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Lehman Brothers Principal Protected Notes

Lehman Brothers Principal Protected Notes were recommended as a safe fixed income component with downside risk protection. Structured notes – sometimes known as hybrid financial instruments – are packaged by banks and primarily sold to retail customers.

Lehman Principal Protected Notes were marketed by several brokerage firms including Lehman Brothers, Citigroup, UBS, Merrill Lynch and Wachovia.

A brochure pitching $1.84 million of Lehman Brothers Principal Protected Notes sold in August 2008, a month before the firm failed, promised "100 percent principal protection."

Buyers had "uncapped appreciation potential" pegged to gains in the Standard & Poor's 500 Index, the brochure said. In the worst case, they would get back their $1,000-per-note investment in three years. Only the last in a list of 15 risk factors mentioned the biggest danger: "An investment in the notes will be subject to the credit risk of Lehman Brothers."

Lehman's Sept. 15 bankruptcy leaves holders of the notes waiting in line with other unsecured creditors for what's left of their money. The collapse has rattled Wall Street's $114 billion structured-notes business, which Lehman, Merrill Lynch & Co., Morgan Stanley and Goldman Sachs Group Inc., all based in New York, used to raise cheaper funding as the credit crisis drove bond yields higher.

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