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Overview of the Lehman Brothers Municipal Product Group

July 26, 2007

Confidential Presentation to:

Lehman Brothers

Table of ContentsSection Header (used to create Tab Pages and Table of Contents)

I. The Basics of Municipal BondsII. New Issues & Secondary TradingIII. Short Term Municipal Products GroupIV. Municipal High YieldV. Municipal Structured Products and Derivatives VI. Municipal Relative ValueVII. Municipal Bond IndexVIII. The Lehman AdvantageIV. Municipal Contacts

1

I. The Basics of Municipal Bonds

Municipal Asset Class

! Asset Preservation – Municipal assets are widely considered the safest fixed-income asset class, save Treasuries, boasting a 10-year cumulative default rate of 0.1032% since 1970, versus 9.70% for corporate bonds (Moody’s). Approximately 70% of the market is AAA rated.

! Income Stream – Municipal securities range in maturity from daily floaters to bonds maturing out 40 years and longer. Portfolios can be constructed to provide specific tax-exempt cash flows.

! Tax Advantage – Investors often under appreciate the value of tax savings. During 2006, long AAA municipal securities traded between 85% - 95% of the 30-year U.S. Treasury. Consequently, investors in the highest tax bracket could have earned as much as 145% of Treasuries on a tax adjusted basis.

! Lower Volatility – Tax-exempt yield movements lag the Treasury market. Muted municipal yield movements result in stability of investment capital.

! Correlation – Municipal risk is typically less correlated to the core risk in taxable investment portfolios.

2

Tax Status of Fixed Income Assets

! The interest received on all municipal securities is exempt from the Federal income tax. Investors who purchases municipal securities indigenous to their state of residence are often exempt from state and local taxes as well (although a few states do tax in-state municipal bonds). There are a few states which have no personal income tax whatsoever.

! The interest received from US Treasury securities and agencies is exempt from state & local taxes, but not Federal taxes.

! The interest received on corporates, mortgage backed, as well as asset backed securities is fully taxable.

3

Municipal Tax Benefit

! A New York City resident in the highest federal tax bracket (taxable income over $349,700) has an effective tax rate of 41.823% (state and city tax included). For this investor, the taxable equivalent yield for a 10 year municipal bond yielding 4.15% would be 7.13%. This means a corporate, asset-backed, or mortgage backed security would need to yield at least 7.13%, and a U.S. Treasury or agency would need to yield at least 6.38% to better the taxable equivalent yield of a municipal bond.

*As of 6/25/2007*

CURRENT YIELDS ON THE FOLLOWING SECURITIES:

Yield of Tax-Exempt Asset 1- (Effective Tax Rate/100)

Taxable Equivalent Yield =

4

Fixed Income Asset Class Total Returns

July 1, 2004 – June 30, 2007 (Individual Tax Rate 38.45%)

0%

2.50%

5.00%

7.50%

10.00%

Glo

bal T

sy

AB

S

U.S

Tsy

U.S

Age

ncy

Euro

dolla

r

Agg

rega

te

Cor

pora

te

MB

S

Mun

i

Hig

h Yi

eld

9.03%

7.56%

4.27%4.16%3.98%3.97%3.80%3.71%3.63%3.52%

Fixed Income Total Returns (3 Years)

Ann

ualiz

ed

Ret

urns

• Over the past three years, the taxable-equivalent total returns for the Municipal Index have outperformed all other investment grade fixed income asset classes.

5

Fixed Income Asset Class Risk vs. Reward

• On a comparative basis over the past 10 years, the Municipal Asset Class has offered the highest returns coupled with the least amount of risk of all Fixed Income instruments.

*US Treasury income returns are exempt from State income taxes and adjusted (3.25% in 2002 – 2006,3.23% in 2001, and 3.18% prior) using a national state average (top bracket), net of Federal income tax..

** Based on an equally weighted national average Federal and State (top bracket) income tax rate (38.45% for 2003 – 2006, 41.85% for 2002, 42.33% for 2001, and 42.78% prior – local taxes have not been considered in this analysis

5%

12%

2.00 10.90

Tax Adjusted Total Returns vs. Volatility Fixed Income and Equity Asset Classes Last 10 Years Ending

Ann

ualiz

ed R

etur

n

Annualized Standard Deviation (%)

ABS

DJIASTD = 15.34

Russell 2000STD = 19.72

NASDAQSTD = 28.36

S&P 500STD = 15.03!

!

!

!

Source: Lehman Brothers Municipal Index & Strategies

6

II. New Issues and Secondary Trading

Municipals and Public Finance

! Sole Book-Running Manager for the single largest long-term fixed rate bond issue in history – State of California’s $7.9 Billion Economic Recovery Bonds (2004)

! Ten-time “Deal of the Year” winner since 1990 (Institutional Investor)! Top 3 municipal research team (Institutional Investor, 2000 to 2006)! Leading derivatives & investment products group

Lehman Brothers is a top underwriter of financings for public sector clients

Largest 2006 Transactions

Lehman Brothers’ Experience

July 2006

$1,350,025,000Revenue BondsSenior Manager

Florida Hurricane Catastrophe Fund

State of Michigan December 2006

$1,300,000,000Full Faith & Credit

GO NotesSenior Manager

August 2006

$4,600,000,000Tax and Revenue

Anticipation NotesSenior Manager

State of Texas Regents of the University of California

December 2006

$1,365,540,000General Revenue Bonds

Senior Manager

7

• This slide talks to the strength of our Municipals and Public Finance business

• The key message of this page is that we specialize on large and complex financings where we can add value• This is reflected in the fact that Lehman has the largest average deal size of the industry and a top 3 market share position

• Of further interest:" Honored the Institutional Investor “Deal of the Year” ten times since 1990 for innovations in public finance

" Top three municipal research team in Institutional Investor survey in five of the last six years" Boast the most widely used measure of municipal market performance - the Lehman Brothers Municipal Bond Index

" Top three trader of municipal securities in Institutional Investor survey of the top 300 U.S. money managers

Commonwealth of Massachusetts General Obligation Bonds

May 9, 2007

$1,271,140,000

Senior Book-Running Manager

Commonwealth of Massachusetts General Obligation Bonds

$498,565,000 Series A New Money$219,440,000 Series B New Money

$553,135,000 Series A GO Refunding

! The bond issue was the 1st major issuance of LIBOR-indexed Floating Rate Notes (FRNs) in New England.

