such notes are issued as oating rate notes or the interest rates
30, 2005 and 4.77% and 2.82%, respectively, at November 30, 2004.
on such index notes are effectively converted to oating rates based pri-
At November 30, 2005, $503 million of outstanding Long-term
marily on LIBOR through the use of derivatives.
borrowings are repayable at par value prior to maturity at the option of
END-USER DERIVATIVE ACTIVITIES
the holder.These obligations are reected in the above table as maturing
We use a variety of derivative products including interest rate, currency
at their put dates, which range from scal 2006 to scal 2007, rather than
and equity swaps as an end-user to modify the interest rate character-
at their contractual maturities, which range from scal 2006 to scal
istics of our Long-term borrowing portfolio.We use interest rate swaps
2021. In addition, $7.3 billion of Long-term borrowings is redeemable
to convert a substantial portion of our xed-rate debt to oating inter-
prior to maturity at our option under various terms and conditions.
est rates to more closely match the terms of assets being funded and to
These obligations are reected in the above table at their contractual
minimize interest rate risk. In addition, we use cross-currency swaps to
maturity dates. Extendible debt structures totaling approximately $3.6
hedge our exposure to foreign currency risk arising from our non-
billion are shown in the above table at their earliest maturity dates. Such
U.S.-dollar debt obligations, after consideration of non-U.S.-dollar
debt is automatically extended unless debt holders instruct us to redeem
assets that are funded with Long-term debt obligations in the same cur-
their debt at least one year prior to the earliest maturity date.
rency. In certain instances, we may use two or more derivative contracts
At November 30, 2005, our U.S. dollar and non-U.S. dollar debt
portfolios included approximately $8.1 billion and $9.8 billion, respectively, of structured notes for which the interest rates and/or redemption values are linked to the performance of an underlying measure
to manage the interest rate nature and/or currency exposure of an

individual Long-term borrowings issuance.
End-user derivative activities resulted in the following mix of xed
and oating rate debt and effective weighted average interest rates:
EFFECTIVE WEIGHTED AVERAGE

I N T E R E S T R AT E S O F L O N G - T E R M B O R R O W I N G S
DOLLARS IN MILLIONS
Long-Term Borrowings After
Effective Rate After
End-User Activities
End-User Activities
NOVEMBER 30, 2005
U.S. dollar obligations:

Fixed rate
Floating rate
Total U.S. dollar obligations
Non-U.S. dollar obligations
568
43,144
43,712
4.60%
18,597
2.62%
$62,309
4.00%
NOVEMBER 30, 2004
U.S. dollar obligations:

Fixed rate
Floating rate
712
41,095
Total U.S. dollar obligations
41,807
2.68%
Non-U.S. dollar obligations
14,679
2.31%
$56,486
2.59%

95
JUNIOR SUBORDINATED NOTES
of (a) issuing securities representing ownership interests in the assets of the
Junior subordinated notes are notes issued to trusts or limited partnerships
Trusts; (b) investing the proceeds of the Trusts in junior subordinated notes
(collectively, the Trusts) which qualify as equity capital by leading rating
of Holdings; and (c) engaging in activities necessary and incidental thereto.
agencies (subject to limitation).The Trusts were formed for the purposes
The securities issued by the Trusts are comprised of the following:
J U N I O R S U B O R D I N AT E D N O T E S
IN MILLIONS
N OV E M B E R 3 0
2005
2004
Trust Preferred Securities:

Lehman Brothers Holdings Capital Trust III
300
$ 300
Lehman Brothers Holdings Capital Trust IV
300
300
Lehman Brothers Holdings Capital Trust V
400
400
Lehman Brothers Holdings Capital Trust VI
225
Lehman Brothers UK Capital Funding LP
207
Lehman Brothers UK Capital Funding II LP
294
Euro Perpetual Preferred Securities:
Enhanced Capital Advantaged Preferred Securities (ECAPS):

Lehman Brothers Holdings E-Capital Trust I
300
$2,026
$1,000
The following table summarizes the key terms of Trusts with outstanding securities at November 30, 2005:
TRUSTS ISSUED SECURITIES
Issuance
Mandatory
Redeemable by
Date
Redemption Date
Issuer on or after
N OV E M B E R 3 0
Holdings Capital Trust III
March 2003
March 15, 2052
March 15, 2008
Holdings Capital Trust IV
October 2003
October 31, 2052
October 31, 2008
April 2004
April 22, 2053
April 22, 2009
Holdings Capital Trust VI
January 2005
January 18, 2054
January 18, 2010
UK Capital Funding LP
March 2005
Perpetual
March 30, 2010
UK Capital Funding II LP
September 2005
Perpetual
September 21, 2009
Holdings E-Capital Trust I
August 2005
August 19, 2065
August 19, 2010
Holdings Capital Trust V
96
CREDIT FACILITIES
three and a half years expiring in April 2008.There were no borrowings
We maintain an unsecured revolving credit agreement with a syndicate
outstanding under either facility at November 30, 2005, although draw-
of banks under which the banks have committed to provide up to $1.5
ings have been made under both and repaid from time to time during
billion through April 2007. We also maintain a $1.0 billion multi-cur-
the year. Our ability to borrow under such facilities is conditioned on
rency unsecured, committed revolving credit facility with a syndicate of
meeting customary lending covenants.We have maintained compliance
banks for Lehman Brothers Bankhaus AG (LBBAG), with a term of
with the material covenants under these credit agreements at all times.

NOTE
FAIR
VA L U E
OF
FINANCIAL
INSTRUMENTS
We record nancial instruments classied within long and short inventory
prices or discounted cash ow analyses based on our current borrow-
(Financial instruments and other inventory positions owned, and
ing rates for similar types of borrowing arrangements.
Financial instruments and other inventory positions sold but not yet pur-
We carry secured nancing activities including Securities pur-
chased) at fair value. Securities received as collateral and Obligation to
chased under agreements to resell, Securities borrowed, Securities sold
return securities received as collateral are also carried at fair value. In addi-
under agreements to repurchase, Securities loaned and Other secured
tion, all off-balance-sheet nancial instruments are carried at fair value
borrowings, at their original contract amounts plus accrued interest.
including derivatives, guarantees and lending-related commitments.
Because the majority of such nancing activities are short-term in
Assets which are carried at contractual amounts that approximate fair
nature, carrying values approximate fair value. At November 30, 2005
value include: Cash and cash equivalents, Cash and securities segregated
and 2004 we had approximately $337 billion and $302 billion, respec-
and on deposit for regulatory and other purposes, Receivables, and Other
tively, of such secured nancing activities. However, certain of the
assets. Liabilities which are carried at contractual amounts that approximate
Companys secured nancing activities are long-term in nature. At
fair value include: Short-term borrowings, Payables, and Accrued liabilities
November 30, 2005 and 2004 we used derivative nancial instruments
and other payables.The market values of such items are not materially sen-
with an aggregate notional amount of $6.0 billion and $7.3 billion,
sitive to shifts in market interest rates because of the limited term to matu-
respectively, to modify the interest rate characteristics of certain of our
rity of these instruments and their variable interest rates.
secured nancing activities.The total notional amount of these agree-
Long-term borrowings are carried at historical amounts, unless
ments had a weighted average maturity of 2.9 years and 3.0 years at
designated as the hedged item in a fair value hedge. We carry such
November 30, 2005 and 2004, respectively. At November 30, 2005 and
hedged debt on a modied mark-to-market basis, which amount
2004, the carrying values of these secured nancing activities, which
could differ from fair value as a result of changes in our credit wor-
are designated as the hedged instrument in fair value hedges, approxi-
thiness. At November 30, 2005 and November 30, 2004, the carrying
mated their fair values. Additionally, we had approximately $273 mil-
value of our Long-term borrowings was approximately $339 million
lion and $398 million of long-term xed rate repurchase agreements at
and $441 million less than fair value, respectively. The fair value of
November 30, 2005 and 2004, respectively, for which we had unrec-
Long-term borrowings was estimated using either quoted market
ognized losses of $11 million and $31 million, respectively.
NOTE
10
COMMITMENTS,
CONTINGENCIES
AND
GUARANTEES
In the normal course of business, we enter into various commit-
fair value recognized in Principal transactions in the Consolidated
ments and guarantees, including lending commitments to high grade
and high yield borrowers, private equity investment commitments,
LENDING-RELATED COMMITMENTS
liquidity commitments and other guarantees. In all instances, we
The following table summarizes lending-related commitments at
mark to market these commitments and guarantees with changes in
November 30, 2005 and 2004:
L E N D I N G - R E L AT E D C O M M I T M E N T S
Total
IN MILLIONS
High grade
High yield (2)
Mortgage commitments
Investment-grade contingent acquisition facilities
Non-investment-grade contingent acquisition facilities
Secured lending transactions, including
forward starting resale and repurchase agreements
(1)
2008-
2010- 2012 and
2006
2007
2009
2011
$ 2,405
1,289
9,024
3,915
4,738
$ 1,624
1,159
176
$ 3,270
645
209
$ 6,169
1,448
8
62,470
1,124
320
873
Contractual Amount
November
November
Later
30, 2005
30, 2004
571
631
$ 14,039
4,738
$ 10,677
4,438
12,835
1,475
4,244
995
65,782
105,879
5,172
9,417
3,915
(1)
We view our net credit exposure for high grade commitments, after consideration of hedges, to be $5.4 billion and $4.1 billion at November 30, 2005 and 2004, respectively.
(2)
We view our net credit exposure for high yield commitments, after consideration of hedges, to be $4.4 billion and $3.5 billion at November 30, 2005 and 2004, respectively.

97
High Grade and High Yield Through our high grade and high yield sales,
Statements for additional information about our securitization activities.
trading and underwriting activities,we make commitments to extend credit
Contingent Acquisition Facilities From time to time we provide
in loan syndication transactions.We use various hedging and funding strate-
contingent commitments to investment and non-investment grade coun-
gies to actively manage our market, credit and liquidity exposures on these
terparties related to acquisition nancing. Our expectation is, and our past
commitments.We do not believe total commitments necessarily are indica-
practice has been, to distribute our obligations under these commitments to
tive of actual risk or funding requirements because the commitments may
third parties through loan syndications, if closed, consistent with our credit
not be drawn or fully used and such amounts are reported before consid-
facilitation framework.We do not believe these commitments are necessar-
eration of hedges.These commitments and any related drawdowns of these
ily indicative of our actual risk because the borrower may not complete a
facilities typically have xed maturity dates and are contingent on certain
contemplated acquisition or, if the borrower completes the acquisition, it
representations, warranties and contractual conditions applicable to the bor-
often will raise funds in the capital markets instead of drawing on our com-
rower.We dene high yield (non-investment grade) exposures as securities
mitment. Additionally, in most cases, the borrowers ability to draw is sub-
of or loans to companies rated BB+ or lower or equivalent ratings by rec-
ject to there being no material adverse change in the borrowers nancial
ognized credit rating agencies, as well as non-rated securities or loans that,
conditions, among other factors.These commitments also generally contain
in managements opinion, are non-investment grade.We had commitments
certain exible pricing features to adjust for changing market conditions
to investment grade borrowers of $14.0 billion (net credit exposure of $5.4
prior to closing.We provided contingent commitments to investment-grade
billion, after consideration of hedges) and $10.7 billion (net credit exposure
counterparties related to acquisition nancing of approximately $3.9 billion
of $4.1 billion, after consideration of hedges) at November 30, 2005 and
and $1.5 billion at November 30, 2005 and 2004. In addition, we provided
2004, respectively.We had commitments to non-investment grade borrow-
contingent commitments to non-investment-grade counterparties related
ers of $5.2 billion (net credit exposure of $4.4 billion after consideration of
to acquisition nancing of approximately $4.7 billion and $4.2 billion at
hedges) and $4.4 billion (net credit exposure of $3.5 billion after consider-
November 30, 2005 and 2004, respectively.

