As filed with the Securities and Exchange Commission on May 27, 1994
Securities Act File No. 33-55034
Investment Company Act File No. 811-7364
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. ____ /_/
Post-Effective Amendment No. 5 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 10 /X/
Lehman Brothers Institutional Funds Group Trust
(Exact Name of Registrant as Specified in Charter)
One Exchange Place
Boston, Massachusetts 02109
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 248-3490
Patricia L. Bickimer, Esq.
The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copies to:
Burton M. Leibert, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
It is proposed that this filing will become effective
(check appropriate box):
X immediately upon filing pursuant to paragraph (b), or
_____on_________pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a), or
_____on_________pursuant to paragraph (a) of Rule 485
The Registrant has previously filed a declaration of indefinite registration
of its shares pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. Registrant's Rule 24f-2 Notice for the fiscal year ended January
31, 1994 was filed on March 29, 1994
Page 1 of____Pages
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A
Item No. Prospectus Heading
1. Cover Page Cover Page
2. Synopsis Background and Expense
Information; Performance Information
3. Condensed Financial
Information............................... Financial Highlights
4. General Description of
Registrant Cover Page; Investment
Objective and Policies;
Description of Shares
5. Management of the Fund Management of the Fund;
Dividends
6. Capital Stock and Other
Securities Cover Page; Dividends;
Taxes; Description of
Shares
7. Purchase of Securities Purchase and Redemption
of Shares; Management
of the Fund
8. Redemption or Repurchase Purchase and Redemption
of Shares
9. Legal Proceedings Not Applicable
Part B Heading in Statement
Item No. of Additional Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and
History The Trust; Management of
the Fund;
13. Investment Objectives and
Policies Investment Objective and
Policies
14. Management of the Fund Management of the Fund
15. Control Persons and Principal
Holders of Securities Management of the Fund
16. Investment Advisory and
Other Services Management of the Fund
17. Brokerage Allocation Investment Objective and
Policies
18. Capital Stock and Other Additional Information
Securities Concerning Fund Shares;
Dividends
19. Purchase, Redemption and Additional Purchase and
Pricing of Securities Redemption Information
Being Offered
20. Tax Status Additional Information
Concerning Taxes
21. Underwriters Management of the Funds
22. Calculation of Performance Additional Yield
Information
23. Financial Statements Financial Statements
Prospectuses each dated February 21, 1994 for the Floating Rate U.S.
Government Fund and the Short Duration U.S. Government Fund are not included
in this filing.
Part A (the Prospectuses each dated February 21, 1994) and Part B (the
Financial Statements for the Trust's fiscal year ended January 31, 1994) of
Form N-1A are incorporated herein by reference to the Registrant's filing of
definitive copies of the Prospectus and Statement of Additional Information
pursuant to Rule 497(c) and Rule 30b2-1, respectively.
<PAGE>
PROSPECTUS
TAX-FREE MONEY MARKET FUND
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-
load,
open-end, management investment company. The shares described in this
Prospectus
represent interests in the Tax-Free Money Market Fund portfolio (the
"Fund"),
one of a family of money market portfolios of the Trust.
The Fund's investment objective is to provide investors with as high a
level
of current income exempt from federal income tax as is consistent with
relative
stability of principal. The Fund invests substantially all of its assets
in
short-term tax-exempt obligations issued by state and local governments
and
tax-exempt derivative securities.
Fund shares may not be purchased by individuals directly, but
institutional
investors may purchase shares for accounts maintained by individuals. The
Fund
currently offers three classes of shares. In addition to Class A
shares,
institutional investors may purchase on behalf of their customers Class B
or
Class C shares which accrue daily dividends in the same manner as Class A
shares
but bear all fees payable by the Fund to institutional investors for
certain
services they provide to the beneficial owners of such shares. See
"Management
of the Fund--Service Organizations."
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
ITS
NET ASSET VALUE OF $1.00 PER SHARE.
LEHMAN BROTHERS, INC. ("Lehman Brothers") sponsors the Fund and acts
as
Distributor of its shares. LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
serves
as the Fund's Investment Adviser.
The address of the Fund is One Exchange Place, Boston, Massachusetts
02109.
The Fund can be contacted as follows: for purchase and redemption orders
only
call 1-800-851-3134; for yield information call 1-800-238-2560 (Class A
shares
code: 008; Class B shares code: 108; Class C shares code: 208); for
other
information call 1-800-368-5556.
This Prospectus briefly sets forth certain information about the Fund
that
investors should know before investing. Investors are advised to read
this
Prospectus and retain it for future reference. Additional information about
the
Fund, contained in a Statement of Additional Information dated May __, 1994,
as
amended or supplemented from time to time, has been filed with the
Securities
and Exchange Commission and is available to investors without charge by
calling
the Fund's Distributor at 1-800-368-5556. The Statement of
Additional
Information is incorporated in its entirety by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR
ENDORSED BY, ANY BANK, AND SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT
AGENCY. SHARES OF THE FUND INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING
THE
POSSIBLE LOSS OF PRINCIPAL.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
LEHMAN BROTHERS
May __, 1994
<PAGE>
BACKGROUND AND EXPENSE INFORMATION
The following Expense Summary lists the costs and expenses that an
investor
in the Fund can expect to incur during the Fund's current fiscal year
ending
January 31, 1995. The Fund offers three separate classes of shares. Shares
of
each class represent equal, pro rata interests in the Fund and accrue
daily
dividends in the same manner except that the Class B and Class C shares
bear
fees payable by the Fund (at the rate of .25% and .35% per annum,
respectively)
to institutions for services they provide to the beneficial owners of
such
shares. See "Management of the Fund--Service Organizations."
EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees (net of applicable fee
waivers)........................... 0.08%* 0.08%* 0.08%*
Rule 12b-1 fees..................... none .25% .35%
Other Expenses -- including
Administration Fees
(net of applicable fee waivers).... 0.08%* 0.08%* 0.08%*
------- ------- -------
Total Fund Operating Expenses (after
expense reimbursement)*............ .16% .41% .51%
------- ------- -------
------- ------- -------
<FN>
------------------------
* The Expense Summary above has been restated to reflect the Fund's
Investment
Adviser's and Administrator's voluntary reimbursement arrangements in
effect
for the Fund's fiscal year ending January 31, 1995. With respect to Class
A,
Class B and Class C shares for the month of January, 1995, the Total
Fund
Operating Expenses including reimbursement of expenses are anticipated to
be
.18%, .43% and .53%, respectively.