! Lehman Brothers marketed $845.8 million of FRNs consisting of:– $400 million of callable LIBOR-indexed FRNs and – $445.8 million of non-callable LIBOR-indexed

FRNs! The transaction represents the first Commonwealth

General Obligation bond issue to utilize a 30-year final maturity.

! Our financing structure will provide nearly $37 million in present value savings to the taxpayers of Massachusetts.

! Following this issue, Lehman Brothers was again selected to senior manage a $219 million follow-on new money issue that would release existing PAYGO funds to defease outstanding high coupon bonds.

Lehman Brothers senior managed the Commonwealth of Massachusetts $1.2 billion General Obligation bond issue in May 2007, incorporating $845 million of LIBOR-indexed Floating Rate Notes.

Transaction Highlights


8

Port of Miami TunnelLehman Brothers’ Experience

On May 2, 2007, Lehman Brothers, together with the Miami Access Tunnel consortium, was selected to design, build, finance, operate and maintain the Port of Miami Tunnel.

! The Port of Miami Tunnel is a project that will be developed as a public/private partnership (PPP) under a Concession Agreement, under the direction of the Florida Department of Transportation and the County of Miami-Dade.

! The tunnel will:– Provide direct access between the Seaport, I-395 and I-95– Create an alternative to the Port Bridge, now the only connection to the mainland – Keep the Port of Miami competitive, at the same time maintaining its importance as Miami-

Dade County’s second largest economic generator– Improve traffic safety in downtown Miami by removing cargo trucks and cruise line buses

from already-congested streets – Facilitate ongoing and future development plans in and around downtown Miami.

! Lehman Brothers was engaged by Miami Access Tunnel, a consortium lead by Babcock & Brown and Bouygues, to provide firm financing commitments and advice regarding financial structuring to support their bid for a 35-year development and concession for the Port of Miami Tunnel Project.

! During the engagement, Lehman Brothers advised the consortium on financing structure, ratings, and credit enhancement. Lehman Brothers also provided debt product recommendations, capital market pricing indications, and funding commitments for the concession bid.

! Lehman Brothers financing package included the application for Private Activity Bonds authorized under the SAFETEA-LU program, likely making the Tunnel the first to incorporate PABs. In addition, Lehman Brothers’ financing package also included an interest rate hedge and credit spread lock that firmly secured the consortium’s bid. The financing package received investment grade ratings and was structured with monoline bond insurance.

9

New Issue Excellence

! Over the past ten years, when acting as the Senior or Co-Senior manager, Lehman Brothers has ranked number one in terms of total par amount and number of issues brought to market for negotiated long-term higher education debt.

! From 2002 through 2007, Lehman Brothers has Senior or Co-Senior managed more than 232 tax-exempt higher education transactions totaling approximately $21 billion.

(In $ Millions)

January 2006 – January 2007 January 1997 – January 2007

10

Experience with Large Municipal TransactionsLehman Brothers’ Experience

Since January 1, 2005, Lehman Brothers has senior managed 57 transactions which had a par amount in excess of $500 million, including:

Short-Term Housing Utilities Specialty

TransportationHigher EducationLocal GovernmentState GovernmentFebruary 2007

$1,132,180,000GO Various Purpose &

Refunding Bonds

Senior Manager

State of California Illinois State Tollway Authority

June 2005

$770,000,000Toll Highway Senior Priority

Revenue Bonds Senior Manager

August 2005

$6,200,000,000Tax and Revenue

Anticipation Notes

Senior Manager

State of Texas June 2006

$550,000,000CommonwealthMortgage BondsSenior Manager

Virginia Housing Development Authority

September 2006

$515,110,000Electric System General

Revenue BondsSenior Manager

Long Island Power AuthorityJuly 2006

$1,350,025,000Revenue BondsSenior Manager

Florida Hurricane Catastrophe Fund

New York CityTransitional Finance Authority

February 2007

$900,000,000Future Tax SecuredSubordinate Bonds

Senior Manager

Dormitory Authority of the State of New York

December 2006

$928,060,000State Income TaxRevenue Bonds

Senior Manager

11

Secondary Trading Strength

! For years Lehman has been dominant in municipal institutional trading, offering our investors access to broad product offerings, strong liquidity, and superior execution.

! Since 1995, Institutional Investor has consistently ranked Lehman Brothers among the top 3 traders of municipal securities in its survey of the top 300 money managers in the United States.

! Lehman carries an average inventory of $500 million bonds and covers over 300 top institutional accounts.

! Lehman's traders average over 10 years of experience trading the municipal market.

12

Secondary Trading Strength

" 0–5 Years" 6–10 Years" 11–20 Years" 21–30+ Years

" Traditional" Zero Coupon" High Yield" Housing Bonds" Structured Products" Taxable Municipals " General Obligation

" Revenue" Pre-Refunded" Insured

! Lehman's municipal trading desk covers every part of the municipal market, providing our investors with the broadest possible product selection and maximum liquidity.