Secured Lending Transactions In connection with our nancing
ation of hedges) at November 30, 2005 and 2004, respectively.

Mortgage Commitments Through our mortgage origination plat-
activities, we had outstanding commitments under certain collateralized
forms we make commitments to extend mortgage loans.We use various
lending arrangements of approximately $5.7 billion and $5.3 billion at
hedging and funding strategies to actively manage our market, credit and
November 30,2005 and 2004,respectively.These commitments require bor-
liquidity exposures on these commitments.We do not believe total com-
rowers to provide acceptable collateral, as dened in the agreements, when
mitments necessarily are indicative of actual risk or funding requirements
amounts are drawn under the lending facilities.Advances made under these
because the commitments may not be drawn or fully used and such
lending arrangements typically are at variable interest rates and generally pro-
amounts are reported before consideration of hedges. At November 30,
vide for over-collateralization. In addition, at November 30, 2005, we had
2005 and 2004, we had outstanding mortgage commitments of approxi-
commitments to enter into forward starting secured resale and repurchase
mately $9.4 billion and $12.8 billion, respectively, including $7.7 billion
agreements, primarily secured by government and government agency col-
and $10.9 billion of residential mortgages and $1.7 billion and $1.9 billion
lateral, of $38.6 billion and $21.5 billion, respectively, compared with $55.0
of commercial mortgages. These commitments require us to originate
billion and $45.6 billion, respectively, at November 30, 2004.
mortgage loans at the option of a borrower generally within 90 days at
xed interest rates.We sell residential mortgage loans, once originated, pri-
The following table summarizes other commitments and guarantees at
marily through securitization. See Note 3 to the Consolidated Financial
November 30, 2005 and November 30, 2004:

Notional/
IN MILLIONS
Derivative contracts (1)

Municipal-securities-related commitments
Other commitments with special purpose entities
Standby letters of credit
Private equity and other principal
investment commitments
(1)
98
2006
2008-
2010- 2012 and
2009
2011
November
November
Later
30, 2005
30, 2004
$120,805 $ 68,171 $ 97,075 $ 89,813 $163,597

680
16
34
744
2,631
3,257
248
606
485
1,725
2,608
$539,461
2,608
$470,641
7,179
5,261
1,703
927
695
328
2007
Maximum Amount
243
316
40
4,105
6,321
We believe the fair value of these derivative contracts is a more relevant measure of the obligations because we believe the notional amount overstates the expected payout. At November
30, 2005 and 2004, the fair value of these derivative contracts approximated $9.4 billion and $9.0 billion, respectively.

Derivative Contracts In accordance with FASB Interpretation No. 45,
secured nancing transactions. However, we believe our actual risk to
Guarantors Accounting and Disclosure Requirements for Guarantees,
be limited because such liquidity commitments are supported by
Including Indirect Guarantees of Indebtedness of Others (FIN 45), we dis-
overcollateralization with investment grade collateral.
close certain derivative contracts meeting the FIN 45 denition of a guar-
In addition, we provide limited downside protection guarantees to
antee. Under FIN 45, derivative contracts are considered to be guarantees
investors in certain VIEs. In such instances, we provide investors a guar-
if such contracts require us to make payments to counterparties based on
anteed return of their initial principal investment. Our maximum expo-
changes in an underlying instrument or index (e.g., security prices, inter-
sure to loss under such commitments was approximately $3.2 billion and
est rates, and currency rates) and include written credit default swaps,
$2.9 billion at November 30, 2005 and 2004, respectively.We believe our
written put options, written foreign exchange and interest rate options.
actual risk to be limited because our obligations are collateralized by the
Derivative contracts are not considered guarantees if such contracts are
VIEs assets and contain signicant constraints under which such down-
cash settled and we have no basis to determine whether it is probable the
side protection will be available (e.g., the VIE is required to liquidate
derivative counterparty held the related underlying instrument at the
assets in the event certain loss levels are triggered).
inception of the contract.We have determined these conditions have been
We also provided guarantees totaling $1.2 billion and $1.4 billion
met for certain large nancial institutions. Accordingly, when these con-
at November 30, 2005 and November 30, 2004, respectively, of the col-
ditions are met, we do not include such derivatives in our guarantee dis-
lateral in a multi-seller conduit backed by short-term commercial
closures. At November 30, 2005 and 2004, the maximum payout value of
paper assets.This commitment is intended to provide us with access to
derivative contracts deemed to meet the FIN 45 denition of a guaran-
contingent liquidity of $1.2 billion and $1.4 billion as of November 30,
tee was approximately $539 billion and $471 billion, respectively. For pur-
2005 and 2004, respectively, in the event we have greater than antici-
poses of determining maximum payout, notional values are used;
pated draws under our lending commitments.
however, we believe the fair value of these contracts is a more relevant
Standby Letters of Credit At November 30, 2005 and 2004, we
measure of these obligations because we believe the notional amounts
were contingently liable for $2.6 billion and $1.7 billion, respectively,
greatly overstate our expected payout. At November 30, 2005 and 2004,
of letters of credit primarily used to provide collateral for securities and
the fair value of such derivative contracts approximated $9.4 billion and
commodities borrowed and to satisfy margin deposits at option and
$9.0 billion, respectively. In addition, all amounts included above are
commodity exchanges.
before consideration of hedging transactions.We substantially mitigate our
Private Equity and Other Principal Investments At November 30,
risk on these contracts through hedges, using other derivative contracts
2005 and 2004,we had private equity and other principal investment com-
and/or cash instruments.We manage risk associated with derivative guar-
mitments of approximately $0.9 billion and $0.7 billion, respectively.
antees consistent with our global risk management policies. We record
Other In the normal course of business, we provide guarantees to
derivative contracts, including those considered to be guarantees, at fair
securities clearinghouses and exchanges. These guarantees generally are
value with related gains and losses recognized in Principal transactions in
required under the standard membership agreements, such that members
the Consolidated Statement of Income.
are required to guarantee the performance of other members.To mitigate
Municipal-Securities-Related Commitments At November 30,
these performance risks, the exchanges and clearinghouses often require
2005 and 2004, we had municipal-securities-related commitments of
members to post collateral. Our obligations under such guarantees could
approximately $4.1 billion and $7.2 billion, respectively. Such commit-
exceed the collateral amounts posted; however, the potential for us to be
ments are principally comprised of liquidity commitments related to trust
required to make payments under such guarantees is deemed remote. In
certicates issued to investors backed by investment grade municipal
connection with certain asset sales and securitization transactions, we often
securities.We believe our liquidity commitments to these trusts involve a
make representations and warranties about the assets conforming to spec-
low level of risk because our obligations are supported by investment
ied guidelines. If it is later determined the underlying assets fail to con-
grade securities and generally cease if the underlying assets are down-
form to the specied guidelines, we may have an obligation to repurchase
graded below investment grade or default. In certain instances, we also
the assets or indemnify the purchaser against any losses.To mitigate these
provide credit default protection to investors in such QSPEs, which
risks, to the extent the assets being securitized may have been originated
approximated $0.5 billion and $0.4 billion at November 30, 2005 and
by third parties, we seek to obtain appropriate representations and war-
2004, respectively.
ranties from these third parties when we acquire the assets.
Other Commitments with SPEs In addition to the municipal-
Financial instruments and other inventory positions sold but not yet
securities-related commitments, we make certain liquidity commit-
purchased represent our obligations to purchase the securities at prevailing
ments and guarantees associated with VIEs. We provided liquidity of
market prices.Therefore, the future satisfaction of such obligations may be
approximately $1.9 billion and $1.0 billion at November 30, 2005
for an amount greater or less than the amount recorded.The ultimate gain
and 2004, respectively, which represented our maximum exposure to
or loss is dependent on the price at which the underlying nancial instru-
loss, to commercial paper conduits in support of certain clients
ment is purchased to settle our obligation under the sale commitment.

99
In the normal course of business, we are exposed to credit and
of reasonably possible losses in excess of established reserves, not to be
market risk as a result of executing, nancing and settling various client
material to the Companys consolidated nancial condition or cash ows.
security and commodity transactions.These risks arise from the poten-
However, losses may be material to our operating results for any particular
tial that clients or counterparties may fail to satisfy their obligations and
future period, depending on the level of income for such period.
the collateral obtained is insufficient. In such instances, we may be
During 2004, we entered into a settlement with our insurance
required to purchase or sell nancial instruments at unfavorable market
carriers relating to several large proceedings noticed to the carriers and
prices.We seek to control these risks by obtaining margin balances and
initially occurring prior to January 2003. Under the terms of the insur-
other collateral in accordance with regulatory and internal guidelines.
ance settlement, the insurance carriers agreed to pay us $280 million.
Certain of our subsidiaries, as general partners, are contingently
During 2004, we also entered into a Memorandum of Understanding
liable for the obligations of certain public and private limited partner-
to settle the In re Enron Corporation Securities Litigation class action law-
ships. In our opinion, contingent liabilities, if any, for the obligations of
suit for $223 million. The settlement with our insurance carriers and
such partnerships will not, in the aggregate, have a material adverse
the settlement under the Memorandum of Understanding did not
effect on our consolidated nancial condition or results of operations.
result in a net gain or loss in our Consolidated Statement of Income as
LITIGATION
the $280 million settlement with our insurance carriers represented an
In the normal course of business we have been named as a defendant in a
aggregate settlement associated with several matters, including Enron,
number of lawsuits and other legal and regulatory proceedings. Such pro-
Worldcom and other matters. See Part 1, Item 3-Legal Proceedings in
ceedings include actions brought against us and others with respect to
the Form 10-K for additional information about the Enron securities
transactions in which we acted as an underwriter or nancial advisor,
class action and related matters.
actions arising out of our activities as a broker or dealer in securities and
LEASE COMMITMENTS
commodities and actions brought on behalf of various classes of claimants
We lease office space and equipment throughout the world. Total rent
against many securities rms, including us.We provide for potential losses
expense for 2005, 2004 and 2003 was $167 million, $135 million and
that may arise out of legal and regulatory proceedings to the extent such
$136 million, respectively. Certain leases on office space contain escala-
losses are probable and can be estimated.Although there can be no assur-
tion clauses providing for additional payments based on maintenance,
ance as to the ultimate outcome, we generally have denied, or believe we
utility and tax increases.
have a meritorious defense and will deny, liability in all signicant cases
Minimum future rental commitments under non-cancelable oper-
pending against us, and we intend to defend vigorously each such case.
ating leases (net of subleases of $282 million) and future commitments
Based on information currently available, we believe the amount, or range,
under capital leases are as follows:
M I N I M U M F U T U R E R E N TA L C O M M I T M E N T S U N D E R O P E R AT I N G
A N D C A P I TA L L E A S E A G R E E M E N T S
Operating Leases
IN MILLIONS
Fiscal 2006
Fiscal 2007
Fiscal 2008
Fiscal 2009
Fiscal 2010
December 1, 2010 and thereafter
Total minimum lease payments
Less: Amount representing interest
Present value of future minimum capital lease payments
NOTE
11
$ 173
165
157
151
143
926
$1,715
STOCKHOLDERS
PREFERRED STOCK
100
Capital Lease
61
61
66
88
90
2,407
2,773
(1,608)
$ 1,165
EQUITY
of dividends and a preference in the liquidation of assets.
Holdings is authorized to issue a total of 38,000,000 shares of preferred
Series C On May 11, 1998, Holdings issued 5,000,000
stock. At November 30, 2005, Holdings had 798,000 shares issued and
Depositary Shares, each representing 1/10th of a share of 5.94%
outstanding under various series as described below.All preferred stock
Cumulative Preferred Stock, Series C (Series C Preferred Stock),
has a dividend preference over Holdings common stock in the paying
$1.00 par value.The shares of Series C Preferred Stock have a redemp-