</TABLE>
In order to maintain a competitive expense ratio during 1994, the
Fund's
Investment Adviser and Administrator have voluntarily agreed to reimburse
the
Fund if and to the extent that total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees and
extraordinary
expenses) exceed .16% of average daily net assets through December 31, 1994.
For
the years 1995-1997, the Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets. The voluntary reimbursement arrangements described above will not
be
changed unless investors are provided at least 60 days' advance notice.
The
maximum annual contractual fees payable to the Investment Adviser
and
Administrator total .20% of average daily net assets. Absent reimbursement
of
expenses, the Total Fund Operating Expenses of Class A, Class B and Class
C
would be .26%, .51% and .61%, respectively, of the Funds' average daily
net
assets.
---------
EXAMPLE: An investor would pay the following expenses on a $1,000
investment,
assuming (1) a 5% annual return and (2) redemption at the end of each
time
period with respect to the following shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- --------
<S> <C> <C> <C> <C>
Class A shares:..... $2 $ 5 $ 9 $20
Class B shares:..... $4 $13 $23 $52
Class C shares:..... $5 $16 $29 $64
</TABLE>
2
<PAGE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES
AND
RATES OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
The purpose of the foregoing table is to assist an investor in
understanding
the various costs and expenses that an investor in the Fund will bear
directly
or indirectly. Certain Service Organizations (as defined below) also may
charge
their clients fees in connection with investments in Fund shares, which fees
are
not reflected in the table. For more complete descriptions of the various
costs
and expenses, see "Management of the Fund" in this Prospectus and the
Statement
of Additional Information.
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year ended January
31,
1994 is derived from the Fund's Financial Statements audited by Ernst &
Young,
independent accountants. This information should be read in conjunction with
the
financial statements and notes thereto that appear in the Statement
of
Additional Information.
TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD ENDED
1/31/94*
-------------
<S> <C>
Net asset value, beginning of period......... $1.00
Net investment income(1)..................... 0.0228
Dividends from net investment income......... (0.0228)
Net asset value, end of period............... $1.00
Total return(2).............................. 2.30%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's)......... $59,735
Ratio of net investment income to average net
assets(3)................................... 2.38%
Ratio of net operating expenses to average
net assets(3)(4)............................ 0.11%
<FN>
------------------------
* The Tax-Free Money Market Fund Class A Shares commenced operations
on
February 8, 1993.
(1) Net investment income before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Investment Adviser and Administrator was $0.0093.
(2) Total return represents aggregate total return for the period indicated.
(3) Annualized.
(4) Annualized expense ratio before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Investment Adviser and Administrator for the fiscal year ended January
31,
1994 was 1.52% and for the period ended July 31, 1993 was 6.26%.
</TABLE>
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to provide investors with as high a
level
of current income exempt from federal income tax as is consistent with
relative
stability of principal.
In pursuing its investment objective, the Fund, which operates as
a
diversified investment company, invests substantially all of its assets in
a
diversified portfolio of short-term tax-exempt obligations issued by or
on
behalf of states, territories and possessions of the United States, the
District
of Columbia, and their respective authorities, agencies, instrumentalities
and
political subdivisions and tax-exempt derivative securities such as
tender
option bonds, participations, beneficial interests in trusts and
partnership
interests (collectively "Municipal Obligations"). The Fund will not
knowingly
purchase securities the interest on which is subject to federal income
tax.
Although it has no present intent to do so, however, the Fund may invest up
to
20% of its assets in securities the income from which may be a specific
tax
preference item for purposes of the federal individual and corporate
alternative
minimum tax. See "Taxes."
Opinions relating to the validity of Municipal Obligations and to
the
exemption of interest thereon from federal income tax are rendered by
bond
counsel to the respective issuers at the time of issuance, and opinions
relating
to the validity of and the tax-exempt status of payments received by the
Fund
from tax-exempt derivative securities are rendered by counsel to the
respective
sponsors of such securities. The Fund and its Investment Adviser will rely
on
such opinions and will not review independently the underlying
proceedings
relating to the issuance of Municipal Obligations, the creation of
any
tax-exempt derivative securities or the bases for such opinions.
PORTFOLIO QUALITY AND DIVERSIFICATION. The Fund will purchase
only
Municipal Obligations which are "First Tier Eligible Securities" (as defined
by
the Securities and Exchange Commission) and which present minimal credit
risks
as determined by the Investment Adviser pursuant to guidelines approved by
the
Trust's Board of Trustees. First Tier Eligible Securities consist of
(i)
securities that either (a) have short-term debt ratings at the time of
purchase
within the highest rating category assigned by at least two
unaffiliated
nationally recognized statistical rating organizations ("NRSROs") (or one
NRSRO
if the security was rated by only one NRSRO), or (b) are issued by issuers
with
such ratings, and (ii) certain securities that are unrated (including
securities
of issuers that have long-term but not short-term ratings) but are of
comparable
quality as determined by the Investment Adviser and/or sub-Investment
Adviser
pursuant to guidelines approved by the Trust's Board of Trustees. The
Appendix
to the Statement of Additional Information includes a description of
applicable
NRSRO ratings.
Except during temporary defensive periods, the Fund will
invest
substantially all, but in no event less than 80%, of its total assets
in
obligations the interest on which is exempt from federal income tax
with
remaining maturities of thirteen months or less as determined in accordance
with
the rules of the Securities and Exchange Commission. The Fund maintains
a
dollar-weighted average portfolio maturity of 90 days or less. The Fund may
hold
uninvested cash reserves pending investment, during temporary defensive
periods,
including when suitable tax-exempt obligations are unavailable. There is
no
percentage limitation on the amount of assets which may be held
uninvested.
Uninvested cash reserves will not earn income.
4
<PAGE>
INVESTMENT LIMITATIONS
There can be no assurance that the Fund will achieve its
investment
objective. The investment limitations enumerated below and the Fund's policy
of
investing at least 80% of its total assets in obligations the interest on
which
is exempt from federal income tax are fundamental and may not be changed by
the
Trust's Board of Trustees without the affirmative vote of the holders of
a
majority of the Fund's outstanding shares. The Fund's investment objective
and
other investment policies described above may be changed by the Board
of
Trustees at any time. If there is a change in the investment
objective,
investors should consider whether the Fund remains an appropriate investment
in
light of their then current financial position and needs. (A complete list
of
the investment limitations that cannot be changed without a vote of investors
is
contained in the Statement of Additional Information under "Investment
Objective
and Policies.")