Yield Curve Coverage

Sector Coverage

Segment Coverage

13

III. Short Term Municipal Products Group

Short Term Municipal Products Group

! Industry leader in structuring, underwriting and marketing short term municipal instruments.

! Created the first tax-exempt commercial paper program in 1973 and the first Dutch auction product in 1988.

! Executed the first electronic VRDN trade through the Bloomberg “BOOM” system in June, 2006, moving the dealer community to follow in 2007.

! Continue to form a pipeline of new initiatives (similar to VRDN trading through “BOOM”) that enhances the liquidity and marketability of short term municipal products and continues to reshape the short term marketplace.

14

Lehman Brothers VRDN Remarketing Portfolio

Monthly VRDNs0.3%Taxable Weekly VRDNs

6.6%

AMT Weekly VRDNs17.9%

Tax-Exempt Weekly VRDNs59.0%

AMT Daily VRDNs1.7%

Tax-Exempt Daily VRDNs14.5%

Estimated Breakdown By Outstandings of Lehman Brothers VRDN Remarketing Portfolio

Total Outstandings of $30.561 billion___________________________1. As of May, 2007

15

Lehman Brothers TECP Remarketing Portfolio

Taxable Discount CP5.6%

Taxable Par CP1.5%

AMT CP12.6%

Tax-Exempt CP80.3%

Estimated Breakdown By Outstandings of Lehman Brothers TECP Remarketing Portfolio

Total Outstanding of $7.869 billion___________________________1. As of May, 2007

16

Year to Date New Issue Excellence

1 Morgan Stanley 14.1% $2.3 bn

3 JP Morgan Inc 8.6% $1.4 bn

5 Banc of America LLC 6.6% $.84 bn

2 Lehman Brothers 11.1% $1.8 bn

4 Citigroup 8.0% $1.3 bn

Rank FirmMkt.Share

Total DebtUnderwritten

Year to Date Municipal Debt League Table

(January 1, 2007 – June 22, 2007)

Lehman Brothers is a top short-term underwriter of financings for public sector clients:

17

IV. Municipal High Yield

Municipal High Yield Overview

! Lehman Brothers Municipal High Yield desk totals 20+ years of experience in making markets and providing liquidity over a wide spectrum of credits within the municipal realm for our clients

! The trading desk consists of two traders, two salespeople, and two desk analysts who provide research and insight into all municipal sectors that we traffic

18

Municipal High Yield Coverage Universe

! Corporate Backed Municipals: – Provide liquidity and market opinions on an array of corporations who issue

debt in the municipal marketplace. The widely traded industries often fall under the umbrella of waste removal, paper, airlines and utilities to name a few. We offer clients directional insight regarding the outlook of improving as well as deteriorating credits.

! Housing Bonds:– Housing bonds are bonds issued by municipalities to assist low-income tenants

in finding affordable housing opportunities. Lehman Brothers is an active market-maker in the majority of these debt issues, trading both single and multi- family housing bonds.

19


! Healthcare:– Not-for-profit healthcare facilities constitute a substantial portion of the high

yield municipal debt issuance universe. These include assisted living facilities as well as hospital bonds. Lehman trades a variety of Healthcare credits ranging in quality from investment grade to distressed.

! Tobacco Bonds:– In 1998, 46 states settled a case against the tobacco industry, calling for the

tobacco companies to pay states approximately $205 Billion over 25 years (known as the Master Settlement Agreement). As a result, states can issue bonds based on these anticipated future cash flows, and Lehman is an active participant in such “tobacco bond” markets.

20


! Taxable Municipals:– The demand for taxable municipal bonds has grown substantially in the last five

years as the buyer base continues to grow. A limited issuance supply coupled with an influx of overseas buyers has generated active two-way markets for taxable municipals. The most frequent issues are pension bonds, but military housing bonds also play a major role. Lehman is a leading market-maker for such bonds.

21

V. Municipal Structured Products and Derivatives

Municipal Derivatives Group Implements Strategies and Products to Help Issuers Manage Their Assets and Liabilities More Efficiently

# Debt Service Fund# Reserve Fund# Project Fund# Defeasance Fund# Capitalized Interest Fund

Asset-Based

# Synthetic Floating Rate Swap# Synthetic Fixed Rate Swap# Rate Lock# Option on Fixed Rate Bonds# Option on Synthetic Fixed Rate

Liability-Based

Overview of Municipal Derivatives Group

22

Misc.2%

Tobacco7%Water & Sewer

4%

Housing16%

Public Power3%

Health Care20%

Transportation9%

Education20%

Muni Revenue5%

GO12%

Swaption15%

Swap65%

FPA14%

Cap7%

Lehman Brothers’ Municipal Derivatives Book

! Book as of 6/1/2007 comprised of:– Over 2,600 trades since 1994– Trades with 845 distinct issuers– Total outstanding notional amount with municipal issuers exceeding $34 billion

Muni Derivatives Book by Client SectorMuni Derivatives Book by Trade Type

23

Lehman Brothers Tax-Exempt Derivatives Expertise

Derivatives Expertise

Lehman Brothers is a leader in the Tax-exempt derivatives market.

In the past five years, Lehman Brothers has executed over $150 billion (notional amount) in swaps and over $20 billion (notional amount) in tax-exempt swaps for

a variety of tax-exempt issuers.