tion price of $500 per share, together with accrued and unpaid divi-
representing 1/100th of a share of Holdings Floating Rate Cumulative
dends. Holdings may redeem any or all of the outstanding shares of
Preferred Stock, Series G (Series G Preferred Stock), $1.00 par value,
Series C Preferred Stock beginning on May 31, 2008. The $250 mil-
for a total of $130 million and $170 million, respectively. Dividends on
lion redemption value of the shares outstanding at November 30, 2005
the Series G Preferred Stock are payable at a oating rate per annum of
is classied in the Consolidated Statement of Financial Condition as a
one-month LIBOR plus 0.75%, with a oor of 3.0% per annum. The
component of Preferred stock.
Series G Preferred Stock has a redemption price of $2,500 per share,
Series D On July 21, 1998, Holdings issued 4,000,000 Depositary
together with accrued and unpaid dividends. Holdings may redeem any
Shares, each representing 1/100th of a share of 5.67% Cumulative
or all of the outstanding shares of Series G Preferred Stock beginning
Preferred Stock, Series D (Series D Preferred Stock), $1.00 par value.
on February 15, 2009.The $300 million redemption value of the shares
The shares of Series D Preferred Stock have a redemption price of $5,000
outstanding at November 30, 2005 is classied in the Consolidated
per share, together with accrued and unpaid dividends. Holdings may
Statement of Financial Condition as a component of Preferred stock.
redeem any or all of the outstanding shares of Series D Preferred Stock
The Series C, D, F and G Preferred Stock have no voting rights
beginning on August 31, 2008.The $200 million redemption value of the
except as provided below or as otherwise from time to time required by
shares outstanding at November 30, 2005 is classied in the Consolidated
law. If dividends payable on any of the Series C, D, F or G Preferred Stock
Statement of Financial Condition as a component of Preferred stock.
or on any other equally-ranked series of preferred stock have not been
Series E On March 28, 2000, Holdings issued 5,000,000
paid for six or more quarters, whether or not consecutive, the authorized
Depositary Shares, each representing 1/100th of a share of
number of directors of the Company will automatically be increased by
Fixed/Adjustable Rate Cumulative Preferred Stock, Series E (Series E
two.The holders of the Series C, D, F or G Preferred Stock will have the
Preferred Stock), $1.00 par value.The initial cumulative dividend rate
right, with holders of any other equally-ranked series of preferred stock
on the Series E Preferred Stock was 7.115% per annum through May
that have similar voting rights and on which dividends likewise have not
31, 2005. On May 31, 2005, Holdings redeemed all of our issued and
been paid, voting together as a class, to elect two directors to ll such
outstanding shares, together with accumulated and unpaid dividends.
newly created directorships until the dividends in arrears are paid.
Series F On August 20, 2003, Holdings issued 13,800,000
COMMON STOCK
Depositary Shares, each representing 1/100th of a share of 6.50%
Dividends declared per common share were $0.80, $0.64 and $0.48 in
Cumulative Preferred Stock, Series F (Series F Preferred Stock),
2005, 2004 and 2003, respectively. During the years ended November
$1.00 par value.The shares of Series F Preferred Stock have a redemp-
30, 2005, 2004 and 2003, we repurchased or acquired shares of our
tion price of $2,500 per share, together with accrued and unpaid divi-
common stock at an aggregate cost of approximately $4.2 billion, $2.3
dends. Holdings may redeem any or all of the outstanding shares of
billion and $1.5 billion, respectively, or $103.17, $78.20, and $65.22 per
Series F Preferred Stock beginning on August 31, 2008.The $345 mil-
share, respectively.These shares were acquired in the open market and
lion redemption value of the shares outstanding at November 30, 2005
from employees who tendered mature shares to pay for the exercise
is classied in the Consolidated Statement of Financial Condition as a
cost of stock options or for statutory tax withholding obligations on
component of Preferred stock.
RSU issuances or option exercises.
Series G On January 30, 2004 and August 16, 2004 Holdings

issued 5,200,000 and 6,800,000, respectively, Depositary Shares, each
Changes in the number of shares of common stock outstanding

are as follows:
COMMON STOCK
2005
2004
2003
274,159,411
266,679,056
231,131,043
Exercise of stock options and other share issuances
26,571,357
18,474,422
11,538,125
Shares issued to the RSU Trust
11,000,000
18,000,000
14,000,000
33,130,804
N OV E M B E R 3 0
Shares outstanding, beginning of period
Shares issued in connection with the Neuberger acquisition

Treasury stock acquisitions
(40,293,665)
(28,994,067)
(23,120,916)
Shares outstanding, end of period
271,437,103
274,159,411
266,679,056

101
In 1997, we established an irrevocable grantor trust (the RSU Trust) to
held in the RSU Trust with a total value of approximately $1.5 billion.
provide common stock voting rights to employees who hold outstand-
These shares are valued at weighted average grant prices. Shares trans-
ing restricted stock units (RSUs) and to encourage employees to think
ferred to the RSU Trust do not affect the total number of shares used in
and act like owners. In 2005, 2004 and 2003, we transferred 11.0 million,
the calculation of basic and diluted earnings per share because we include
18.0 million and 14.0 million treasury shares, respectively, into the RSU
amortized RSUs in the calculations. Accordingly, the RSU Trust has no
Trust. At November 30, 2005, approximately 34.6 million shares were
effect on total equity, net income or earnings per share.
NOTE
12
REGULATORY
We operate globally through a network of subsidiaries, with several sub-
Lehman Brothers Bank, FSB (the Bank), our thrift subsidiary, is
ject to regulatory requirements. In the United States, LBI and Neuberger
regulated by the Office of Thrift Supervision (OTS). Lehman Brothers
Berman, LLC (NBLLC), as registered broker-dealers, are subject to the
Commercial Bank (the Industrial Bank), our Utah industrial bank sub-
Securities and Exchange Commission (SEC) Rule 15c3-1, the Net
sidiary established during 2005, is regulated by the Utah Department of
Capital Rule, which requires these companies to maintain net capital of
Financial Institutions and the Federal Deposit Insurance Corporation.The
not less than the greater of 2% of aggregate debit items arising from
Bank and the Industrial Bank exceed all regulatory capital requirements
client transactions, as dened, or 4% of funds required to be segregated
and are considered to be well capitalized. In addition, our AAA rated
for customers regulated commodity accounts, as dened. At November
derivatives subsidiaries, Lehman Brothers Financial Products Inc.
30, 2005, LBI and NBLLC had regulatory net capital, as dened, of $2.1
(LBFP) and Lehman Brothers Derivative Products Inc. (LBDP), have
billion and $243 million, respectively, which exceeded the minimum
established certain capital and operating restrictions that are reviewed by
requirement by $1.8 billion and $229 million, respectively.
various rating agencies. At November 30, 2005, LBFP and LBDP each
Lehman Brothers International (Europe) (LBIE), a United
102
REQUIREMENTS
had capital that exceeded the requirements of the rating agencies.
Kingdom registered broker-dealer and subsidiary of Holdings, is subject
The regulatory rules referred to above, and certain covenants con-
to the capital requirements of the Financial Services Authority (FSA)
tained in various debt agreements, may restrict Holdings ability to
of the United Kingdom. Financial resources, as dened, must exceed the
withdraw capital from its regulated subsidiaries, which in turn could
total nancial resources requirement of the FSA.At November 30, 2005,
limit its ability to pay dividends to shareholders.At November 30, 2005,
LBIEs nancial resources of approximately $5.9 billion exceeded the
approximately $7.6 billion of net assets of subsidiaries were restricted as
minimum requirement by approximately $1.8 billion. Lehman Brothers
to the payment of dividends to Holdings. In the normal course of busi-
Japan Inc.s Tokyo branch, a regulated broker-dealer, is subject to the cap-
ness, Holdings provides guarantees of certain activities of its subsidiaries,
ital requirements of the Financial Services Agency and, at November 30,
including our xed income derivative business conducted through
2005, had net capital of approximately $674 million, which was approx-
Lehman Brothers Special Financing Inc.
imately $338 million in excess of the specied levels required. Certain
As of December 1, 2005, Holdings became regulated by the SEC
other non-U.S. subsidiaries are subject to various securities, commodities
as a consolidated supervised entity (CSE). As such, Holdings is sub-
and banking regulations and capital adequacy requirements promulgated
ject to group-wide supervision and examination by the SEC and,
by the regulatory and exchange authorities of the countries in which
accordingly, we are subject to minimum capital requirements on a con-
they operate. At November 30, 2005 these other subsidiaries were in
solidated basis. LBI is also authorized to calculate its net capital under
compliance with their applicable local capital adequacy requirements.
provisions as specied by the SEC applicable rules.

NOTE
13
EARNINGS
PER
SHARE
Earnings per share was calculated as follows:

EARNINGS PER SHARE
2005
2004
2003
$3,260
$2,369
$1,699
69
72
50
$3,191
$2,297
$1,649
278.2
274.7
245.7
12.7
13.8
12.2
2.7
2.2
2.0
15.4
16.0
14.2
NUMERATOR:
Net income
Preferred stock dividends
Numerator for basic earnings per sharenet income applicable to common stock
DENOMINATOR:
Denominator for basic earnings per shareweighted average common shares

Effect of dilutive securities:
Employee stock options
Restricted stock units
Dilutive potential common shares
Denominator for diluted earnings per shareweighted average
293.6
290.7
259.9
Basic earnings per share
common and dilutive potential common shares (1)
$11.47
$ 8.36
$ 6.71
Diluted earnings per share
$10.87
$ 7.90
$ 6.35
4.3
2.0
8.0
(1)
Anti-dilutive options and restricted stock units excluded from the calculations of diluted earnings per share.
NOTE
14
EMPLOYEE
INCENTIVE
PLANS
In 2004 the Company adopted the fair value recognition provisions of
to 33.1 million shares of Common Stock have been made under the
SFAS 123 using the prospective adoption method. The Companys
1994 Plan, of which 3.1 million are outstanding and 30.0 million have
adoption of SFAS 123 on a prospective basis in 2004 resulted in a
been converted to freely transferable Common Stock.
change in measurement for employee stock awards. See Note 1 for a

further discussion.
1996 MANAGEMENT OWNERSHIP PLAN
The 1996 Management Ownership Plan (the 1996 Plan), under
EMPLOYEE STOCK PURCHASE PLAN
which awards similar to those of the 1994 Plan may be granted, pro-
On June 30, 2004, the Employee Stock Purchase Plan (the ESPP)
vides for up to 42.0 million shares of Common Stock to be subject
expired following the completion of its 10-year term as approved by
to awards. At November 30, 2005, RSU, PSU and stock option
shareholders. The ESPP allowed employees to purchase Common
awards with respect to 39.5 million shares of Common Stock have
Stock at a 15% discount from market value, with a maximum of
been made under the 1996 Plan of which 9.5 million are outstand-
$25,000 in annual aggregate purchases by any one individual. At
ing and 30.0 million have been converted to freely transferable
November 30, 2004 6.3 million shares of Common Stock had cumu-
Common Stock.
latively been purchased by eligible employees through the ESPP.
EMPLOYEE INCENTIVE PLAN
1994 MANAGEMENT OWNERSHIP PLAN
The Employee Incentive Plan (EIP) has provisions similar to the
On May 31, 2004 the Lehman Brothers Holdings Inc. Management
1994 Plan and the 1996 Plan, and authorization from the Board of
Ownership Plan (the 1994 Plan) expired following the completion
Directors to issue up to 246.0 million shares of Common Stock that
of its 10-year term.The 1994 Plan provided for the issuance of RSUs,
may be subject to awards. At November 30, 2005 awards with respect
performance stock units (PSUs), stock options and other equity
to 231.9 million shares of Common Stock have been made under the
awards for a period of up to ten years to eligible employees. At
EIP of which 93.0 million are outstanding and 138.9 million have been
November 30, 2005, RSU, PSU and stock option awards with respect
converted to freely transferable Common Stock.