The Fund may not:
1. Borrow money except from banks for temporary purposes and then
in
amounts not in excess of 10% of the value of the Fund's assets at the
time
of such borrowing; or mortgage, pledge or hypothecate any assets except
in
connection with any such borrowing and in amounts not in excess of
the
lesser of the dollar amounts borrowed or 10% of the value of the
Fund's
total assets at the time of such borrowing. Additional investments will
not
be made when borrowings exceed 5% of the Fund's assets.
2. Purchase any securities which would cause 25% or more of the
value
of its total assets at the time of purchase to be invested in the
securities
of issuers conducting their principal business activities in the
same
industry, provided that there is no limitation with respect to
investments
in U.S. government securities.
3. Purchase the securities of any issuer if as a result more than 5%
of
the value of the Fund's assets would be invested in the securities of
such
issuer except that up to 25% of the value of the Fund's assets may
be
invested without regard to this 5% limitation, provided that there is
no
limitation with respect to investments in U.S. government securities.
TYPES OF MUNICIPAL OBLIGATIONS
The two principal classifications of Municipal Obligations which may be
held
by the Fund are "general obligation" securities and "revenue"
securities.
General obligation securities are secured by the issuer's pledge of its
full
faith, credit and taxing power for the payment of principal and
interest.
Revenue securities are payable only from the revenues derived from a
particular
facility or class of facilities or, in some cases, from the proceeds of
a
special excise tax or other specific revenue source such as the user of
the
facility being financed. Revenue securities include private activity bonds
which
are not payable from the unrestricted revenues of the issuer. Consequently,
the
credit quality of private activity bonds is usually directly related to
the
credit standing of the corporate user of the facility involved.
The Tax Reform Act of 1986 substantially revised provisions of prior
law
affecting the issuance and use of proceeds of certain tax-exempt obligations.
A
new definition of private activity bonds was applied to many types of
bonds,
including those which were industrial development bonds under prior
law.
Interest on private activity bonds is tax-exempt only if the bonds fall
within
certain defined categories of qualified private activity bonds and meet
the
requirements specified in those respective categories. The Act generally did
not
change the tax treatment of bonds issued to finance governmental operations.
The
changes generally apply to bonds issued after
5
<PAGE>
August 15, 1986, with certain transitional rule exemptions. As used in
this
Prospectus, the term "private activity bonds" also includes
industrial
development revenue bonds issued pursuant to the Internal Revenue Code of
1986,
as amended.
The Fund's portfolio may also include "moral obligation" bonds, which
are
normally issued by special purpose public authorities. If the issuer of
moral
obligation bonds is unable to meet its debt service obligations from
current
revenues, it may draw on a reserve fund, the restoration of which is a
moral
commitment but not a legal obligation of the state or municipality which
created
the issuer.
OTHER INVESTMENT PRACTICES
Municipal Obligations purchased by the Fund may include variable rate
demand
notes. Such notes may not be rated by credit rating agencies, but unrated
notes
purchased by the Fund will be determined by the Fund's Investment Adviser to
be
of comparable quality at the time of purchase to rated instruments
purchasable
by the Fund. Where necessary to ensure that a note is a First Tier
Eligible
Security, the Fund will require that the issuer's obligation to pay
the
principal of the note be backed by an conditional bank letter or line of
credit,
guarantee or commitment to lend. While there may be no active secondary
market
with respect to a particular variable rate demand note purchased by the
Fund,
the Fund may, upon the notice specified in the note, demand payment of
the
principal of the note at any time or during specified periods not
exceeding
thirteen months, depending upon the instrument involved, and may resell the
note
at any time to a third party. The absence of such an active secondary
market,
however, could, in some instances, make it difficult for the Fund to dispose
of
a variable rate demand note if the issuer were to default on its
payment
obligation or during periods that the Fund is not entitled to exercise
its
demand rights, and the Fund could, for this or other reasons, suffer a loss
to
the extent of the default. While, in general, the Fund will invest only
in
securities that mature within thirteen months of purchase, the Fund may
invest
in variable rate demand notes which have nominal maturities in excess
of
thirteen months, if such instruments carry demand features that comply
with
conditions established by the Securities and Exchange Commission.
The Fund may also purchase Municipal Obligations on a "when-issued"
basis.
When-issued securities are securities purchased for delivery beyond the
normal
settlement date at a stated price and yield. The Fund will generally not pay
for
such securities or start earning interest on them until they are
received.
Securities purchased on a when-issued basis are recorded as an asset and
are
subject to changes in value based upon changes in the general level of
interest
rates. The Fund expects that commitments to purchase when-issued securities
will
not exceed 25% of the value of its total assets absent unusual
market
conditions. The Fund does not intend to purchase when-issued securities
for
speculative purposes but only in furtherance of its investment objective.
In addition, the Fund may acquire "stand-by commitments" with respect
to
Municipal Obligations held in its portfolio. Under a stand-by commitment,
a
dealer would agree to purchase at the Fund's option specified
Municipal
Obligations at a specified price. The Fund will acquire stand-by
commitments
solely to facilitate portfolio liquidity and does not intend to exercise
its
rights thereunder for trading purposes.
Although the Fund may invest more than 25% of its net assets in
(i)
Municipal Obligations whose issuers are in the same state and (ii)
Municipal
Obligations the interest on which is paid solely from revenues of
similar
projects, it does not presently intend to do so on a regular basis. To
the
extent the Fund's assets are concentrated in Municipal Obligations that
are
payable from the revenues of similar projects, are issued by issuers located
in
6
<PAGE>
the same state or are private activity bonds, the Fund will be subject to
the
peculiar risks presented by the laws and economic conditions relating to
such
states, projects and bonds to a greater extent than it would be if its
assets
were not so concentrated.
The Fund may purchase tender option bonds. A tender option bond is
a
municipal obligation (generally held pursuant to a custodial arrangement)
having
a relatively long maturity and bearing interest at a fixed rate
substantially
higher than prevailing short-term tax exempt rates, that has been coupled
with
the agreement of a third party, such as a bank, broker-dealer or other
financial
institution, pursuant to which such institution grants the security holders
the
option, at periodic intervals, to tender their securities to the institution
and
receive the face value thereof. As consideration for providing the option,
the
financial institution receives periodic fees equal to the difference between
the
municipal obligation's fixed coupon rate and the rate, as determined by
a
remarketing or similar agent at or near the commencement of such period,
that
would cause the securities, coupled with the tender option, to trade at or
near
par on the date of such determination. Thus, after payment of this fee,
the
security holder effectively holds a demand obligation that bears interest at
the
prevailing short-term tax exempt rate. The Fund's Investment Adviser
will
consider on an ongoing basis the creditworthiness of the issuer of
the
underlying municipal obligation, of any custodian and of the third
party
provider of the tender option. In certain instances and for certain
tender
option bonds, the option may be terminable in the event of a default in
payment
of principal or interest on the underlying municipal obligations and for
other
reasons. Additionally, the above description of tender option bonds is
meant
only to provide an example of one possible structure of such obligations,
and
the Fund may purchase tender option bonds with different types of
ownership,
payment, credit, and/or liquidity arrangement.