Tax-Exempt Derivatives

Representative List of ClientsLehman Brothers' Tax-exempt Derivatives Group

Representative List of ClientsLehman Brothers Derivatives Group

IssuerNotional Amount

Commonwealth of Massachusetts $1.42B

Cook County, IL $661.7MM

Dormitory Authority of the State of New York $456.7MM

State of Illinois $384MM

Veterans Land Board of the State of Texas $312.55MM

Puerto Rico Government Dev. Bank $267MM

Long Island Power Authority $266MM

City of Chicago $232.6MM

City and County of Denver $220.6MM

Jefferson County, Alabama $190.1MM

Raleigh-Durham International Airport $150MM

Capacity:Lehman Brothers is a market leader in derivative products and has extensive capacity for both tax-exempt and taxable transactions.

Industry Involvement:Lehman Brothers is a founding member of the Tax-exempt Derivatives Committee of the Bond Market Association.

Strength in Tax-Exempt Index Swaps:Since 1998, Lehman Brothers has executed over $17 billion in notional amount of tax-exempt swaps based on a tax-exempt index; the remainder have been costs of funds swaps.

First-Rate Team Members:The tax-exempt / tax-exempts derivatives division includes a staff of 15 professionals with years of experience in tax-exempt derivatives.

Secondary Market Activity:Lehman Brothers is an active secondary market maker providing aggressive pricing on reversals, terminations and other risk management structures such as swaptions, caps, floors, collars, interest rate locks and investment products.

24

Structured Products ! Lehman Brothers is able to offer our institutional and high net worth clients a breadth of structuring

expertise that draws upon our experience in municipal bonds, municipal derivatives and structured products, interest rate derivatives, structured credit products and securitized products

! Lehman works in partnership with investors to design transactions that are customized to the investor’s market views, risk appetite and investment guidelines

! Such transactions offer a simplified and efficient vehicle to implement numerous transactions, such as:– Relative value trades within the municipal market– Relative value trades across markets (taxable vs. tax-exempts)– Yield-enhancement trades– Creation of synthetic municipal credit exposure

! Transactions may be implemented in either a funded (securitized) or unfunded format (swap contract)

! Leverage is possible! Such transactions appeal to investors who:

– Have appetite for structured notes and / or derivative contracts and a desire to maximize yields– Have investment guideline restrictions, accounting or other balance sheet management needs, or

any other needs that require a structured, customized solution– Have appetite for taxable income

25

! Structured Product Opportunities Include: - Tender Option Bonds - Municipal bonds are deposited into a trust which issues two classes of

trust receipts: Floating Rate Trust Receipt (“FR-TRs”) and Residual Interest Trust Receipts (“RI-TRs”) RI-TRs are inverse floaters, receiving the interest on the underlying bonds less FR-TR interest and any

fees. The structure enables the RI-TR holder to achieve the economic equivalent of financing a position in the underlying bonds at short-term tax exempt rates, which are generally the lowest rates available in the U.S. fixed-income marketplace.

- Municipal Total Return Swaps - an over the counter agreement to exchange the total return on a specified tax-exempt municipal bond for BMA-based funding for a specified period of time. A total return swap gives the Total Return Receiver the economics of owning the specified tax-exempt municipal bond without actually owning the asset or having to put up the cash to buy it.

- Municipal Credit Default Swaps (CDS) - A CDS is an OTC derivative contract between two parties which transfers the default risk of a specified reference entity from one party to the other. In a standard CDS contract, one party purchases credit protection from the other party to cover the loss of face value of an asset issued by a specific reference entity following a credit event

Structured Products

26

! Structured Product Opportunities Include: (continued) - BMA-LIBOR Index Spread Notes (BLIS) – BLIS are principal-protected notes linked

to a U.S. Municipal Bond Market Index. The Notes are designed to provide investors with an above-market return by taking advantage of pricing inefficiencies in the U.S. municipal market

- Municipal Enhanced Trust Receipts (METRs) - A TOB product which allows high net worth investors to earn current tax-exempt yields higher than those available by directly purchasing municipal bonds.

Structured Products

27

! LMIS in a natural outgrowth of Lehman’s expertise in rules-based total return indices and our leading position is tradable bond indices.

! Developed in response to clients seeking accurate representation of the tax-exempt bond market in derivative structures.

! LMIS is an effective hedge for long municipal cash exposure by reducing basis risk

! The receiver (long LMIS) generates the economics of the Reference Index without actually owning the underlying assets, thereby eliminating the negative carry associated with holding a municipal cash position

! The swap supply is not constrained by the available supply of underlying bonds in the marketplace

Lehman Municipal Index Swaps (LMIS)

28

! LMIS Structure:– LMIS uses a rules-based methodology to efficiently replicate the municipal

market– Security’s must meet certain specific eligibility requirements in order to be

included in the index to ensure a purely objective process

! The First Two LMIS Being Introduced Are The :– LMIS General Obligation 5-year (Bloomberg Ticker: LMISGO5)– LMIS General Obligation 10-year (Bloomberg Ticker: LMISGO10)– These General Obligation (GO) indices do not include insured, revenue,

prerefunded or double-barreled securities– Daily and monthly data will be available for both indices

Lehman Municipal Index Swaps (LMIS)

29

VI. Municipal Relative Value

Municipal Relative Value Group

! The municipal relative value group leverages off a database of over 600 trader priced municipal sectors and/or credits. In addition to trader priced data, relative value analysis is performed on over 50,000 bonds in our indices.– Portfolio management strategies based on analysis of

empirical data.– Customized reporting and graphic capabilities on relevant

risk factors.– Identify market opportunities based on historical

spread analysis.– Total return analysis based on over 20 years of data.

30

High-Yield Assets Outperformed from 2003 through 2007.

The Yield Spread Between the Lehman High Yield Municipal Index Versus 30–Year High Grade has tightened dramatically.