103
STOCK INCENTIVE PLAN
restricted stock. At November 30, 2004, awards with respect to approx-
The Stock Incentive Plan (SIP) has provisions similar to the 1994
imately 62,000 shares have been made under the DSIP of which all
Plan, the 1996 Plan and the EIP, and authorization from the Board of
shares have been converted to freely transferable Common Stock.We do
Directors to issue up to 10.0 million shares of Common Stock that may
not intend to grant additional awards from the DSIP.
be subject to awards. At November 30, 2005 awards with respect to 2.3
RESTRICTED STOCK UNITS
million shares of Common Stock have been made under the SIP of
Eligible employees receive RSUs, in lieu of cash, as a portion of their
which 2.3 million are outstanding.
total compensation. There is no further cost to employees associated
1999 LONG-TERM INCENTIVE PLAN
with the RSU awards. For awards granted prior to 2004, we measure
The 1999 Neuberger Berman Inc. Long-Term Incentive Plan (the
compensation cost for RSUs based on the market value of our
LTIP) provided for the grant of restricted stock, restricted units, incen-
Common Stock at the grant date in accordance with APB 25. For
tive stock, incentive units, deferred shares, supplemental units and stock
awards granted beginning in 2004 we measure compensation cost based
options.The total number of shares of Common Stock that may be issued
on the market value of our Common Stock at the grant date less a dis-
under the LTIP may not exceed 7.7 million. At November 30, 2005,
count for sale restrictions subsequent to the vesting date in accordance
awards with respect to approximately 6.7 million shares of Common
with our adoption of SFAS 123 on a prospective basis. RSUs granted in
Stock have been made under the LTIP, of which approximately 3.7 mil-
each of the years presented contain selling restrictions subsequent to the
lion restricted shares, RSUs and stock options are outstanding and 3.0
vesting date. We amortize the RSU awards over the applicable service
million have been converted to freely transferable Common Stock.
periods. RSU awards made to employees have various vesting provisions
1999 DIRECTORS STOCK INCENTIVE PLAN
and generally convert to unrestricted freely transferable Common Stock
The 1999 Neuberger Berman Inc. Directors Stock Incentive Plan (the
ve years from the grant date.We accrue a dividend equivalent on each
DSIP) provided for the grant of stock options or restricted stock to
RSU outstanding (in the form of additional RSUs), based on dividends
non-employee members of Neubergers board of directors. Non-
declared on our Common Stock.
employee directors could elect to exchange a portion of their annual

cash retainer paid by Neuberger for services rendered as a director for
The following table summarizes RSUs outstanding under stockbased incentive plans:
RESTRICTED STOCK UNITS

2005
2004
2003
Balance, beginning of year
64,242,393
64,343,313
69,338,068
Granted
13,965,142
14,899,012
14,796,772 (1)
Canceled
(1,512,954)
(1,276,002)
(1,447,319)
(16,485,744)
(13,723,930)
(18,344,208)
60,208,837
64,242,393
64,343,313
(34,558,884)
(38,861,068)
(33,408,893)
25,649,953
25,381,325
30,934,420
Exchanged for stock without restrictions

Balance, end of year
Shares held in RSU Trust
RSUs outstanding, net of shares held in RSU trust
(1)
104
Includes approximately 1.7 million RSUs granted in 2003 related to our acquisition of Neuberger. See Note 5 to the Consolidated Financial Statements for additional information about the
Neuberger acquisition.
Of the RSUs outstanding at November 30, 2005, approximately 36 mil-
performance periods. During the performance period, these PSUs are
lion were amortized and included in basic and diluted earnings per share,
accounted for as variable awards. At the end of a performance period,
approximately 10 million will be amortized during 2006, and the remain-
any PSUs earned will convert one-for-one to RSUs that then vest in
der will be amortized subsequent to November 30, 2006. See Note 11 to
three or more years.At November 30, 2005, approximately 11.2 million
the Consolidated Financial Statements for additional information.
PSUs had been awarded, of which 6.0 million remained outstanding,
Included in the previous table are PSUs awarded to certain senior
subject to vesting and transfer restrictions. The compensation cost for
officers prior to 2004. The number of PSUs that may be earned is
the RSUs payable in satisfaction of PSUs is accrued over the combined
dependent on achieving certain performance levels within predetermined
performance and vesting periods.

STOCK OPTIONS
The following table summarizes stock option activity for the years ended November 30, 2005, 2004 and 2003:
STOCK OPTION ACTIVITY
Weighted Average
Expiration
Exercise Price
Dates
11/0311/12
Options
Balance, November 30, 2002
83,540,492
$ 44.21
Granted (1)
15,536,462
$ 66.98
Exercised (1)
(10,595,469)
$ 28.08
(1,734,835)
$ 46.63
Canceled
(1)
86,746,650
$ 50.21
5,423,596
$ 80.74
Exercised
(17,167,352)
$ 36.36
Canceled
(1,459,299)
$ 56.48
73,543,595
$ 55.57
3,524,013
$111.53
(25,537,742)
$ 48.76
(654,703)
$ 66.76
50,875,163
$ 62.72
Granted
Granted
Exercised
Canceled
(1)
12/0311/13
12/0411/14
12/0511/15
Includes approximately 4.3 million stock options granted, 0.3 million stock options exercised, and 0.1 million stock options canceled in 2003 related to our acquisition of Neuberger. See Note
5 to the Consolidated Financial Statements for additional information about the Neuberger acquisition.
The exercise price for all stock options awarded has been equal to
below provides further details related to stock options outstanding at
the market price of Common Stock on the day of grant. The table
November 30, 2005.
STOCK OPTIONS
Options Outstanding
Options Exercisable
Weighted
Weighted
Weighted
Average
Weighted
Average
Average
Remaining
Average
Remaining
Number
Exercise
Contractual
Number
Exercise
Contractual
Outstanding
Price
Life (in years)
Exercisable
Price
Life (in years)
$20.00$29.99
1,797,889
$ 20.69
3.01
1,797,889
$ 20.69
3.01
$30.00$39.99
1,377,796
$ 37.16
4.03
1,377,796
$ 37.16
4.03
$40.00$49.99
8,295,915
$ 47.78
5.05
5,162,629
$ 48.47
4.50
$50.00$59.99
14,324,484
$ 54.03
6.13
8,629,809
$ 54.43
5.64
$60.00$69.99
6,539,260
$ 63.49
4.58
3,285,498
$ 63.58
3.19
$70.00$79.99
11,545,366
$ 71.57
5.98
5,840,136
$ 71.70
4.47
$80.00$89.99
4,777,248
$ 85.73
5.02
225,460
$ 85.50
5.33
$90.00$99.99
22,500
$ 93.30
9.34
n/a
n/a
2,194,705
50,875,163
$127.20
$ 62.72
6.37
5.46
26,319,217
n/a
$ 55.29
n/a
4.58
RANGE OF EXERCISE PRICES
$100.00$149.99
RESTRICTED STOCK
ing shares of Neuberger restricted Common Stock. During 2005, we
In connection with the 2003 Neuberger acquisition, we issued approx-
awarded approximately 7,767 shares of our restricted Common Stock
imately 806,000 shares of restricted Common Stock to replace outstand-
under the LTIP.

105
The following table summarizes restricted stock activity for the years ended November 30, 2005 and 2004:
RESTRICTED STOCK
2005
Balance, beginning of year

Granted
Canceled
Exchanged for stock without restrictions
Balance, end of year
2004
805,587
223,889
(27,325)
(231,305)
770,846
770,846
7,767
(18,723)
(238,702)
521,188
Total compensation cost for stock-based awards recognized during 2005, 2004 and 2003 was approximately $1,055 million, $800 million and $625
million, respectively.
NOTE
15
EMPLOYEE
BENEFIT
PLANS
We provide both funded and unfunded noncontributory dened ben-
care and life insurance, to eligible employees. We use a November 30
et pension plans for the majority of our employees worldwide. In addi-
measurement date for the majority of our plans. The following tables
tion, we provide certain other postretirement benets, primarily health
summarize these plans:
DEFINED BENEFIT PLANS

Pension Benefits
U.S.
IN MILLIONS
N OV E M B E R 3 0
Non-U.S.
2005
2004
947
$ 819
33
50
11
59
(25)
947
2005
Postretirement Benefits
2004
2005
2004
CHANGE IN BENEFIT OBLIGATION
Benet obligation at beginning of year

Service cost
Interest cost
Plan amendment
Actuarial loss (gain)
Benets paid
Foreign currency exchange rate changes
Benet obligation at end of year
40
56
5
(2)
(29)
1,017
377
8
19
41
(7)
(39)
399
$ 278
6
16
51
(6)
32
377
69
2
3
(9)
(5)
60
77
2
4
(9)
(5)
69
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year

Actual return on plan assets, net of expenses
Employer contribution
Benets paid
Foreign currency exchange rate changes
Fair value of plan assets at end of year
Funded (underfunded) status
Unrecognized net actuarial loss (gain)
Unrecognized prior service cost (benet)
Prepaid (accrued) benet cost
Accumulated benet obligationfunded plans
Accumulated benet obligationunfunded plan (1)
(1)
887
72
100
(29)
1,030
13
438
31
$
482
899
63
825
72
15
(25)
887
(60)
473
29
$ 442
$ 848
57
357
59
5
(7)
(36)
378
(21)
133
1
$
113
375
7
294
24
13
(6)
32
357
(20)
152
1
$ 133
$ 360
5
(5)
(60)
(11)
(2)
$
(73)
(69)
(3)
(3)
$ (75)
A liability is recognized in the Consolidated Statement of Financial Condition for unfunded plans.
WEIGHTED AVERAGE ASSUMPTIONS USED TO DETERMINE BENEFIT OBLIGATIONS AT NOVEMBER 30
Discount rate
Rate of compensation increase
106