The Fund may acquire custodial receipts or certificates underwritten
by
securities dealers or banks that evidence ownership of future interest
payments,
principal payments or both, on certain municipal obligations. The underwriter
of
these certificates or receipts typically purchases municipal obligations
and
deposits the obligations in an irrevocable trust or custodial account with
a
custodian bank, which then issues receipts or certificates that
evidence
ownership of the periodic unmatured coupon payments and the final
principal
payment on the obligations. Although under the terms of a custodial receipt,
the
Fund would be typically authorized to assert its rights directly against
the
issuer of the underlying obligation, the Fund could be required to
assert
through the custodian bank those rights as may exist against the
underlying
issuer. Thus, in the event the underlying issuer fails to pay principal
and/or
interest when due, the Fund may be subject to delays, expenses and risks
that
are greater than those that would have been involved if the Fund had purchased
a
direct obligation of the issuer. In addition, in the event that the trust
or
custodial account in which the underlying security has been deposited
is
determined to be an association taxable as a corporation instead of
a
non-taxable entity, the yield on the underlying security would be reduced
in
recognition of any taxes paid.
The Fund may purchase from financial institutions tax-exempt
participation
interests in Municipal Obligations. A participation interest gives the Fund
an
undivided interest in the Municipal Obligation in the proportion that the
Fund's
participation interest bears to the total amount of the Municipal
Obligation.
These instruments may have floating or variable rates of interest. If
the
participation interest is unrated, it will be backed by an irrevocable letter
of
credit or guarantee of a bank that the Trust's Board of Trustees has
determined
meets certain quality standards or the payment obligation otherwise will
be
collateralized by obligations of the U.S. government and its agencies
and
instrumentalities. The Fund will have the right, with respect to
certain
participation
7
<PAGE>
interests, to demand payment, on a specified number of days' notice, for all
or
any part of the Fund's interest in the Municipal Obligation, plus
accrued
interest. The Fund will invest no more than 5% of its total assets
in
participation interests.
The Fund will not knowingly invest more than 10% of the value of its
total
net assets in illiquid securities, including securities that are illiquid
by
virtue of the absence of a readily available market or legal or
contractual
restrictions on resale. Securities that have legal or contractual
restrictions
on resale but have a readily available market are not deemed illiquid
for
purposes of this limitation. The Fund's Investment Adviser will monitor
the
liquidity of such restricted securities under the supervision of the Board
of
Trustees. See "Investment Objective and Policies--Additional Information
and
Investment Practices--Illiquid Securities" in the Statement of
Additional
Information.
The value of the Fund's portfolio securities can be expected to
vary
inversely with changes in prevailing interest rates.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Shares of the Fund are sold at the net asset value per share of the
Fund
next determined after receipt of a purchase order by Lehman Brothers,
the
Distributor of the Fund's shares. Purchase orders for shares are accepted by
the
Fund only on days on which both Lehman Brothers and the Federal Reserve Bank
of
Boston are open for business and must be transmitted to Lehman Brothers
by
telephone at 1-800-851-3134. Orders received before noon, Eastern time,
for
which payment has been received by Boston Safe Deposit and Trust
Company
("Boston Safe"), the Fund's Custodian, will be executed at noon. Orders
received
prior to noon for which payment is received between noon and 4:00 P.M.,
Eastern
time, will be executed at 4:00 P.M. Orders received after noon, and orders
for
which payment has not been received by 4:00 P.M., Eastern time, will not
be
accepted and notice thereof will be given to the institution placing the
order.
Payment for Fund shares may be made only in federal funds immediately
available
to Boston Safe. (Payment for orders which are not received or accepted by
Lehman
Brothers will be returned after prompt inquiry to the sending institution.)
The
Fund may in its discretion reject any order for shares.
The minimum aggregate initial investment by an institution in the
investment
portfolios that comprise the Trust is $1 million (with not less than
$25,000
invested in any one investment portfolio offered by the Trust);
however,
broker-dealers and other institutional investors may set a higher minimum
for
their customers. To reach the minimum Trust-wide initial investment,
purchases
of shares may be aggregated over a period of six months. There is no
minimum
subsequent investment.
Conflict of interest restrictions may apply to an institution's receipt
of
compensation paid by the Fund in connection with the investment of
fiduciary
funds in Class B or Class C shares. See also "Management of the Fund--
Service
Organizations." Institutions, including banks regulated by the Comptroller
of
the Currency and investment advisers and other money managers subject to
the
jurisdiction of the Securities and Exchange Commission, the Department of
Labor
or state securities commissions, are urged to consult their legal
advisors
before investing fiduciary funds in Class B or Class C shares.
8
<PAGE>
SUBACCOUNTING SERVICES. Institutions are encouraged to open single
master
accounts. However, certain institutions may wish to use the Transfer
Agent's
subaccounting system to minimize their internal recordkeeping requirements.
The
Transfer Agent charges a fee based on the level of subaccounting
services
rendered. Institutions holding Fund shares in a fiduciary, agency, custodial
or
similar capacity may charge or pass through subaccounting fees as part of or
in
addition to normal trust or agency account fees. They may also charge fees
for
other services provided which may be related to the ownership of Fund
shares.
This Prospectus should, therefore, be read together with any agreement
between
the customer and the institution with regard to the services provided, the
fees
charged for those services and any restrictions and limitations imposed.
REDEMPTION PROCEDURES
Redemption orders must be transmitted to Lehman Brothers by telephone
at
1-800-851-3134. Payment for redeemed shares for which a redemption order
is
received by Lehman Brothers before noon, Eastern time, on a day that both
Lehman
Brothers and the Federal Reserve Bank of Boston are open for business
is
normally made in federal funds wired to the redeeming investor on the
same
business day. Payment for redeemed shares for which a redemption order
is
received by Lehman Brothers after noon, Eastern time, on such a business day
is
normally made in federal funds wired to the redeeming investor on the
next
business day following redemption.