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Municipal High Yield Index vs. 30 Year High Grade Yield Spread

31

Housing Bond Have Tightened Relative to Their Historical Spreads

Yield Spread 10 Yr Housing Index vs 10 Yr High Grade

32

Long-term Municipal Assets Outperformed Over Last 3 Years

33

Baa Municipal Bonds Outperformed from July 2003 Thru 2007

34

Lehman Brothers Municipal Total Return Analysis

! Provides perspective on investment by relevant risk attributes such as curve, credit, and coupon.

! Validates total return based investment strategies over various interest rate environments.

35

Lehman Municipal Index vs. Laddered Portfolio*

Index Based Strategies Outperform Ladder Portfolios in Most Markets

* Laddered Portfolio = Equal weighted Index composed of 1 up to 10 year maturities of Aa3 or better, non-AMT bonds, priced beginning of month between 97 - 101

-5.00

0

5.00

10.00

15.00

20.00

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 YTD 2007Laddered Lehman Brothers Municipal IndexLehman 15 Year Municipal Index

Total Returns (%)

36

Lehman Municipal Index vs. Laddered PortfolioIndex Based Strategies Provide Superior Performance Over Time

0%

13%

25%

38%

50%

7 yr 5 Yr 3 Yr 1 YrLehman Muni IndexLaddered

Cumulative ReturnsEnding 6/30/07

37

Total Return By Curve

The 15+ Year Spots on the Curve Has Performed Well Over Time

0

25.0000

50.0000

75.0000

100.0000

1 Yr GO3 Yr GO5 Yr GO7 Yr GO10 Yr GO15 Yr GO20 Yr GOLong GO

85.3183.9480.23

69.1962.79

55.5746.74

40.24

Cum

ulat

ive

Ret

urns

(%)

0

17.500

35.000

52.500

70.000


61.7258.51

53.92

45.9341.58

36.45

29.5823.92

Cum

ulat

ive

Ret

urns

(%)

Cumulative ReturnsLast 10 Years (7/1/97 – 6/30/07)


38

Total Returns By Curve

0

10.000

20.000

30.000

40.000


34.8132.84

29.30

24.2621.22

17.36

13.4711.52

Cum

ulat

ive

Ret

urns

(%)

0

6.250

12.500

18.750

25.000


20.5018.29

15.66

12.9110.63

8.957.447.42

Cum

ulat

ive

Ret

urns

(%)



15+ Year Spots on the Curve Has Performed Well Over The Past 3-5 Years

39

Historical Return Volatility

0

0.38

0.75

1.13

1.50


1.501.381.36

1.26

1.04

0.81

0.51

0.24Stan

dard

Dev

iatio

n (%

)

0

0.28

0.55

0.83

1.10


1.081.011.02

0.95

0.75

0.57

0.34

0.16Stan

dard

Dev

iatio

n (%

)

Standard Deviation of Monthly ReturnsLast 10 Years (7/1/97 – 6/30/07)

Standard Deviation of Monthly ReturnsLast 3 Years (7/1/04 – 6/30/07)

40

Discounts Outperform



0

27.5000

55.0000

82.5000

110.0000

Premium Avg MDur = 5.07 Discount Avg MDur = 12.36

103.58

63.87

Cum

ulat

ive

Ret

urns

(%)

0

32.5000

65.0000

97.5000

130.0000

Long Premium Avg MDur = 6.17 Long Discount Avg MDur = 15.81

126.10

77.99

Cum

ulat

ive

Ret

urns

(%)

41

Discounts Outperform



0

7.500

15.000

22.500

30.000

Premium Avg MDur = 5.46 Discount Avg MDur = 11.86

28.33

12.52

Cum

ulat

ive

Ret

urns

(%)

0

12.500

25.000

37.500

50.000

Long Premium Avg MDur = 6.68 Long Discount Avg MDur = 17.06

47.63

20.52

Cum

ulat

ive

Ret

urns

(%)

42

Coupon Selection Has A Significant Impact

0

2.25

4.50

6.75

9.00

Long Insured 4.75 Coupon (9.63)Long Insured 5.00 Coupon (8.75) Long Insured 5.25 Coupon (7.93) Long Insured 5.50 Coupon (9.14) Long Insured 5.75 Coupon (7.41)Long Insured 6.00 Coupon (7.12)Long Insured 6.25 Coupon (2.64)Long Insured 6.50 Coupon (8.52)Lehman Municipal Index (6.12)Lehman Muni Long Index (9.17)10 Year Insured Zero Coupon (9.22)15 Year Insured Zero Coupon (13.65)

8.88

6.636.82

4.845.38

4.52

5.485.79

6.286.336.256.28

Tota

l Ret

urn

(%)

Year 2006 Total Return on Long Insured Municipal Bonds

43

Long Insured Total Returns By Coupon

0

22.5000

45.0000

67.5000

90.0000

Long Insured 4.75 Coupon (11.30)Long Insured 5.00 Coupon (9.96) Long Insured 5.25 Coupon (10.76) Long Insured 5.50 Coupon (9.34) Long Insured 5.75 Coupon (7.47)Long Insured 6.00 Coupon (6.68)Long Insured 6.25 Coupon (3.04)Long Insured 6.50 Coupon (12.76)Lehman Municipal Index (6.65)Lehman Muni Long Index (10.79)10 Year Insured Zero Coupon (9.11)15 Year Insured Zero Coupon (13.73)

88.96

64.85

72.88

53.89

62.6063.8665.7369.04

72.1172.5877.96

82.11

Tota

l Ret

urn

(%)

Cumulative Returns 12/31/1999 – 6/30/2007 on Long Insured Bonds

44

VII. Municipal Bond Index

Lehman Brothers Municipal Indices

! Definitive measure of the Municipal Bond Market with over 2,500 tax-exempt benchmarks.

