REGISTRATION NO. 33-65674
NASD File No. 930707011
Rule 424(b)(2)
PRICING SUPPLEMENT NO. 38
DATED MARCH 29, 1994
(To Prospectus dated October 4, 1993 as supplemented by
a Prospectus Supplement dated March 4, 1994)
LEHMAN BROTHERS HOLDINGS INC.
Medium Term Notes, Series E
Due 9 Months or More from Date of Issue
(Indexed Notes)
___________________________
Principal Amount: $5,000,000. See "Description
of Indexed Notes-Maturity
Amount" below.
Stated Maturity: April 8, 1996
Issue Date: April 8, 1994
Issue Price: 100%
Agent's Commission: .25%
Interest Payment Dates: The 8th calendar day of each
month (or, if any such day is
not a Business Day, the next
following Business Day),
commencing on May 9, 1994 and
ending on the Stated Maturity
Initial Interest Rate: To be determined on the
initial Interest
Determination Date. See
"Description of Indexed Notes
- Interest".
Interest Rate Basis: The interest payable on any
Interest Payment Date will be
calculated as the product of
the principal amount of the
Indexed Notes and the greater
of:
(i) the Index Total Return
for the related Interest
Payment Period; or
(ii) zero.
See "Description of Indexed
Notes-Interest" below.
Spread: None
Spread Multiplier: None
Interest Determination
Dates: Last calendar day of each
month, commencing April 30,
1994
Calculation Agent: Lehman Brothers Special
Financing Inc.
Interest Payment Period: Monthly
Interest Reset Period: Monthly
Index: Lehman Brothers High Yield
Index, as published on
Bloomberg page LEHM
Initial Index Value: Index Value as of March 31,
1994
Maturity Amount: See "Description of Indexed
Notes - Maturity Amount."
Form of Note: Book-Entry Note
The aggregate principal amount of this offering is
$5,000,000 and relates only to Pricing Supplement No.
38. Medium-Term Notes, Series E may be issued by the
Company in an aggregate principal amount of up to
$2,500,000,000 and, to date, including this offering,
an aggregate of $1,280,150,000 Medium-Term Notes,
Series E have been issued and are outstanding.
DESCRIPTION OF INDEXED NOTES
I. GENERAL
The following description of the particular terms of
the Indexed Notes (as defined below) supplements, and
to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the
Notes set forth in the accompanying Prospectus Supplement
and the description of Debt Securities set
forth in the accompanying Prospectus, to which
descriptions reference is hereby made. All terms used
herein but not otherwise defined herein and which are
defined in the accompanying Prospectus or Prospectus
Supplement shall have the meanings therein assigned to them.
II. INTEREST
Interest on the Indexed Notes in respect of an Interest
Payment Period (as defined below) will be payable
monthly on the eighth calendar day of each month, or in
the event that any such day is not a Business Day, then
on the immediately following day that is a Business Day
(each such day, an "Interest Payment Date"), beginning
on May 9, 1994 and ending on the Stated Maturity. With
respect to any Interest Payment Date, interest on the
Indexed Notes will accrue from the first calendar day
of the preceding calendar month, or in the case of the
first Interest Payment Date, April 8, 1994, through the
last calendar day of such month (each, an "Interest
Payment Period").
The amount of interest to be paid on the Indexed Notes
on each Interest Payment Date will be equal to the
amount determined by multiplying the principal amount
of the Indexed Notes by the greater of (i) the Index
Total Return for the related Interest Payment Period or
(ii) zero. The "Index Total Return" for an Interest
Payment Period shall be determined by dividing the
Index Value for the final day of such Interest Payment
Period by the Index Value for the final day of the
immediately preceding Interest Payment Period in
respect of which an interest payment greater than zero
was made (or the Initial Index Value, where the
determination is being made with respect to the initial
Interest Payment Period or any other Interest Payment
Period when no interest payment greater than zero has
yet been made) and subtracting one (1) from the
resultant number (regardless of whether the result of
such steps is a positive or negative number). The
"Index Value" shall equal 100 plus the total return of
the Index from inception through the time of the
relevant determination of the level of the Index. The
Interest Determination Date with respect to each
Interest Payment Period for the Indexed Notes shall be
the final day of such Interest Payment Period,
beginning on April 30, 1994 and ending on March 31,
1996. Determinations of the Index Value shall be made
by Lehman Brothers Special Financing Inc. on the basis
of the level of the Index at 3:00 p.m., New York City
time, on the relevant determination date. "Index" means
the Lehman Brothers High Yield Index, as
published on or about the third Business Day succeeding
the final day of the relevant Interest Payment Period
and set forth on the "LEHM" page (or such other service
as may be nominated for the purpose of displaying such
Index), under the captions Lehman Bond Indices, High
Yield Index, Monthly Returns and High Yield Index,
published by Bloomberg Financial Services, Inc.