Shares are redeemed at the net asset value per share next determined
after
Lehman Brothers' receipt of the redemption order. While the Fund intends to
use
its best efforts to maintain its net asset value per share at $1.00, the
net
proceeds paid to an investor upon redemption may be more or less than the
amount
invested depending upon a share's net asset value at the time of redemption.
To
allow the Fund's Investment Adviser to manage the Fund effectively,
investors
are strongly urged to initiate all investments or redemptions of Fund shares
as
early in the day as possible and to notify Lehman Brothers at least one day
in
advance of transactions in excess of $5 million.
The Fund reserves the right to wire redemption proceeds within seven
days
after receiving the redemption order if, in the judgment of the
Investment
Adviser, an earlier payment could adversely affect the Fund. The Fund shall
have
the right to redeem involuntarily shares in any account at their net asset
value
if the value of the account is less than $10,000 after 60 days' prior
written
notice to the investor. Any such redemption shall be effected at the net
asset
value per share next determined after the redemption order is entered. If
during
the 60-day period the investor increases the value of its account to $10,000
or
more, no such redemption shall take place. In addition, the Fund may
redeem
shares involuntarily or suspend the right of redemption as permitted under
the
Investment Company Act of 1940, as amended (the "1940 Act"), or under
certain
special circumstances described in the Statement of Additional Information
under
"Additional Purchase and Redemption Information."
VALUATION OF SHARES--NET ASSET VALUE
The Fund's net asset value per share for purposes of pricing purchase
and
redemption orders is determined by the Fund's Administrator as of noon and
4:00
P.M., Eastern time, on each weekday, with the exception of those holidays
on
which either the New York Stock Exchange or the Federal Reserve Bank of
Boston
is closed. Currently, one or both of these institutions are closed on
the
customary national business holidays of New Year's Day, Martin Luther
King,
Jr.'s Birthday (observed), Presidents' Day (Washington's Birthday), Good
Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day (observed),
Veterans
Day, Thanksgiving Day and Christmas Day, and on the preceding Friday
or
subsequent Monday when one of these holidays falls on
a
9
<PAGE>
Saturday or Sunday, respectively. The net asset value per share of the Fund
is
calculated by adding the value of all securities and other assets belonging
to
the Fund, subtracting liabilities, and dividing the result by the total
number
of the Fund's outstanding shares (irrespective of class or sub-class).
In
computing net asset value, the Fund uses the amortized cost method of
valuation
as described in the Statement of Additional Information under
"Additional
Purchase and Redemption Information." The Fund's net asset value per share
for
purposes of pricing purchase and redemption orders is determined
independently
of the net asset value of the Trust's other investment portfolios.
OTHER MATTERS
Fund shares are sold and redeemed without charge by the Fund.
Institutional
investors purchasing or holding Fund shares for their customer accounts
may
charge customers fees for cash management and other services provided
in
connection with their accounts. A customer should, therefore, consider the
terms
of its account with an institution before purchasing Fund shares. An
institution
purchasing or redeeming Fund shares on behalf of its customers is
responsible
for transmitting orders to Lehman Brothers in accordance with its
customer
agreements.
DIVIDENDS
Investors of the Fund are entitled to dividends and distributions
arising
only from the net investment income and capital gains, if any, earned
on
investments held by the Fund. The Fund's net investment income is declared
daily
as a dividend to shareholders of record at the close of business on the day
of
declaration. Shares begin accruing dividends on the day the purchase order
for
the shares is effected and continue to accrue dividends through the day
before
such shares are redeemed. Dividends are paid monthly by wire transfer
within
five business days after the end of the month or within five business days
after
a redemption of all of an investor's shares of a particular class. The Fund
does
not expect to realize net long-term capital gains.
Dividends are determined in the same manner and are paid in the same
amount
for each Fund share, except that Class B and Class C shares bear all the
expense
of fees paid to Service Organizations. As a result, at any given time, the
net
yield on Class B and Class C shares will be .25% and .35%, respectively,
lower
than the net yield on Class A shares.
Institutional investors may elect to have their dividends reinvested
in
additional full and fractional shares of the same class of shares with
respect
to which such dividends are declared at the net asset value of such shares
on
the payment date. Reinvested dividends receive the same tax treatment
as
dividends paid in cash. Such election, or any revocation thereof, must be
made
in writing to the Fund's Distributor, at 260 Franklin Street, 15th
Floor,
Boston, Massachusetts 02110-9624, and will become effective after its receipt
by
TSSG, with respect to dividends paid.
**1 TSSG, as Transfer Agent, will send each investor or its
authorized
representative, if any, an annual statement designating the amount of
any
dividends and capital gains distributions made during each year and
their
federal tax qualification.
10
<PAGE>
TAXES
The Fund qualified in its last taxable year and intends to qualify in
future
years as a "regulated investment company" under the Internal Revenue Code
of
1986, as amended (the "Code"). A regulated investment company is exempt
from
federal income tax on amounts distributed to its investors.
**2 Qualification as a regulated investment company under the Code for
a
taxable year requires, among other things, that the Fund distribute to
its
investors at least the sum of 90% of its exempt-interest income net of
certain
deductions and 90% of its investment company taxable income for such
year.
Dividends derived from exempt-interest income may be treated by the
Fund's
investors as items of interest excludable from their gross income under
Section
103(a) of the Code, unless under the circumstances applicable to the
particular
investor the exclusion would be disallowed. (See the Statement of
Additional
Information under "Additional Information Concerning Taxes.")
**3 If the Fund should hold certain private activity bonds issued
after
August 7, 1986, investors must include, as an item of tax preference,
the
portion of dividends paid by the Fund that is attributable to interest on
such
bonds in their federal alternative minimum taxable income for purposes
of
determining liability (if any) for the 24% alternative minimum tax applicable
to
individuals and the 20% alternative minimum tax and the environmental
tax
applicable to corporations. Corporate investors must also take
all
exempt-interest dividends into account in determining certain adjustments
for
federal alternative minimum and environmental tax purposes. The
environmental
tax applicable to corporations is imposed at the rate of .12% on the excess
of
the corporation's modified federal alternative minimum taxable income
over
$2,000,000. Investors receiving Social Security benefits should note that
all
exempt-interest dividends will be taken into account in determining
the
taxability of such benefits.