– Voted #1 in Fixed Income Indices by Institutional Investor since the inception of the category in 1997.

– Dominant total return benchmark with over a 95% market share.

– Provides economic, quantitative, strategic, credit, relative value and market-specific analysis.

– A strong indication of our commitment to providing outstanding service and cultivating enduring relationships.

45

Lehman Brothers Municipal Indices

! Lehman can manage tax-exempt assets more effectively by utilizing index based strategies.

– Historically strong performing portfolio structures can be replicated.

– Leverage Lehman’s research franchise for enhanced index strategies.

– Index bond and sector spreads are monitored to uncover relative value opportunities.

46

Barbell Versus Laddered Portfolio

Barbell Structure Has Underperformed the Ladder Structure

0

17.5000

35.0000

52.5000

70.0000

Last 10 Yrs Last 7 Yrs Last 5 Yrs Last 3 Yrs Last 1 Yr

4.64

13.63

24.38

46.24

68.16

4.70

14.55

24.22

45.59

65.82

BarbellLaddered

0

0.28

0.55

0.83

1.10

Last 10 Yrs Last 7 Yrs Last 5 Yrs Last 3 Yrs Last 1 Yr

0.700.75

1.081.081.05

0.640.65

0.950.970.96

BarbellLaddered

Barbell vs. Laddered PortfolioCumulative Returns thru 6/30/07

45% 3Yr & Long2% 5, 7, 10, 15, 20 Yr Each

Barbell vs. Laddered PortfolioStandard Deviations thru 6/30/07

45% 3Yr & Long2% 5, 7, 10, 15, 20 Yr Each

47

The Taxable-equivalent Return for a New York City Investor in the Top Tax Bracket (41.823% ) Based on Our Non-amt/non-zero New York Municipal Bond Index for the Last 12 Months Would Have Been 8.18%

Taxable Equivalent Total Returns

48

Which Risk Factors Will Impact Performance Most?

! Curve (duration/nominal maturity)! Coupon selection (de minimis exposure)! Optionality! Issuer weightings! Rating distribution! State allocation! Sector weightings

49

VIII. The Lehman Advantage

Overview of Lehman Brothers

Profile of the Firm

Client/Customer-Driven Strategy

Value-AddedReturns

! One of the world’s leading investment banks, founded in 1850, with over $560 billion in total assets! Serves the financial needs of corporations, institutions, governments and high-net-worth investors worldwide! Actively participates in the global capital markets through a network of 44 offices with over 27,000 employees

! A “One Firm” organizational structure and culture! Focused coverage of major corporate clients and investing customers and institutions ! Comprehensive product and service capabilities! Global scope of business activities

! “One Firm” philosophy stresses teamwork for the coordination of full resources! Preeminent capabilities in advisory, financing and trading services! Differential contribution to achieve client’s objectives! Long-term relationships enhance ability to add value

50

The Lehman Advantage in Municipals

! For individual investors, municipal bonds represent some of the best value in the fixed income marketplace. In order to unlock this value, however, investors and advisors need access to the new issue and secondary trading capabilities of a top tier investment bank.

! Lehman Brothers is a market leader in municipal new issue underwriting, secondary trading, structured products, derivatives, variable rate tax-exempt securities, research, and tax-exempt indices.

! Over 85 investment bankers in New York and 9 regional offices throughout the United States

! 71 professionals in syndicate, research, institutional sales, trading and derivatives

! Our 47 institutional salespeople in New York and regional offices provide comprehensive national & local coverage

! $275 Billion annual trading volume of tax exempt bonds

51

The Lehman Advantage in Municipals

! Sole Book-Running Manager for the single largest long-term fixed rate bond issue in history – State of California’s $7.9 Billion Economic Recovery Bonds (2004)

! Ten-time “Deal of the Year” winner since 1990 (Institutional Investor)! Top firm in the “All America Fixed-Income Research Team” rankings; seventh

year in a row and 13 out of the past 17 years (Institutional Investor)! 2006 All America Fixed Income Research Team First Team; Municipals

Strategy (Institutional Investor)! 2006 All America Fixed Income Research Team Second Team; Municipals

Generalist (Institutional Investor)! Lehman Brothers’ Municipal Bond Index is the most widely used total return

measure in the municipal market

52

Lehman Brothers’ Leading Fixed Income Franchise

Lehman Brothers’ global debt franchise is among the most highly ranked for underwriting, sales / trading and research


Underwriting League Tables AwardsNo. 1 in Fixed Income Research

Institutional Investor 7 Years in a RowProven Results in

Investment Grade Underwriting

2006 No.12005 No.12004 No.12003 No.12002 No.12001 No.12000 No.1

Fixed Income Research Quality

2006 ($bn)2006 ($bn)2006 ($bn)2006 ($bn)

Rank UnderwriterAmount

($bn)Market

Share (%)1 Citigroup 110.7 15.92 JPMorgan 84.6 12.13 Lehman Brothers 67.3 9.74 Morgan Stanley 64.3 9.25 Goldman Sachs & Co. 64.3 9.26 Banc of America 63.5 9.17 Merrill Lynch & Co., Inc. 42.7 6.18 Credit Suisse 33.2 4.89 Barclays Capital 29.0 4.110 Deutsche Bank, AG 27.7 4.0