5.98%
5.00%
5.90%
4.90%
4.80%
4.30%
5.21%
4.28%
5.83%
5.90%
COMPONENTS OF NET PERIODIC COST

Pension Benefits
IN MILLIONS
U.S. Pensions
Non-U.S.
Postretirement Benefits
2005
2004
2003
2005
2004
2003
2005
2004
2003
Service cost
$42
$34
$21
$ 7
$ 6
$ 7
$ 2
$ 2
$ 2
Interest cost
56
50
44
19
16
15
(74)
(69)
(52)
(24)
(22)
(21)
33
31
27
11
(1)
(1)
(1)
$60
$49
$42
$14
$ 8
$ 3
$ 5
$ 6
6.15%
6.75%
Expected return on plan assets

Amortization of net actuarial loss (gain)
Amortization of prior service cost
Net periodic cost
$ 4
WEIGHTED AVERAGE ASSUMPTIONS USED TO DETERMINE NET PERIODIC COST FOR THE YEARS ENDED NOVEMBER 30
Discount rate
5.90%
6.15%
6.75%
4.80%
5.21%
5.57%
Expected return on plan assets
8.50%
8.50%
8.50%
6.96%
6.94%
7.31%
Rate of compensation increase
5.00%
4.90%
4.90%
4.30%
4.28%
4.31%
5.90%
RETURN ON PLAN ASSETS
mittee of our pension committee reviews the asset allocation quar-
U.S. and Non-U.S. Plans Establishing the expected rate of return on
terly and, with the approval of the pension committee, determines
pension assets requires judgment. We consider the following factors in
when and how to rebalance the portfolio. The plan does not have a
determining this assumption:
dedicated allocation to Lehman Brothers common stock, although
The types of investment classes in which pension plan assets
the plan may hold a minimal investment in Lehman Brothers com-
are invested and the expected compounded return we can rea-
mon stock as a result of investment decisions made by various invest-
sonably expect the portfolio to earn over appropriate time
ment managers.
periods. The expected return reects forward-looking eco-
Non-U.S. Plans Non-U.S. pension plan assets are invested with
nomic assumptions.
several investment managers across a range of different asset classes.The
The investment returns we can reasonably expect our active invest-
strategic target of plan asset allocation is approximately 75% equities,
ment management program to achieve in excess of the returns
20% xed income and 5% real estate.
expected if investments were made strictly in indexed funds.
Weighted average plan asset allocations were as follows:
Investment related expenses.

PLAN ASSETS
We review the expected long-term rate of return annually and revise

it as appropriate.Also, we periodically commission detailed asset/liabil-
U.S. Plans
ity studies to be performed by third-party professional investment advisors and actuaries. These studies project stated future returns on plan
assets.The studies performed in the past support the reasonableness of
our assumptions based on the targeted allocation investment classes and
market conditions at the time the assumptions were established.
PLAN ASSETS
N OV E M B E R 3 0
2005
Non-U.S. Plans
2004
2005
2004
Equity securities
64%
64%
75%
74%
Fixed income securities
24
27
16
21
Real estate
Cash
10
100%
100%
100%
100%
Pension plan assets are invested with the objective of meeting current and
future benet payment needs, while minimizing future contributions.
U.S. Plan Plan assets are invested with several investment man-
EXPECTED CONTRIBUTIONS FOR THE
agers.Assets are diversied among U.S. and international equity secu-
FISCAL YEAR ENDING NOVEMBER 30, 2006
rities, U.S. xed income securities, real estate and cash. The plan
We do not expect it to be necessary to contribute to our U.S. pension
employs a mix of active and passive investment management pro-
plans in the scal year ending November 30, 2006.We expect to con-
grams. The strategic target of plan asset allocation is approximately
tribute approximately $19 million to our non-U.S. pension plans in
65% equities and 35% U.S. xed income. The investment subcom-
the scal year ending November 30, 2006.

107
ESTIMATED FUTURE BENEFIT PAYMENTS
The following benet payments, which reect expected future service, as appropriate, are expected to be paid:
Pension
U.S.
Non-U.S.
Postretirement
Fiscal 2006
$ 32
$ 4
$ 5
Fiscal 2007
34
Fiscal 2008
37
Fiscal 2009
39
IN MILLIONS
Fiscal 2010
Fiscal 20112015
42
261
62
22
POSTRETIREMENT BENEFITS
Assumed health care cost trend rates were as follows:
2005
N OV E M B E R 3 0
Health care cost trend rate assumed for next year
9%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
5%
Year the rate reaches the ultimate trend rate
2010
2004
10%
5%
2010
Assumed health care cost trend rates affect the amount reported for postretirement benets. A one-percentage-point change in assumed health care
cost trend rates would have the following effects:
IN MILLIONS
Effect on total service and interest cost components in 2005

Effect on postretirement benet obligation at November 30, 2005
108

1 Percentage
1 Percentage
Point Increase
Point Decrease
(1)
NOTE
16
INCOME
TAXES
We le a consolidated U.S. federal income tax return reecting the income of Holdings and its subsidiaries.The provision for income taxes consists of the following:
P R O V I S I O N F O R I N C O M E TA X E S
IN MILLIONS
2005
2004
2003
$1,037
$ 471
$ 410
265
143
153
CURRENT:
Federal
State
Foreign
769
585
368
2,071
1,199
931
64
DEFERRED:
Federal
(634)
State
(59)
Foreign
191
(502)
$1,569
Income before taxes included $1,880 million, $733 million and $652
million that was also subject to income taxes of foreign jurisdictions for
39
(44)
(116)
(186)
(74)
(166)
$1,125
$ 765
The income tax provision differs from that computed by using the
statutory federal income tax rate for the reasons shown below:
2005, 2004 and 2003, respectively.

R E C O N C I L I AT I O N O F P R O V I S I O N F O R I N C O M E TA X E S
T O F E D E R A L I N C O M E TA X E S AT S TAT U T O R Y R AT E
IN MILLIONS
Federal income taxes at statutory rate
2005
2004
2003
$1,690
$1,231
$ 888
State and local taxes
134
119
71
Tax-exempt income
(135)
(135)
(122)
Foreign operations
(113)
(66)
(7)
(7)
(24)
(65)
$1,125
$ 765
Other, net
$1,569
The provision for income taxes resulted in effective tax rates of 32.5%,
charge and income tax benets in 2004 and 2003 of $2 million and $1
32.0% and 30.2% for 2005, 2004 and 2003, respectively. The increases
million, respectively, from the translation of foreign currencies, which
in the effective tax rates in 2005 compared with 2004 and 2004 com-
was recorded directly in Accumulated other comprehensive income.
pared with 2003 were primarily due to a higher level of pre-tax

income, which reduced the effect of permanent differences.
Deferred income taxes are provided for the differences between

the tax bases of assets and liabilities and their reported amounts in the
Income tax benets related to various employee compensation
Consolidated Financial Statements. These temporary differences will
plans of approximately $1,005 million, $468 million and $543 million
result in future income or deductions for income tax purposes and are
in 2005, 2004 and 2003, respectively, were allocated to Additional paid-
measured using the enacted tax rates that will be in effect when such
in capital. In addition, in 2005 we recorded a $1 million income tax
items are expected to reverse.

109
At November 30, 2005 and 2004 deferred tax assets and liabilities consisted of the following:
D E F E R R E D TA X A S S E T S A N D L I A B I L I T I E S
IN MILLIONS
N OV E M B E R 3 0
2005
2004
DEFERRED TAX ASSETS:
Liabilities and other accruals not currently deductible
377
$ 567
1,218
962
Unrealized trading activity
453
351
Foreign tax credits including carryforwards
214
321
Foreign operations (net of associated tax credits)
760
289
Deferred compensation
Net operating loss carryforwards
53
37
251
241
3,326
2,768
Other
Total deferred tax assets
Less: valuation allowance
(5)
Total deferred tax assets, net of valuation allowance
3,321
(5)
2,763
DEFERRED TAX LIABILITIES:
Excess tax over nancial depreciation, net
(57)
(52)
Acquired intangibles
(404)
(407)
Pension and retirement costs
(216)
(163)
Other
Total deferred tax liabilities
Net deferred tax assets
(54)
(704)
(676)
$2,617
The net deferred tax assets are included in Other assets in the
Consolidated Statement of Financial Condition.
$2,087
We are under continuous examination by the Internal Revenue

Service (IRS), and other tax authorities in major operating jurisdic-
We permanently reinvested earnings in certain foreign subsidiaries.
tions such as the United Kingdom and Japan, and in various states in
At November 30, 2005, $1,465 million of accumulated earnings were
which the Company has signicant operations, such as New York.The
permanently reinvested. At current tax rates, additional Federal income
Company regularly assesses the likelihood of additional assessments in
taxes (net of available tax credits) of $383 million would become payable
each tax jurisdiction and the impact on the consolidated nancial state-
if such income were to be repatriated.
ments.Tax reserves have been established, which we believe to be ade-
We have approximately $147 million of Federal NOL carryfor-
quate with regards to the potential for additional exposure. Once
wards that are subject to separate company limitations. Substantially all of
established, reserves are adjusted only when additional information is
these net operating loss carryforwards begin to expire in 2023. At
obtained or an event requiring a change to the reserve occurs.
November 30, 2005, the $5 million deferred tax asset valuation allowance
Management believes the resolution of these uncertain tax positions
relates to federal net operating loss carryforwards of acquired entities that
will not have a material impact on the nancial condition of the
are subject to separate company limitations. If future circumstances per-
Company; however resolution could have an impact on our effective
mit the recognition of the acquired tax benet, goodwill will be reduced.
tax rate in any one particular period.
NOTE
110
(27)
17
REAL
ESTATE
RECONFIGURATION
CHARGE
In connection with the Companys decision in 2002 to recongure
decision to move to a new facility just outside the city of London. In
certain of our global real estate facilities, we established a liability for
March 2004, we reached an agreement to exit virtually all of our
the expected losses from subleasing such facilities, principally our
remaining leased space at our downtown New York City location,
downtown New York City offices after the events of September 11,
which claried the loss on the location and resulted in the $19 million
2001 and our prior London office facilities at Broadgate given our
charge ($11 million after tax).