**4 To the extent, if any, dividends paid to investors are derived
from
taxable income or from long-term or short-term capital gains, such
dividends
will not be exempt from federal income tax, whether such dividends are paid
in
the form of cash or additional shares, and may also be subject to state
and
local taxes. Under state or local law, the Fund's distributions of
net
investment income may be taxable to investors as dividend income even though
a
substantial portion of such distributions may be derived from interest
on
tax-exempt obligations which, if realized directly, would be exempt from
such
income taxes.
**5 Dividends declared in October, November or December of any year
payable
to investors of record on a specified date in such months will be deemed to
have
been received by the investors and paid by the Fund on December 31 of such
year
in the event such dividends are actually paid during January of the
following
year.
**6 Investors will be advised at least annually as to the federal income
tax
consequences of distributions made each year.
**7 The foregoing discussion is only a brief summary of some of
the
important federal tax considerations generally affecting the Fund and
its
investors. No attempt is made to present a detailed explanation of the
federal,
state or local income tax treatment of the Fund or its investors, and
this
discussion is not intended as a substitute for careful tax
planning.
Accordingly, potential investors in the Fund should consult their tax
advisors
with specific reference to their own tax situation.
11
<PAGE>
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the
Trust's Board of Trustees. The Trustees approve all significant
agreements
between the Trust and the persons or companies that furnish services to
the
Fund, including agreements with its Distributor, Investment
Adviser,
Administrator, Custodian and Transfer Agent. The day-to-day operations of
the
Fund are delegated to the Fund's Investment Adviser and Administrator.
The
Statement of Additional Information relating to the Fund contains
general
background information regarding each Trustee and executive officer of
the
Trust.
DISTRIBUTOR
Lehman Brothers, located at 3 World Financial Center, New York, New
York
10285, is the Distributor of the Fund's shares. Lehman Brothers, a leading
full
service investment firm, meets the diverse financial needs of
individuals,
institutions and governments around the world. Lehman Brothers has entered
into
a Distribution Agreement with the Trust pursuant to which it has
the
responsibility for distributing shares of the Fund.
INVESTMENT ADVISER--LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located at 3
World
Financial Center, New York, New York, 10285, serves as the Fund's
Investment
Adviser. LBGAM is a wholly owned subsidiary of Lehman Brothers Holdings
Inc.
("Holdings"). LBGAM, together with other Lehman Brothers investment
advisory
affiliates, serves as Investment Adviser to investment companies and
private
accounts and has assets under management in excess of [$15] billion as
of
______, 1994.
As Investment Adviser to the Fund, LBGAM will among other
things,
participate in the formulation of the Fund's investment policies,
analyze
economic trends affecting the Fund and monitor and evaluate the
Fund's
investment objective and policies and the Fund's investment performance. For
its
services LBGAM is entitled to receive a monthly fee from the Fund at the
annual
rate of .10% of the value of the Fund's average daily net assets. For the
period
February 8, 1993 (commencement of operations) to January 31, 1994.
LBGAM
received an advisory fee from the Fund in the amount of _% of average daily
net
assets.
ADMINISTRATOR AND TRANSFER AGENT--THE SHAREHOLDER SERVICES GROUP, INC.
The Shareholder Services Group, Inc. ("TSSG"), located at One
Exchange
Place, 53 State Street, Boston, Massachusetts 02109, serves as the
Fund's
Administrator and Transfer Agent. TSSG is a wholly owned subsidiary of
First
Data Corporation. As Administrator, TSSG calculates the net asset value of
the
Fund's shares and generally assists in all aspects of the Fund's
administration
and operation. As compensation for TSSG's services as Administrator, TSSG
is
entitled to receive from the Fund a monthly fee at the annual rate of .10%
of
the value of the Fund's average daily net assets. TSSG is also entitled
to
receive a fee from the Fund for its services as Transfer Agent. TSSG pays
Boston
Safe, the Fund's Custodian, a portion of its monthly administration fee
for
custody services rendered to the Fund.
CUSTODIAN--BOSTON SAFE DEPOSIT AND TRUST COMPANY
Boston Safe, a wholly owned subsidiary of The Boston Company, Inc.,
located
at One Boston Place, Boston, Massachusetts 02108, serves as the
Fund's
Custodian.
12
<PAGE>
SERVICE ORGANIZATIONS
Financial institutions such as banks, savings and loan associations
and
other such institutions ("Service Organizations") and/or institutional
customers
of Service Organizations may purchase Class B or Class C shares. These
shares
are identical in all respects to Class A shares except that they bear the
fees
described below and enjoy certain exclusive voting rights on matters relating
to
these fees. The Fund will enter into an agreement with each Service
Organization
whose customers ("Customers") are the beneficial owners of Class B or Class
C
shares that requires the Service Organization to provide certain services
to
Customers in consideration of the Fund's payment of service fees at the
annual
rate of .25% or .35%, respectively of the average daily net asset value of
the
respective Class beneficially owned by Customers. Such services, which
are
described more fully in the Statement of Additional Information
under
"Management of the Fund's Service Organizations," may include aggregating
and
processing purchase and redemption requests from Customers and placing
net
purchase and redemption orders with Lehman Brothers; processing
dividend
payments from the Fund on behalf of Customers; providing
information
periodically to Customers showing their positions in shares; arranging for
bank
wires; responding to Customer inquiries relating to the services provided by
the
Service Organization and handling correspondence; acting as investor of
record
and nominee; and providing reasonable assistance in connection with
the
distribution of shares to Customers. Services provided with respect to Class
B
shares will generally be more limited than those provided with respect to
Class
C shares. Under the terms of the agreements, Service Organizations are
required
to provide to their Customers a schedule of any fees that they may
charge
Customers in connection with their investments in Class B or Class C
shares.
Class A shares are sold to financial institutions that have not entered
into
servicing agreements with the Fund in connection with their investments.
A
salesperson and any other person entitled to receive compensation for selling
or
servicing shares of the Fund may receive different compensation for selling
or
servicing one Class of shares over another Class.