Leading Distribution Capability

#1Greenwich

Quality Index

Market Share of Trading Activity

#1

2006 Survey

Best Fixed Income Franchise

! Ranked No. 1 by Institutional Investor in 2006! The “S&P 500” of the bond market! Provides Lehman Brothers with unique insights into

investor behavior ! Managed exclusively by Lehman Brothers ! Used by 90% of U.S. fixed income investors

Leading Indices

Industry Leader in Underwriting Financings for Public Sector Clients

Rank UnderwriterAmount

($bn)Market

Share (%)1 Citigroup 216.6 14.32 UBS 191.8 12.63 JPMorgan 106.0 7.04 Lehman Brothers 102.1 6.75 Bear Stearns 99.2 6.5%

Note: Long-Term Negotiated Issues from 2002–2006! Book-Running Manager for the single largest long-term

fixed rate bond issue in history – State of California’s $7.9bn Economic Recovery Bonds (2004)

! Top 3 municipal research team (Institutional Investor, 2000 to 2006)

! Leading derivatives and investment products group

No. 1 in Overall Fixed Income Market ShareNo. 1 in High Grade Credit

No. 1 Overall Fixed Income Sales QualityNo. 1 Overall Fixed Income Trading Quality

No. 1 Overall Fixed Income Research Quality

2006 Awards

U.S. Dollar Bond House of the Year2005 2004 2002 2001

Number of No. 1 Ranked Analysts (2006)

0

10

20

30

40

50

LEH JPM BS UBS BOA CS GS ML RBS WB

53

1 Lehman Brothers 24.5 12.42 Merrill Lynch 24.3 12.23 JP Morgan 23.8 12.04 Morgan Stanley 14.7 7.45 Citigroup 13.8 7.0

1 Bear Stearns & Co Inc 57.8 11.42 Royal Bank of Scotland Group 52.3 10.33 Lehman Brothers 46.2 9.14 UBS 39.8 7.95 Deutsche bank AG 36.1 7.1

1 Citigroup 336.9 8.62 JP Morgan 264.7 6.83 Lehman Brothers 248.4 6.44 Deutsche Bank AG 244.9 6.35 Morgan Stanley 231.0 5.9

1 Citigroup 242.3 10.12 Lehman Brothers 219.8 9.23 JP Morgan 217.4 9.14 Morgan Stanley 180.5 7.65 Merrill Lynch & Co Inc 169.4 7.1

1 Citigroup 201.0 10.12 JP Morgan 188.4 9.53 Lehman Brothers 184.4 9.34 Merrill Lynch & Co Inc 141.6 7.15 Morgan Stanley 139.4 7.0

1 JP Morgan 99.4 13.52 Citigroup 96.0 13.13 Lehman Brothers 68.8 9.44 Morgan Stanley 65.3 8.95 Merrill Lynch & Co Inc 58.7 8.0

1 Citigroup 66.2 16.42 JP Morgan 55.1 13.63 Morgan Stanley 40.2 10.04 Lehman Brothers 38.2 9.55 Banc of America Securities LLC 37.0 9.2

1 Citigroup 169.3 9.42 JP Morgan 164.2 9.13 Lehman Brothers 157.9 8.84 Deutsche Bank AG 126.6 7.05 Merrill Lynch & Co Inc 122.9 6.8

1 Citigroup 33.1 17.02 Lehman Brothers 26.6 13.73 JP Morgan 24.7 12.74 Merrill Lynch & Co Inc 19.5 10.05 Morgan Stanley 17.3 8.9

Leadership Breadth Across the Platform

We hold top-tier market positions across major asset classes

2006 League Table Summary – Excluding Self-Funding (1)

___________________________1Long term denotes 18 months and longer. Full credit to book, equal if joint. Includes public and 144a securities. International Bonds excludes pfandbrief and self-led issues. Source: Thompson Financial Inc. for league tables ending July 2006. Note: Proc+OvrAlt. is an abbreviation for Proceeds + Over Allotment and is denominated in Billions of Dollars.Note: Past performance is not indicative of future results

Proc +OvrAlt. Mkt sh

Proc + OvrAlt. Mkt sh








US DEBT, EQUITY &EQUITY-RELATED

GLOBAL DEBT

US SHORT TERMSTRAIGHT DEBT

MORTGAGE BACKEDDEBT

US STRAIGHT DEBT(INCL. MBS,ABS,TM)

US FEDERAL CREDITAGENCIES (LONG TERM)

US STRAIGHT DEBT(EXCL. MBS,ABS,TM)

US INVESTMENT GRADECORPORATES (LONG TERM)

US LONG TERMSTRAIGHT DEBT


54

Providing Expert Client Advice

! Lehman Brothers was the first firm to publish bond indices in 1973! Voted #1 Index provider by Institutional Investor since rankings began in 1997! Coverage of over 64,000 securities with a market value greater than $28 trillion! Approximately $5.5 trillion in assets managed against Lehman Brothers’ Indices globally! Lehman Brothers’ Global Aggregate Index close to $1 trillion in assets managed against! Voted #1 Index Franchise in Europe in 2006 by Institutional Investor and EUROMONEY! Launched 1st comprehensive series of China Bond Indices in 2004! Key 2005 index launches: U.S. ABS Floating-Rate Notes, U.S. Hybrid ARMs, Hedge Fund Index! Changes to 2006 Index Launch: Commodities Index, Inflation-Swaps Indices, U.S. High Yield Loan Index, FX

Index, Indian Govt Index

Institutional investors are ultimately judged versus their benchmarks. Lehman Brothers is the world’s leading provider of Fixed Income benchmarks