During the years ended November 30, 2005 and 2004, changes in the liability, which is included in Accrued liabilities and other payables in
the Consolidated Statement of Financial Condition, related to these charges were as follows.
R E A L E S TAT E R E C O N F I G U R AT I O N C H A R G E
Beginning
Real Estate
Balance
Reconfiguration
Year ended November 30, 2004
396
19
(269)
146
Year ended November 30, 2005
146
(71)
75
IN MILLIONS
(1)
Ending
Used (1)
Balance
Net of interest accretions of $6 million and $11 million in 2005 and 2004, respectively.
NOTE
18
BUSINESS
SEGMENTS
AND
GEOGRAPHIC
INFORMATION
We operate in three business segments: Investment Banking, Capital
ness manages our equity and xed income matched book activities,
Markets and Investment Management.
supplies secured nancing to institutional clients and provides secured
The Investment Banking business segment is made up of Advisory
funding for our inventory of equity and xed income products. The
Services and Global Finance activities that serve our corporate and gov-
Capital Markets segment also includes proprietary activities as well as
ernment clients. The segment is organized into global industry
principal investing in real estate and private equity.
groupsCommunications, Consumer/Retailing, Financial Institutions,
The Investment Management business segment consists of the
Financial Sponsors, Healthcare, Industrial, Media, Natural Resources,
Asset Management and Private Investment Management businesses.
Power, Real Estate and Technologythat include bankers who deliver
Asset Management generates fee-based revenues from customized
industry knowledge and expertise to meet clients objectives. Specialized
investment management services for high-net-worth clients, as well as
product groups within Advisory Services include M&A and restructur-
fees from mutual fund and other institutional investors. Asset
ing. Global Finance serves our clients capital raising needs through
Management also generates management and incentive fees from our
underwriting, private placements, leveraged nance and other activities
role as general partner for private equity and other alternative invest-
associated with debt and equity products. Product groups are partnered
ment partnerships. Private Investment Management provides compre-
with relationship managers in the global industry groups to provide
hensive investment, wealth advisory and capital markets execution
comprehensive nancial solutions for clients.
services to high-net-worth and middle market clients.
The Capital Markets business segment includes institutional client-
Our business segment information for the years ended November
ow activities, prime brokerage, research, mortgage origination and
30, 2005, 2004 and 2003 is prepared using the following methodologies:
securitization and secondary-trading and nancing activities in xed
Revenues and expenses directly associated with each business
income and equity products. These products include a wide range of
segment are included in determining income before taxes.
cash, derivative, secured nancing and structured instruments and
Revenues and expenses not directly associated with specic
investments.We are a leading global market-maker in numerous equity
business segments are allocated based on the most relevant
and xed income products including U.S., European and Asian equities,
measures applicable, including each segments revenues, head-
government and agency securities, money market products, corporate
count and other factors.
high grade, high yield and emerging market securities, mortgage- and
Net revenues include allocations of interest revenue and
asset-backed securities, preferred stock, municipal securities, bank loans,
interest expense to securities and other positions in relation
foreign exchange, nancing and derivative products.We are one of the
to the cash generated by, or funding requirements of, the
largest investment banks in terms of U.S. and pan-European listed equi-
underlying positions.
ties trading volume, and we maintain a major presence in OTC U.S.
Business segment assets include an allocation of indirect cor-
stocks, major Asian large capitalization stocks, warrants, convertible
porate assets that have been fully allocated to our segments,
debentures and preferred issues. In addition, the secured nancing busi-
generally based on each segments respective headcount gures.

111
BUSINESS SEGMENTS
Investment
Capital
Investment
Banking
Markets
Management
$ 2,894
$27,545
$ 1,981
$32,420
17,738
52
17,790
2,894
9,807
1,929
14,630
IN MILLIONS
Total
AT AND FOR THE YEAR ENDED NOVEMBER 30, 2005
Gross revenues
Interest expense
Net revenues
Depreciation and amortization expense
Other expenses
36
308
82
426
2,003
5,927
1,445
9,375
Income before taxes
855
$ 3,572
402
$ 4,829
Segment assets (billions)
1.2
$ 401.9
7.0
$ 410.1
$ 2,188
$17,336
$ 1,726
$21,250
9,642
32
9,674
2,188
7,694
1,694
11,576
Gross revenues
Interest expense
Net revenues
41
302
85
428
1,560
4,866
1,185
7,611
587
$ 2,526
424
$ 3,537
1.1
$ 345.8
$ 10.3
$ 357.2
$ 1,722
$14,628
$17,287
8,610
30
8,640
1,722
6,018
907
8,647
Other expenses
(2)

Gross revenues
Interest expense
Net revenues
55
219
41
315
1,266
3,792
661
5,719
401
$ 2,007
205
$ 2,613
1.4
$ 301.7
9.0
$ 312.1
Other expenses
(2)

(1)
Before dividends on preferred securities.
(2)
Excludes the real estate reconfiguration charge.
937
Net revenues are recorded in the geographic region of the location of
the senior coverage banker or investment advisor in the case of

Investment Banking or Asset Management, respectively, or where the
IN MILLIONS
position was risk managed within Capital Markets and Private
Europe
Investment Management. In addition, certain revenues associated with
Asia Pacic and other
domestic products and services that result from relationships with

international clients have been classied as international revenues using
an allocation consistent with our internal reporting.
112

Total non-U.S.
U.S.
2005
2004
2003
$ 3,601
$ 2,104
$ 1,864
1,759
1,247
875
5,360
3,351
2,739
9,270
8,225
5,908
$14,630
$11,576
$ 8,647
NOTE
19
QUARTERLY
INFORMATION
(UNAUDITED)
The following table presents unaudited quarterly results of operations for
recurring adjustments that are, in the opinion of management, necessary for
2005 and 2004. Certain amounts reect reclassications to conform to the
a fair presentation of the results. Revenues and net income can vary signif-
current periods presentation. These quarterly results reect all normal
icantly from quarter to quarter due to the nature of our business activities.
Q U A R T E R LY I N F O R M AT I O N ( U N A U D I T E D )
IN MILLIONS,
E X C E P T P E R S H A R E DATA
Q U A RT E R E N D E D
Nov. 30
Aug. 31
May 31
Feb. 28
Total revenues
2005
2004
Nov. 30
Aug. 31
May 31
Feb. 29
$9,055
$8,639
$7,335
$7,391
$5,846
$5,051
$5,228
$5,125
Interest expense
5,365
4,787
4,057
3,581
2,963
2,428
2,302
1,981
Net revenues
3,690
3,852
3,278
3,810
2,883
2,623
2,926
3,144
1,798
1,906
1,623
1,886
1,401
1,306
1,457
1,566
675
653
642
618
603
594
585
546
2,473
2,559
2,265
2,504
2,004
1,900
2,042
2,112
1,217
1,293
1,013
1,306
879
723
884
1,032
394
414
330
431
294
218
275
338
24
Non-interest expenses:
Non-personnel expenses
Income before taxes and dividends
on trust preferred securities
Dividends on trust preferred securities (1)
Net income
823
879
683
875
$ 585
$ 505
$ 609
$ 670
807
864
664
856
$ 566
$ 487
$ 592
$ 653
Earnings per share

Basic
$ 2.93
$ 3.10
$ 2.37
$ 3.07
$ 2.07
$ 1.79
$ 2.14
$ 2.37
Diluted
$ 2.76
$ 2.94
$ 2.26
$ 2.91
$ 1.96
$ 1.71
$ 2.01
$ 2.21
Basic
275.9
278.6
279.6
278.6
273.2
272.8
276.8
275.5
Diluted
292.6
293.7
294.0
294.0
288.5
285.0
294.2
294.7
Dividends per common share
$ 0.20
$ 0.20
$ 0.20
$ 0.20
$ 0.16
$ 0.16
$ 0.16
$ 0.16
Book value per common share (at period end)
$57.50
$54.91
$53.27
$51.75
$49.32
$48.10
$47.05
$45.45
Weighted average shares
(1)
We adopted FIN 46R effective February 29, 2004, which required us to deconsolidate the trusts that issued the preferred securities. Accordingly, at and subsequent to February 29, 2004, preferred
securities subject to mandatory redemption were reclassied to Subordinated indebtedness. Dividends on preferred securities subject to mandatory redemption, which were presented as
Dividends on trust preferred securities in the Consolidated Statement of Income through February 29, 2004, are included in Interest expense in periods subsequent to February 29, 2004.

113
The following table summarizes certain consolidated nancial information.

S E L E C T E D F I N A N C I A L D ATA
IN MILLIONS, EXCEPT PER COMMON SHARE

A N D S E L E C T E D DATA A N D F I N A N C I A L R AT I O S
2005
2004
2003
2002
2001
$ 32,420
$ 21,250
$ 17,287
$ 16,781
$ 22,392
CONSOLIDATED STATEMENT OF INCOME
Total revenues
Interest expense
17,790
9,674
8,640
10,626
15,656
Net revenues
14,630
11,576
8,647
6,155
6,736
7,213
5,730
4,318
3,139
3,437
Non-personnel expenses (1)
2,588
2,309
1,716
1,517
1,424
19
77
128
September 11th related (recoveries)/expenses, net
(108)
127
Regulatory settlement
80
9,801
8,058
6,111
4,756
4,988
Income before taxes and dividends on trust preferred securities
4,829
3,518
2,536
1,399
1,748
1,569
1,125
765
368
437
24
72
56
56
Non-interest expenses:
Dividends on trust preferred securities (2)

Net income
3,260
$ 2,369
$ 1,699
975
$ 1,255
3,191
$ 2,297
$ 1,649
906
$ 1,161
$410,063
$357,168
$312,061
$260,336
$247,816
211,424
175,221
163,182
140,488
141,354
62,309
56,486
43,529
38,678
38,301
1,310
710
710
16,794
14,920
13,174
8,942
8,459
Tangible equity capital (4)
15,564
12,636
10,681
9,439
9,002
Total capital (2)
79,103
71,406
58,013
48,330
47,470
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

(AT NOVEMBER 30)
Total assets
Net assets (3)
(2)
Preferred securities subject to mandatory redemption (2)
(5)
PER COMMON SHARE DATA
Net income (basic)
11.47
8.36
6.71
3.69
Net income (diluted)
10.87
7.90
6.35
3.47
Weighted average common shares (basic) (in millions)
274.7
278.2
Weighted average common shares (diluted) (in millions)
290.7
293.6
Dividends declared per common share
0.80
Book value per common share (at November 30) (6)
57.50
245.7
0.64
$ 49.32
245.4
259.9
$
0.48
$ 44.17
0.36
$ 34.15
4.38
243.1
261.2
$
4.77
265.3
$
0.28
$ 31.81
SELECTED DATA (AT NOVEMBER 30)
Gross leverage ratio (7)

Net leverage ratio
175
137
29.1x
15.3x
19,579
22,919
$
23.7x
13.9x
13.6x
Employees
Assets under management (in billions) (9)
23.9x
24.4x
(8)
14.9x
16,188
$
120
29.3x
15.7x
12,343
$
13,090
$
12
FINANCIAL RATIOS (%)
114
Compensation and benets/net revenues
49.3
49.5
49.9
51.0
51.0
Pre-tax margin
33.0
30.4
29.3
22.7
26.0
Return on average common stockholders equity (10)
21.6
17.9
18.2
11.2
15.9
Return on average tangible common stockholders equity (11)
27.8
24.7
19.2
11.5
16.3

N O T E S T O S E L E C T E D F I N A N C I A L D ATA
(1) Non-personnel expenses exclude the following items:
1) real estate reconguration charges of $19 million,