EXPENSES
The Fund bears all of its own expenses. The Fund's expenses include
taxes,
interest, fees and salaries of the Trust's trustees and officers who are
not
directors, officers or employees of the Fund's service contractors,
Securities
and Exchange Commission fees, state securities qualification fees, costs
of
preparing and printing prospectuses for regulatory purposes and for
distribution
to investors, advisory and administration fees, charges of the
custodian,
transfer agent and dividend disbursing agent, Service Organization fees,
certain
insurance premiums, outside auditing and legal expenses, costs of
investor
reports and investor meetings and any extraordinary expenses. The Fund also
pays
for brokerage fees and commissions (if any) in connection with the purchase
and
sale of portfolio securities. In order to maintain a competitive expense
ratio
during 1994, LBGAM and TSSG have agreed voluntarily to reimburse the Fund if
and
to the extent that the Fund's total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees under the 1940 Act
and
extraordinary expenses) exceed .16% of average daily net assets through
December
31, 1994. The Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets thereafter. This voluntary reimbursement will not be changed
unless
investors are at a level provided at least 60 days' advance notice. In
addition,
these service providers have agreed to reimburse the Fund to the extent
required
by applicable state law for certain expenses that are described in the
Statement
of Additional Information relating to the Fund. Any fees charged by
Service
Organizations or other institutional investors to their customers in
connection
with investments in Fund shares are not reflected in the Fund's expenses.
* 1 moved from here; text not shown
13
<PAGE>
YIELDS
From time to time, the "yields," "effective yields" and "tax-
equivalent
yields" for Class A, Class B or Class C shares may be quoted in
advertisements
or in reports to investors. Yield quotations are computed separately for
each
Class of shares. The "yield" quoted in advertisements for a particular class
or
sub-class of shares refers to the income generated by an investment in
such
shares of over a specified period (such as a seven-day period) identified in
the
advertisement. This income is then "annualized;" that is, the amount of
income
generated by the investment during that period is assumed to be generated
each
such period over a 52-week or one-year period and is shown as a percentage
of
the investment. The "effective yield" is calculated similarly but,
when
annualized, the income earned by an investment in a particular class
or
sub-class is assumed to be reinvested. The "effective yield" will be
slightly
higher than the "yield" because of the compounding effect of this
assumed
reinvestment. The "tax-equivalent yield" demonstrates the level of taxable
yield
necessary to produce an after-tax yield equivalent to the Fund's tax-free
yield
for each class or sub-class of shares. It is calculated by increasing the
yield
(calculated as above) by the amount necessary to reflect the payment of
federal
taxes at a stated rate. The "tax-equivalent yield" will always be higher
than
the "yield ."
The Fund's yields may be compared to those of other mutual funds
with
similar objectives, to bond or other relevant indices, or to rankings
prepared
by independent services or other financial or industry publications that
monitor
the performance of mutual funds, or to the average yields reported by the
BANK
RATE MONITOR from money market deposit accounts offered by the 50 leading
banks
and thrift institutions in the top five standard metropolitan statistical
areas.
For example, such data are reported in national financial publications such
as
IBC/ DONOGHUE'S MONEY FUND REPORT-R-, IBBOTSON ASSOCIATES OF CHICAGO, THE
WALL
STREET JOURNAL and THE NEW YORK TIMES, reports prepared by Lipper
Analytical
Services, Inc. and publications of a local or regional nature.
THE FUND'S YIELD FIGURES FOR A CLASS OF SHARES REPRESENT PAST
PERFORMANCE,
WILL FLUCTUATE AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE
RESULTS.
The yield of any investment is generally a function of portfolio quality
and
maturity, type of investment and operating expenses. Since holders of Class
B
and Class C shares bear the service fees for services provided by
Service
Organizations, the net yield on such shares can be expected at any given time
to
be lower than the net yield on Class A shares. Any fees charged by
Service
Organizations or other institutional investors directly to their customers
in
connection with investments in Fund shares are not reflected in the
Fund's
expenses or yields. The methods used to compute the Fund's yields are
described
in more detail in the Statement of Additional Information. Investors may
call
800-238-2560 (Class A shares code: 008; Class B shares code: 108; Class C
shares
code: 208) to obtain current yield information.
The yield, effective yield and tax-equivalent yield for Class A shares
for
the Fund for the seven-day period ended January 31, 1994 were __%, __% and
__%,
respectively.
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust established on November
25,
1992.
The Trust's Declaration of Trust authorizes the Board of Trustees to
issue
an unlimited number of full and fractional shares of beneficial interest in
the
Trust and to classify or reclassify any unissued shares into one or
more
additional classes of shares. The Trust is an open-end management
investment
company, which offers twelve portfolios: Prime Money Market Fund (Class A,
Class
B and Class C), Prime Value Money Market Fund (Class A, Class B, Class C
and
Class D), Government Obligations Money Market Fund (Class A, Class B, Class
C
14
<PAGE>
and Class D), 100% Government Obligations Money Market Fund (Class A, Class
B
and Class C), Treasury Instruments Money Market Fund II (Class A, Class B
and
Class C), 100% Treasury Instruments Money Market Fund (Class A, Class B
and
Class C), Tax-Free Money Market Fund (Class A, Class B and Class C),
Municipal
Money Market Fund (Class A, Class B, Class C and Class D), California
Municipal
Money Market Fund (Class A, Class B and Class C), New York Municipal
Money
Market Fund (Class A, Class B and Class C), Floating Rate U.S. Government
Fund
(Class A and Class B), and Short Duration U.S. Government Fund (Class A
and
Class B). Shares of the New York Municipal Money Market Fund are not
currently
sold to the public. The Declaration of Trust further authorizes the Trustees
to
classify or reclassify any class of shares into one or more sub-classes.
* 2 moved from here; text not shown
* 3 moved from here; text not shown
* 4 moved from here; text not shown
* 5 moved from here; text not shown
* 6 moved from here; text not shown
* 7 moved from here; text not shown
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT
OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S
OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
The Trust does not presently intend to hold annual meetings of
investors
except as required by the 1940 Act or other applicable law. The Trust will
call
a meeting of investors for the purpose of voting upon the question of removal
of
a member of the Board of Trustees upon written request of investors owning
at
least 10% of the outstanding shares of the Trust entitled to vote.
Each Fund share represents an equal, proportionate interest in the
assets
belonging to the Fund. Each share, which has a par value of $.001, has
no
preemptive or conversion rights. When issued for payment as described in
this
Prospectus, shares will be fully paid and non-assessable.