Over 90% of U.S. asset managers are benchmarked to the Lehman Brothers

Indices

Used by a majority of European

Aggregate Index investors

A growing share of Asian investors are turning to Lehman Brothers’ Indices

from Treasury-only benchmarks

___________________________Note: Past performance is not indicative of future results


55

The power of this page is that Lehman Brothers – as the undisputed leader in Fixed Income indices – has a clear advantage in understanding the needs of the global institutional investor

“Most Innovative Bank”Review of the Year 2004

Lehman Brothers: Setting the Standard

#1 Overall Quality & Franchise Strength#1 Market Penetration

2006 Survey

___________________________*Source: 2006 Institutional Investor All-America Fixed Income Research survey, based on voting by representatives of approximately 370 institutions managing an estimated $8.2 trillion in fixed income assets. Rank based on total number of team positions. Note: Past performance is not indicative of future results

2006 No. 12005 No. 12004 No. 12003 No. 12002 No. 12001 No. 12000 No. 11999 No. 31998 No. 41997 No. 21996 No. 11995 No. 21994 No. 11993 No. 11992 No. 11991 No. 11990 No. 1

RESEARCH*

#1 Corporate Sales Performance#1 Corporate Research Performance

Orion Consultants2005 Year-End Performance Evaluation

1st Comprehensive Series of China Bond Indices –

2004

#1 Asia ex. Japan2006 Prime Brokerage Survey

2006

“Best Credit Derivatives House”

“Best Securitization House”

“Best Investment Bank” (2005)

Awards for Excellence

“Best Debt House North America” (2005)

“Best Debt House USA” (2005)“Best Debt House in Italy” (2005, 2006)

“Best Debt House Netherlands” (2005)

“Best Debt Credit Derivatives House” (2005)

“Asian Innovation of the Year” (2005)

“Most Improved Investment Bank of the Decade”

Rising Star Awards for “A Decade of Excellence in Europe 1996-2006”

“Best Global Asset Backed Securities House” (2006)

InstitutionalInvestor

56

Lehman Brothers’ Global Fixed Income FranchiseLehman Brothers provides a global sales force of nearly 2,000 sales professionals worldwide

Lehman Brothers’ Global Network of Fixed Income Professionals

27618Francisco21San

27618Francisco21San

1Portland 1Portland

3Seattle 3Seattle

1Denver 1Denver

4 16138Los Angeles 4 16138Los Angeles

421Houston 421Houston

FID AdministrationFID Administration

211Miami 211Miami

11Bangkok 11Bangkok

18Singapore 18Singapore

30101253Hong Kong 30101253Hong Kong

1Taipei 1Taipei

62Seoul 62Seoul

179666029195Tokyo179666029195Tokyo

1Tel Aviv 1Tel Aviv

5Zurich 5Zurich

9Frankfurt 9Frankfurt4351188146

101557London4351188146

101557London

143Milan 143Milan

181Paris 181Paris

Bermuda1Hamilton,

Bermuda1Hamilton,

8Atlanta 8Atlanta

1Dubuque 1Dubuque

5652526Chicago 5652526Chicago3 21117Boston 3 21117Boston

2Cazenovia 2Cazenovia

7Jersey City 7Jersey City

17White Plains 17White Plains

1Westport 1Westport

1Philadelphia 1Philadelphia

4Sharon 4Sharon1Volant 1Volant

21Washington 21Washington

1192454041929411215York27027618New

1192454041929411215York27027618New

FID OriginationFID Origination FID ResearchFID Research FID SalesFID Sales Global SyndicateGlobal Syndicate

FID TradingFID Trading Municipal SalesMunicipal Sales Municipal ResearchMunicipal Research Municipal TradingMunicipal Trading Public Finance BankingPublic Finance BankingTotalTotal

1Maitland 1Maitland

1Princeton 1Princeton

1San Juan 1San Juan

Lehman Brothers was honored with several industry-leading awards from International Financing

Review, including U.S. Dollar Bond House of the Year, North American Securitization House of the Year, and European Leveraged Loan House of the Year


57

IV. Municipal Contacts

Municipal Contacts

58

Disclaimer

!This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other instruments mentioned in it. No part of this document may be reproduced in any manner without the written permission of Lehman Brothers Inc. We do not represent that this information is accurate or complete and it should not be relied upon as such. Opinions expressed herein are subject to change without notice. The products mentioned in this document may not be eligible for sale in some states or countries, nor suitable for all types of investors; their value and the income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates, or other factors. Debt securities may be subject to call features or other redemption features, such as sinking funds, and may be redeemed in whole or in part before maturity. These occurrences may affect yield. Additional information will be provided upon request. Trading or investing in futures and derivatives can result in substantial risk or unlimited losses.!Income from municipal securities may be subject to state and local income taxes and to the Alternative Minimum Tax (AMT). This information does not constitute tax advice. Investors should consult their tax advisor or attorney with regard to their personal tax situation. Call features may exist which could affect yield; complete information will be provided upon request. Municipal security offerings are subject to changes in price and/or availability. For more information regarding a specific municipal security, please consult the Official Statement.!Lehman Brothers Inc. and/or its affiliated companies may make a market or deal as principal in the securities mentioned in this document or in options or other derivatives based thereon. In addition, Lehman Brothers Inc., its affiliated companies, shareholders, directors, officers and/or employees, may from time to time have long or short positions in such securities or in options, futures, or other derivative instruments based thereon. One or more directors, officers, and/or employees of Lehman Brothers Inc. or its affiliated companies may be a director of the issuer of the securities mentioned in this document. Lehman Brothers Inc. or its affiliated companies may have managed or co-managed a public offering of securities for any issuer mentioned in this document within the last three years. Ó 2005 Lehman Brothers Inc. All rights reserved. Member SIPC.

59

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