III. MATURITY AMOUNT
The amount payable at Maturity in respect of the
principal amount of the Indexed Notes (the "Maturity
Amount") will be equal to the product of (a) the
principal amount of the Indexed Notes and (b) the
lesser of (i) the Final Index Total Return minus .0224
and (ii) .9776 but will in no event be less than zero.
The "Final Index Total Return" shall be determined by
dividing the Index Value for the final day of the
Interest Payment Period immediately preceding the
Stated Maturity by the Index Value for the final day of
the most recent previous Interest Payment Period in
respect of which an interest payment greater than zero
on the Indexed Notes was made (or the Initial Index
Value, if no interest payment greater than zero has
previously been made). "Index Value" and "Index" in
respect of the Maturity Amount shall have the meanings
assigned to such terms under the description of
"Interest" set forth above and the determination of the
Index Value for each Index shall be made in the manner
set forth in such description. The Indexed Notes
mature on April 8, 1996, and the Maturity Amount will
be paid on such day (or if such day is not a Business
Day, on the following Business Day).
THE LEHMAN BROTHERS HIGH YIELD INDEX
GENERAL
The Index is a proprietary index published by Lehman
Brothers Inc. ("Lehman"), a subsidiary of the Company.
The Index is comprised of bonds which (i) are
registered with the Securities and Exchange Commission,
(ii) offer a fixed rate of interest, (iii) have no
rights of conversion, (iv) are rated Ba1 or lower
(including bonds that are in default) by Moody's
Investors Service, Inc., (v) have a minimum amount
outstanding of $100 million, (vi) mature more than one
year from the issue date, (vii) are sold primarily in
the U.S., (viii) are denominated in U.S. dollars, and
(ix) are not pay-in-kind ("PIK") bonds. Any bond which
due to redemption, call, tender, maturity, or any other reason
ceases to meet such requirements is automatically removed.
The requirements of the Index are established by
Lehman's Bond Strategies Group. The original
requirements formulated at the inception of the Index
in January 1986 were revised for the first time in
January 1993 in order to increase the effectiveness of
the Index as an indicator of the health of the high
yield corporate bond market. Among the significant
changes resulting from this revision was an increase in
the minimum outstanding amount from $50 million to $100
million and the exclusion of PIK bonds from the Index.
There can be no assurance that Lehman will not adjust
or change the rules of the Index at some point in the
future.
The Index is calculated each month by aggregating the
monthly total returns for each of the constituent bonds
of the Index, weighted according to market value, to
arrive at the total return of the Index for such month.
The monthly total return for each constituent bond is
calculated as: (a) the sum of (i) the price of the
bond at the end of the month, (ii) the interest accrued
at the end of the month and (iii) any coupon payments
received during the month, minus (b) the sum of (i) the
price of the bond at the beginning of the month and
(ii) accrued interest at the beginning of the month,
divided by (c) the sum of (i) the price of the bond at
the beginning of the month and (ii) the interest
accrued at the beginning of the month.
As of December 1993, the Index included 659 issues with
a total market value of $132 billion. The average
maturity of the bonds was 9.43 years. Of the issuers
represented in the Index as of such date, a large
majority were industrial companies, but the Index also
included utilities, finance companies and issuers in
other industries. The maturities of the component bond
issues as of such date were as follows: approximately
81% had maturities of less than ten years; and
approximately 19% had maturities of ten or more years.
BB rated bonds made up 39% of the Index, B rated bonds,
51%; and CCC or less rated bonds, 10%.