$77 million and $128 million for the years ended
November 2004, 2003 and 2002, respectively,
2) September 11th related (recoveries)/expenses of
$(108) million and $127 million for the years ended
November 30, 2002 and 2001, respectively, and
3) regulatory settlement of $80 million for the year
ended November 30, 2002.
(2) We adopted FIN 46R effective February 29, 2004,
which required us to deconsolidate the trusts that

issued the preferred securities. Accordingly, at and
subsequent to February 29, 2004, preferred securities
subject to mandatory redemption were reclassied to
Junior Subordinated notes. Dividends on preferred
securities subject to mandatory redemption, which
were presented as Dividends on trust preferred
securities in the Consolidated Statement of Income
through February 29, 2004, are included in Interest
expense in periods subsequent to February 29, 2004.
(3) Net assets represent total assets excluding:
1) Cash and securities segregated and on deposit

for regulatory and other purposes, 2) Securities
received as collateral, 3) Securities purchased under
agreements to resell, 4) Securities borrowed and
5) Identiable intangible assets and goodwill.
We believe net assets is a measure more useful
to investors than total assets when comparing
companies in the securities industry because it
excludes certain assets considered to have a low-risk
prole and identiable intangible assets and goodwill.
Net assets as presented are not necessarily
comparable to similarly-titled measures provided
by other companies in the securities industry because
of different methods of calculation. (a)
(a)
(4) Tangible equity capital represents total stockholders
above) divided by tangible equity capital (see note 4

above). We believe net leverage is a more meaningful
measure of leverage to evaluate companies in the
securities industry. In addition, many of our creditors
and a leading rating agency use the same denition
of net leverage. Net leverage as presented is not
necessarily comparable to similarly-titled measures
provided by other companies in the securities industry
because of different methods of calculation.
(9) Assets under management at November 30, 2003
have been restated to include $3.9 billion of

discretionary brokerage cash management assets.
(10) Average common stockholders equity in 2003 was
appropriately weighted for the effect of the equity

issued in connection with the Neuberger Berman
acquisition on October 31, 2003. Return on average
common stockholders equity is computed by dividing
net income applicable to common stock for the period
by average common stockholders equity. Average
common stockholders equity for the years ended
November 2005, 2004, 2003, 2002 and 2001 was
$14.7 billion, $12.8 billion, $9.1 billion, $8.1 billion
and $7.3 billion, respectively.
(5) Total capital includes long-term borrowings (including
junior subordinated notes) and total stockholders

equity and, at November 30, 2003 and prior yearends, preferred securities subject to mandatory
redemption. We believe total capital is useful to
investors as a measure of our nancial strength.
(11)
(6) The book value per common share calculation
includes amortized restricted stock units granted

under employee stock award programs, which have
been included in total stockholders equity.
(7) Gross leverage ratio is dened as total assets divided
by total stockholders equity.
Average tangible common stockholders equity in

2003 was appropriately weighted for the effect of
the equity issued in connection with the Neuberger
Berman acquisition on October 31, 2003. Return
on average tangible common stockholders equity
is computed by dividing net income applicable to
common stock for the period by average tangible
common stockholders equity. Average tangible
common stockholders equity equals average total
common stockholders equity less average
identiable intangible assets and goodwill. Average
identiable intangible assets and goodwill for the
years ended November 2005, 2004, 2003, 2002 and
2001 was $3.3 billion, $3.5 billion, $471 million, $191
million and $174 million, respectively. Management
believes tangible common stockholders equity is a
meaningful measure because it reects the common
stockholders equity deployed in our businesses.
Net assets calculation:

November 30 (in millions)
Total assets
2005
2004
2003
2002
2001
$410,063
$357,168
$312,061
$260,336
$247,816
(5,744)
(4,085)
(3,100)
(2,803)
(3,289)
(4,975)
(4,749)
(3,406)
(1,994)
(1,734)
Securities purchased under agreement to resell

Securities borrowed
Identifiable intangible assets and goodwill
Net assets
(b)
(8) Net leverage ratio is dened as net assets (see note 3
equity plus junior subordinated notes (and at

November 30, 2003, 2002 and 2001, preferred
securities subject to mandatory redemption),
less identiable intangible assets and goodwill. (b)
See MD&ALiquidity, Funding and Capital
ResourcesBalance Sheet and Financial Leverage for
additional information about tangible equity capital.
We believe total stockholders equity plus junior
subordinated notes to be a more meaningful measure
of our equity because the junior subordinated notes
are subordinated and have maturities at issuance
from 30 to 49 years. In addition, a leading rating
agency views these securities as equity capital for
purposes of calculating net leverage. Further, we
do not view the amount of equity used to support
identiable intangible assets and goodwill as
available to support our remaining net assets.
Tangible equity capital as presented is not necessarily
comparable to similarly-titled measures provided by
other companies in the securities industry because
of different methods of calculation.
(106,209)
(95,535)
(87,416)
(94,341)
(83,278)
(78,455)
(74,294)
(51,396)
(20,497)
(17,994)
(3,256)
(3,284)
(3,561)
(213)
(167)
$211,424
$175,221
$163,182
$140,488
$141,354
Tangible equity capital calculation:

November 30 (in millions)
2005
2004
2003
2002
2001
$16,794
$14,920
$13,174
$ 8,942
$ 8,459
Junior subordinated notes (subject to limitation) (i)
2,026
1,000
1,068
710
710
Identifiable intangible assets and goodwill
(3,256)
(3,284)
(3,561)
(213)
(167)
$15,564
$12,636
$10,681
$ 9,439
$ 9,002
Tangible equity capital

(i)
Preferred securities subject to mandatory redemption at November 30, 2003, 2002 and 2001.

115
O T H E R S T O C K H O L D E R I N F O R M AT I O N
COMMON STOCK
REGISTRAR AND TRANSFER AGENT FOR COMMON STOCK
TICKER SYMBOL: LEH The common stock of Lehman Brothers

Holdings Inc., par value $0.10 per share, is listed on the New York Stock
Exchange and on the Pacic Exchange. As of January 31, 2006, there
were 270,408,498 shares of the Companys common stock outstanding
and approximately 22,400 holders of record. On January 31, 2006, the last
reported sales price of Lehman Brothers common stock was $140.45.
Lehman Brothers Holdings currently is authorized to issue up to
600,000,000 shares of common stock. Each holder of common stock is
entitled to one vote per share for the election of directors and all other
matters to be voted on by stockholders. Holders of common stock may
not cumulate their votes in the election of directors. They are entitled
to share equally in the dividends that may be declared by the Board of
Directors, after payment of dividends on preferred stock. Upon voluntary or involuntary liquidation, dissolution or winding up of the
Company, holders of common stock will share ratably in the assets
remaining after payments to creditors and provision for the preference
of any preferred stock. There are no preemptive or other subscription
rights, poison pills, conversion rights or redemption or scheduled
installment payment provisions relating to the Companys common stock.
Questions regarding dividends, transfer requirements, lost certicates,

changes of address, direct deposit of dividends, the Direct Purchase and
Dividend Reinvestment Plan, or other inquiries should be directed to:
Telephone: (800) 824-5707 (U.S.)
(212) 815-3700 (non-U.S.)
E-mail: shareowner-svcs@bankofny.com
Web site: http://www.stockbny.com
DIRECT PURCHASE AND DIVIDEND REINVESTMENT PLAN
Lehman Brothers Direct Purchase and Dividend Reinvestment Plan

provides both existing stockholders and rst-time investors with an
alternative means of purchasing the Companys stock. The plan has no
minimum stock ownership requirements for eligibility and enrollment.
Plan participants may reinvest all or a portion of cash dividends and/or
make optional cash purchases up to a maximum of $175,000 per year
without incurring commissions or service charges. Additional information and enrollment forms can be obtained from the Companys
Transfer Agent listed above.
PREFERRED STOCK
ANNUAL REPORT AND FORM 10-K
Lehman Brothers Holdings currently is authorized to issue up to

38,000,000 shares of preferred stock, par value $1.00 per share. Lehman
Brothers Board of Directors may authorize the issuance of classes or
series of preferred stock from time to time, each with the voting rights,
preferences and other special rights and qualications, limitations or
restrictions specied by the Board. A series of preferred stock may rank
as senior, equal or subordinate to another series of preferred stock. Each
series of preferred stock will rank prior to the common stock as to dividends and distributions of assets.
As of January 31, 2006, Lehman Brothers has issued and outstanding 798,000 shares of preferred stock in four series (each represented by
depositary shares) with differing rights and privileges. The outstanding
preferred stock does not have voting rights, except in certain very limited circumstances involving the Companys failure to pay dividends
thereon and certain matters affecting the specic rights of the preferred
stockholders.
Lehman Brothers will make available upon request, without charge,

copies of this Annual Report and the 2005 Annual Report on Form 10-K
as led with the Securities and Exchange Commission. Requests may
be directed to:
ANNUAL MEETING
Lehman Brothers annual meeting of stockholders will be held on

Wednesday, April 5, 2006 at 10:30 a.m. at its global headquarters at 745
Seventh Avenue, New York, New York 10019 in the Allan S. Kaplan
Auditorium on the Concourse Level.
DIVIDENDS
Effective January 2006, Lehman Brothers Board of Directors increased

the scal 2006 dividend rate to $0.96 per common share from an annual
dividend rate of $0.80 per share in scal 2005. Dividends on the
Companys common stock are generally payable, following declaration
by the Board of Directors, in February, May, August and November.
116
The Bank of New York

Shareholders Services Department
P.O. Box 11258
Church Street Station
New York, New York 10286-1258

O T H E R S T O C K H O L D E R I N F O R M AT I O N
Jeffrey A.Welikson, Corporate Secretary

Lehman Brothers Holdings Inc.
1301 Avenue of the Americas
New York, New York 10019
Telephone: (212) 526-0858
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP

5 Times Square
New York, New York 10036
Telephone: (212) 773-3000
INVESTOR RELATIONS
(212) 526-3267
MEDIA RELATIONS
(212) 526-4382
WEB SITE ADDRESS
http://www.lehman.com
PRICE RANGE OF COMMON STOCK
THREE MONTHS
ENDED 2005
Nov. 30
Aug. 31
May 31
Feb. 28
High
$133.16
$108.00
$96.93
$94.70
Low
$103.72
$91.05
$85.92
$83.25
THREE MONTHS
ENDED 2004
Nov. 30
Aug. 31
May 31
Feb. 29
High
$85.50
$79.04
$89.72
$88.22
Low
$73.32
$67.25
$69.50
$70.50
C O R P O R AT E G O V E R N A N C E
Lehman Brothers continues to be committed to industry best practices

with respect to corporate governance.The corporate governance documents that have been adopted by the Firm reect the listing standards
adopted by the New York Stock Exchange and the Pacic Exchange,
the Sarbanes-Oxley Act and other legal and regulatory requirements.
The Companys Board of Directors currently consists of eleven
members.The Board of Directors has determined that, with the exception of Messrs. Fuld and Kaufman, all of the Companys directors are
independent, and the Audit, Nominating and Corporate Governance,
and Compensation and Benets Committees are composed exclusively
of independent directors. The Audit Committee includes a nancial
expert as dened in the SECs rules. Ms. Merrill has informed the
Company that she intends to retire from the Board of Directors effective at the 2006 Annual Meeting.
The Board of Directors holds regularly scheduled executive sessions
in which non-management directors meet independently of management.The Board and the Audit, Nominating and Corporate Governance,
and Compensation and Benets Committees each conduct a selfevaluation at least annually.
The current committees of the Board of Directors and their members are set forth on page 118. During scal 2005, the Board of Directors
held 8 meetings, the Audit Committee held 7 meetings, the Compensation
and Benets Committee held 7 meetings, the Finance Committee held 2
meetings and the Nominating and Corporate Governance Committee
held 6 meetings. Overall director attendance at Board and committee
meetings averaged 98%.
The Company has established an orientation program for new directors to familiarize them with the Companys operations, strategic plans, Code
of Ethics, management and independent registered public accounting rm.
The Companys Corporate Governance Guidelines also contemplate
continuing director education arranged by the Company. Directors receive
presentations from senior management on different aspects of the Companys
business and from Finance, Legal, Compliance, Internal Audit, Risk
Management and other disciplines at Board meetings throughout the year.
Descriptions of the director nomination process, the compensation
received by directors for their service and certain transactions and agreements between the Company and its directors may be found in the
Companys 2006 Proxy Statement.
The Board of Directors recognizes that legal requirements and
governance practices will continue to evolve, and the Board will continue to reevaluate its practices in light of these changes.
CERTIFICATE OF INCORPORATION AND BY-LAWS
Lehman Brothers Holdings Inc. is incorporated under the laws of the

