Lehman to sell 0% auto-callable notes linked to KBW Mortgage Finance Index via UBS

By E. Janene Geiss

Philadelphia, May 10 - Lehman Brothers Inc. plans to price an issue of bearish 0% auto-callable optimization securities with contingent protection linked to the KBW Mortgage Finance Index via agent UBS Financial Services Inc., according to an FWP filing with the Securities and Exchange Commission.

The index is comprised of 24 companies involved in the U.S. mortgage finance industry and is designed to represent the industry's diverse sub-sectors, including pure mortgage players, mortgage insurers, title insurers and banks and thrifts that have considerable mortgage loan portfolios in the United States.

The notes are expected to mature Nov. 28, 2008. The exact maturity will be determined at pricing, which is expected to be May 24. The notes are expected to settle on May 31.

The notes will be automatically called if the index shows a negative return on any of the quarterly observation dates between August 2007 and November 2008. If the notes are called, the redemption amount will be par of $10.00 plus a return expected to be between 18% and 22%, with the exact return to be determined at pricing.

If the notes are not called, the payout at maturity will be par unless the index closes at or above the contingent protection level, 120% of the initial level, during the life of the notes and finishes above the initial index level, in which case investors will share in any losses.

UBS Financial Services Inc. is lead agent with Lehman Brothers Inc. as co-agent.

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