If LB should revise or supplement the Index such that
the Index Values for the Index, calculated after such
revision or supplement, are incompatible with the Index
Values calculated prior to such revision or supplement,
the Index Values of the Index after such revision or
supplement shall, for purposes of calculating the
interest payments due on the Indexed Notes, the
Maturity Amount, or both, as the case may be, be
calculated by such method as the Calculation Agent
after consultation with the Company shall deem fair and
equitable under the circumstances.
If LB should cease to publish the Index, the Index
Values for purposes of calculating the interest
payments due on the Indexed Notes, the Maturity Amount,
or both, as the case may be, will be based on a
comparable successor to the Index, to be selected by
the Calculation Agent after consultation with the
Company; or if no such comparable successor to the
Index shall exist, Index Values for such purposes will
be calculated by such method as the Calculation Agent
after consultation with the Company shall deem fair and
equitable under the circumstances.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a summary of certain United States
federal income tax consequences resulting from the
ownership of Indexed Notes. Such consequences are in
addition to those summarized in the accompanying
Prospectus Supplement under the heading "Certain United
States Federal Income Tax Consequences."
TAXATION OF U.S. INVESTORS
While the matter is not free from doubt, the Indexed
Notes should constitute debt obligations of the Company
for U.S. federal income tax purposes, and no portion of
the issue price of the Indexed Notes should be
separately allocated to the contingent feature of the
Indexed Notes. The Internal Revenue Service, however,
may argue that the Indexed Notes should be treated as
creating, in whole or in part, something other than a
debt obligation. For example, all or a portion of a
Holder's rights under the Indexed Notes could be
characterized as cash-settled options with respect to
the Index.
If the Indexed Notes are treated as indebtedness of the
Company for federal income tax purposes, the
appropriate tax accounting is not entirely clear. The
Indexed Notes may be treated as consisting of a debt
obligation issued at a premium paying a fixed principal
amount, and an option settled in cash with the proceeds
from the principal payment at maturity. The interest
payments, including any interest payment made on the
Stated Maturity, may be treated as ordinary interest
income as such amounts are determined. See "Certain
Federal Income Tax Consequences - Market Discount and
Premium" in the accompanying Prospectus Supplement.
The method for amortizing premium with respect to a
debt instrument providing for contingent payments is
not clear. A Holder is advised to consult its tax
advisor regarding the amortization of premium. Under
this approach, a Holder would likely be entitled to
recognize a loss, which may be a capital loss, to the
extent the Maturity Amount is less than a Holder's
basis in the Indexed Notes.
The Internal Revenue Service, however, has issued
proposed regulations under the original issue discount
provisions of the Internal Revenue Code for debt
instruments providing for contingent payments which
would provide significantly different treatment of the
Indexed Notes. Although the proposed regulations are
not at present effective, they are proposed to be
retroactively effective once adopted in final form.
These regulations have been criticized and the IRS
recently released draft proposed regulations which
would have revoked the outstanding proposed regulations
and provided substantially revised rules. Prior to
issuance, however, these draft proposed regulations
were withdrawn. The IRS has indicated that it may
replace the proposed regulations with a rule that
requires some minimum amount of interest income to be
accrued on all contingent payment debt instruments. It
is impossible to predict whether, or in what manner,
the proposed regulations may be modified and whether
any modifications would apply to the Indexed Notes or
whether any such proposed regulations would become
final regulations.
TAXATION OF CERTAIN FOREIGN INVESTORS
Amounts paid to a nonresident alien individual, foreign
corporation, foreign partnership or foreign estate or
trust will be exempt from U.S. withholding tax.
Backup Withholding
See the discussion of "Certain United States Federal
Income Tax Consequences-- Backup Withholding and
Information Reporting" in the accompanying Prospectus
Supplement.
OTHER CONSIDERATIONS
Risks Associated with Payments of Interest on
the Indexed Notes and the Maturity Amount
Pursuant to the formula employed in determining the
amount of interest payable in respect of any Interest
Payment Period, an investor in the Indexed Notes may
receive no payment in respect of interest for one or
more Interest Payment Periods.
Pursuant to the formula employed in determining the
Maturity Amount, an investor in the Indexed Notes will
receive a payment in respect of the Maturity Amount
that is less than par by at least 2.24%. Such formula
does not ensure any minimum payment in respect of the
Maturity Amount.