State of Delaware. Copies of the Companys certicate of incorporation
and by-laws are led with the SEC as exhibits to the Companys 2005
Annual Report on Form 10-K. See Available Information in the Form
10-K. An amendment to the certicate of incorporation requires a majority
vote of stockholders, voting together as a single class, unless the amendment would affect certain rights of preferred stockholders, in which case
the consent of two-thirds of such preferred stockholders is required.The
by-laws may be amended or repealed or new by-laws may be adopted by
a majority vote of stockholders or by a majority of the entire Board of
Directors then in office, provided that notice thereof is contained in the
notice of the meeting of stockholders or of the Board, as the case may be.
BOARD OF DIRECTORS AND COMMITTEES
The Companys Board of Directors currently consists of eleven directors. The number of directors is established from time to time by the
Board of Directors, although there must be at least six and not more
than twenty-four directors. In addition, under certain circumstances
involving Lehman Brothers failure to pay dividends on preferred stock,
preferred stockholders may be entitled to elect additional directors.
Directors (other than any that may be elected by preferred stockholders as described above) are elected by a plurality of the votes cast.
There are three classes of directors, divided as evenly as possible, and
each class serves for a three-year term, with the term of one class of
directors expiring each year. A director may be removed only for cause
by a majority vote of stockholders. Subject to approval at the 2006
annual meeting of stockholders, the Board of Directors has approved an
amendment to the Companys certicate of incorporation to provide
for the annual election of all Directors commencing with the 2007
annual meeting of stockholders.
Vacancies in the Board of Directors and newly created directorships resulting from an increase in the size of the Board may be lled by a
majority of the remaining directors,although less than a quorum,or by a sole
remaining director,and the directors so elected will hold office until the next
annual election for the relevant class. No decrease in the number of directors
constituting the Board will shorten the term of any incumbent director.
A majority of the entire Board,or of any committee,is necessary to constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at a meeting at which a quorum is present constitutes the act of the Board or committee.Actions may be taken without a
meeting if all members of the Board or of the committee consent in writing.
CORPORATE GOVERNANCE DOCUMENTS AND WEB SITE
The following documents can be found on the Corporate Governance page

of the Companys Web site at www.lehman.com/shareholder/corpgov:
Corporate Governance Guidelines
Code of Ethics
Audit Committee Charter
Compensation and Benets Committee Charter
Nominating and Corporate Governance Committee Charter
COMMUNICATING WITH THE BOARD OF DIRECTORS
Information on how to contact the non-management members of the

Board of Directors, and how to contact the Audit Committee regarding
complaints about accounting, internal accounting controls or auditing
matters, can be found on the Corporate Governance page of the
Companys Web site at www.lehman.com/shareholder/corpgov.
CEO AND CFO CERTIFICATIONS
The Company has led with the SEC as exhibits to its 2005 Annual
Report on Form 10-K the certications of the Companys Chief
Executive Officer and its Chief Financial Officer required under Section
302 of the Sarbanes-Oxley Act and SEC Rules 13a-14(a) and 15d-14(a)
regarding the Companys nancial statements, disclosure controls and procedures and other matters. In addition, following its 2005 annual meeting
of stockholders, the Company submitted to the NYSE the annual certication of the Companys Chief Executive Officer required under
Section 303A.12(a) of the NYSE Listed Company Manual, that he was
not aware of any violation by the Company of the NYSEs corporate
governance listing standards.

C O R P O R AT E G O V E R N A N C E
117
BOARD OF DIRECTORS

Chairman and
Chief Executive Officer
Committees: Executive
(Chairman)
Director since 1990
Dr. Henry Kaufman

President of Henry
Kaufman & Company, Inc.
Committees: Finance
(Chairman)
Director since 1995
Michael L. Ainslie
Private Investor and
Former President and
of Sothebys Holdings
Committees: Audit
Director since 1996
John D. Macomber
Principal of JDM
Investment Group
Committees: Compensation
and Benets; Executive;
Nominating and
Corporate Governance
Director since 1994
John F. Akers
Retired Chairman of
International Business
Machines Corporation
and Benets (Chairman);
Finance
Director since 1996
Roger S. Berlind
Theatrical Producer
Committees: Audit; Finance
Director since 1985
Thomas H. Cruikshank
Retired Chairman and
of Halliburton Company
Committees: Audit
(Chairman); Nominating
and Corporate Governance
Director since 1996
Marsha Johnson Evans
Rear Admiral,
U.S. Navy (Retired)
Committees: Finance;
Nominating and Corporate
Governance (Chairman)
Director since 2004
Sir Christopher Gent
Non-Executive Chairman
of GlaxoSmithKline plc
Committees: Audit;
Compensation and Benets
Director since 2003
Roland A. Hernandez
Retired Chairman and
of Telemundo Group, Inc.
Committees: Finance
Director since 2005
* Retiring April 5, 2006
118

SENIOR LEADERSHIP
Dina Merrill *
Director and Vice
Chairman of RKO
Pictures, Inc. and Actress
and Benets; Nominating
and Corporate Governance
Director since 1988
SENIOR MANAGEMENT
OTHER OFFICERS

Chairman and
Barbara M. Byrne
Vice Chairman
Lehman Brothers Inc.
Jonathan E. Beyman
Chief of Operations
and Technology
Howard L. Clark, Jr.

Vice Chairman and
Member of Board
of Directors
Jasjit S. Bhattal
Chief Executive Officer,
Asia
Michael Gelband
Global Head of Capital
Markets/Fixed Income
Dave Goldfarb
Chief Administrative
Officer
Leslie J. Fabuss
Vice Chairman
J. Stuart Francis
Vice Chairman
Joseph M. Gregory
President and
Chief Operating Officer
Frederick Frank
Vice Chairman and
Member of Board
of Directors
Jeremy M. Isaacs
Chief Executive Officer,
Europe & Asia
Joseph D. Gatto
Vice Chairman
Theodore P. Janulis
Global Head of
Investment Management
Jeffrey B. Lane
Vice Chairman
Office of the Chairman
Stephen M. Lessing
Head of Client
Relationship
Management
Herbert H. McDade III
Global Head of Capital
Markets/Equities
Hugh E. McGee III
Global Head of
Investment Banking
Roger B. Nagioff
Chief Operating Officer,
Europe
Christopher M. OMeara
Chief Financial Officer
Thomas A. Russo
Vice Chairman
Lehman Brothers Inc. and
Chief Legal Officer
Ruggero F. Magnoni
Vice Chairman
and Lehman Brothers
International (Europe)
Vittorio Pignatti Morano
Vice Chairman
Grant A. Porter
Vice Chairman
Robert D. Redmond
Vice Chairman
Marvin C. Schwartz
Vice Chairman
Andrew R.Taussig
Vice Chairman
Design: Ross Culbert & Lavery, NYC

Illustration and photography: Istvan Banyai, Cindy Charles, Marian Goldman, Joe Hancock, Paul Hu, John Jinks, Rob Kinmonth, Gun-jung Lee, Alex Orrow, Picturemosaics, Scott Raffe, Nana Reimers, Peter Ross,
Ethan Schoonover, Phil Soheili, Willy Spiller, Lorn Spolter, John Sturrock, Troy Thomas, Lauren Uram, Baker Vail / Blue Marble Maps, Peter Vidor and Barbara Wartenbergh
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Lehman Brothers Principal Offices Worldwide
Americas
Europe
Asia Pacific
New York
London
Tokyo
(Global Headquarters)
745 Seventh Avenue
New York, NY 10019
(212) 526-7000
(Regional Headquarters)
25 Bank Street
London E14 5LE
United Kingdom
44-20-7102-1000
(Regional Headquarters)
Roppongi Hills
Mori Tower, 31st Floor
6-10-1 Roppongi
Minato-ku,
Tokyo 106-6131
Japan
81-3-6440-3000
Atlanta, GA
Boston, MA
Buenos Aires
Chicago, IL
Dallas,TX
Denver, CO
Florham Park, NJ
Gaithersburg, MD
Hoboken, NJ
Houston,TX
Irvine, CA
Jersey City, NJ
Los Angeles, CA
Menlo Park, CA
Mexico City
Miami, FL
Montevideo
Newport Beach, CA
New York, NY
Palm Beach, FL
Philadelphia, PA
Salt Lake City, UT
San Francisco, CA
San Juan, PR
Scottsbluff, NE
Seattle,WA
Tampa, FL
Washington, D.C.
Wilmington, DE
Amsterdam
Frankfurt
Luxembourg
Madrid
Milan
Paris
Rome
Tel Aviv
Zurich
Bangkok
Beijing
Hong Kong
Mumbai
Seoul
Singapore
Taiwan
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CoverPDF.

2005 Annual Report

Closing Stock Price

Its All About Our Clients, Our People

Earnings per Share

Letter from the Chairman

In millions, except per common share and selected data

Total stockholders equity

Total capital (1)

Book value (2)

Closing stock price

PER COMMON SHARE DATA

Return on average common

Return on average tangible

Gross leverage ratio (5)

Weighted average common

equity issued in connection with the Neuberger Berman

identifiable intangible assets and goodwill. We believe

Richard S. Fuld, Jr.

LETTER FROM THE CHAIRMAN

Dear Shareholders and Clients,

Lehman Brothers delivered its strongest performance ever in 2005. Our

landscape, our Investment Banking and Investment Management clients increasingly

We reported record revenues for the third year in a row, reaching

We increased our pre-tax margin to 33.0%; our return on average common

return of 1,087% over the past decade.

LETTER FROM THE CHAIRMAN

These achievements are the ultimate

Investor every year since that survey began in

validation of our business strategy: put the

1997. Additionally, we were named #1 in fixed

clients first, the results will follow.

income sales and trading capabilities by a leading

Balance Across Our Businesses

The Firms steady and strategic investment

of each of our businesses continues and has

global securitization business.

overall fee share for the sixth consecutive year.

ranked #1 in Institutional Investors U.S. equity

We advised on many of the largest deals and

research poll.We are developing a tradition of

expanded our client base, evidence of the value

firsts: no other firm has achieved a #1 ranking

of deepening our partnerships with clients

in both Equity and Fixed Income research in

over the long term.We also improved our

the same year, and we have now done it three

productivity and made strategic hires to bolster

years running.We also achieved #1 rankings

our industry, product and geographic expertise.

from Institutional Investor in New York Stock

In mergers and acquisitions, our volume of

Exchange-listed trading, Nasdaq trading,

completed transactions increased 24% to

NYSE-listed sales-trading and Nasdaq sales-

$306 billion, while our volume of announced

trading, the first time any firm has achieved

transactions nearly doubled to $460 billion.

top rankings in all four categories.We have

In fixed income origination, we posted record

continued to build our capabilities in both

revenues for the third consecutive year and

derivatives and financing for clients, investing

lead-managed $393 billion of debt offerings.