Holders of the Fund's shares will vote in the aggregate and not by class
on
all matters, except where otherwise required by law and except that only Class
B
or Class C shares, as the case may be, will be entitled to vote on
matters
submitted to a vote of investors pertaining to the Fund's arrangements
with
Service Organizations with respect to the relevant Class. Further, investors
of
all of the Fund and of the Trust's portfolios will vote in the aggregate and
not
by portfolio except as otherwise required by law or when the Board of
Trustees
determines that the matter to be voted upon affects only the interests of
the
investors of a particular portfolio. (See the Statement of
Additional
Information under "Additional Description Concerning Fund Shares" for
examples
where the 1940 Act requires voting by portfolio.) Investors of the Trust
are
entitled to one vote for each
15
<PAGE>
full share held (irrespective of class or portfolio) and fractional votes
for
fractional shares held. Voting rights are not cumulative, and, accordingly,
the
holders of more than 50% of the aggregate shares of the Trust may elect all
of
the trustees.
For information concerning the redemption of Fund shares and
possible
restrictions on their transferability, see "Purchase and Redemption of
Shares."
16
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
100% Government Obligations Money Market Fund
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
California Municipal Money Market Fund
New York Municipal Money Market Fund
------------------------
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT
OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT
LAWFULLY BE MADE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Background and Expense Information.......... 2
Financial Highlights........................ 3
Investment Objective and Policies........... 4
Purchase and Redemption of Shares........... 8
Dividends................................... 10
Taxes....................................... 11
Management of the Fund...................... 12
Yields...................................... 14
Description of Shares....................... 14
</TABLE>
TAX-FREE MONEY
MARKET FUND
-------------------
PROSPECTUS
May __, 1994
---------------------
LEHMAN BROTHERS
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN
RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE
AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S
OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
<PAGE>
PROSPECTUS
PRIME MONEY MARKET FUND
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-
load,
open-end, management investment company. The shares described in this
Prospectus
represent interests in the Prime Money Market Fund portfolio (the "Fund"),
one
of a family of money market portfolios of the Trust.
The Fund's INVESTMENT OBJECTIVE is to provide current income and
stability
of principal. The Fund invests in a portfolio consisting of a broad range
of
short-term instruments, including U.S. government and U.S. bank and
commercial
obligations and repurchase agreements relating to such obligations.
Fund shares may not be purchased by individuals directly, but
institutional
investors may purchase shares for accounts maintained by individuals. The
Fund
currently offers three classes of shares. In addition to Class A
shares,
institutional investors may purchase on behalf of their customers Class B
or
Class C shares which accrue daily dividends in the same manner as Class A
shares
but bear all fees payable by the Fund to institutional investors for
certain
services they provide to the beneficial owners of such shares. See
"Management
of the Fund--Service Organizations."
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
ITS
NET ASSET VALUE OF $1.00 PER SHARE.
LEHMAN BROTHERS, INC., ("Lehman Brothers") sponsors the Fund and, acts
as
Distributor of its shares. LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
serves
as the Fund's Investment Adviser.
The address of the Fund is One Exchange Place, Boston, Massachusetts
02109.
The Fund can be contacted as follows: for purchase and redemption orders
only
call 1-800-851-3134; for yield information call 1-800-238-2560 (Class A
shares
code: 001; Class B shares code: 101; Class C shares code: 201); for
other
information call 1-800-368-5556.
This Prospectus briefly sets forth certain information about the Fund
that
investors should know before investing. Investors are advised to read
this
Prospectus and retain it for future reference. Additional information about
the
Fund, contained in a Statement of Additional Information dated May __, 1994,
as
amended or supplemented from time to time, has been filed with the
Securities
and Exchange Commission and is available to investors without charge by
calling
the Fund's Distributor at 1-800-368-5556. The Statement of
Additional
Information is incorporated in its entirety by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR
ENDORSED BY, ANY BANK, AND SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT
AGENCY. SHARES OF THE FUND INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING
THE
POSSIBLE LOSS OF PRINCIPAL.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
LEHMAN BROTHERS
May __, 1994
<PAGE>
BACKGROUND AND EXPENSE INFORMATION
The following Expense Summary lists the costs and expenses that an
investor
in the Fund can expect to incur during the Fund's current fiscal year
ending
January 31, 1995. The Fund offers three separate classes of shares. Shares
of
each class represent equal, pro rata interests in the Fund and accrue
daily
dividends in the same manner except that Class B and Class C shares bear
fees
payable by the Fund (at the rate of .25% and .35% per annum, respectively)
to
institutions for services they provide to the beneficial owners of such
shares.
See "Management of the Fund--Service Organizations."
EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees....................... 0.10%* 0.10%* 0.10%*
Rule 12b-1 fees..................... none .25% .35%
Other Expenses--including
Administration Fees
(net of applicable fee waivers).... 0.06%* 0.06%* 0.06%*
------- ------- -------
Total Fund Operating Expenses (after
fee waivers)*...................... .16% .41% .51%
------- ------- -------
------- ------- -------
<FN>
---------
* The Expense Summary above has been restated to reflect the Fund's
Investment
Adviser's and Administrator's Voluntary reimbursement arrangements in
effect
for the Fund's fiscal year ending January 31, 1995. With respect to Class
A,
Class B and Class C share for the month of January, 1995, the Total
Fund
Operating Expenses including reimbursement of expenses are anticipated to
be
.18%, .43%, and .53%, respectively.
</TABLE>
In order to maintain a competitive expense ratio during 1994, the
Funds'
Investment Adviser and Administrator have voluntarily agreed to reimburse
the
Fund if and to the extent that total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees and
extraordinary
expenses) exceed .16% of average daily net assets through December 31, 1994.
For
the years 1995-1997, the Investment Adviser and Administrator intends
to
continue voluntarily to reimburse the Funds to the extent necessary to
maintain
an annualized expense ratio at a level no greater than .18% of average daily
net
assets. The voluntary reimbursement arrangements described above will not
be
changed unless shareholders are provided at least 60 days' advance notice.
The
maximum annual contractual fees payable to the Investment Adviser
and
Administrator total .20% of average daily net assets. Absent reimbursement
of
expenses, the Total Fund Operating Expenses of Class A, Class B and Class
C
would be .24%, .49% and .59%, respectively, of the Fund's average daily
net
assets.
---------
EXAMPLE: An investor would pay the following expenses on a $1,000
investment,
assuming (1) a 5% annual return and (2) redemption at the end of each
time
period with respect to the following shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- --------
<S> <C> <C> <C> <C>
Class A shares:..... $2 $ 5 $ 9 $20
Class B shares:..... $4 $13 $23 $52
Class C shares:..... $5 $16 $29 $64
</TABLE>
2
<PAGE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES
AND
RATES OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
The purpose of the foregoing table is to assist an investor in
understanding
the various costs and expenses that an investor in the Fund will bear
directly
or indirectly. Certain Service Organizations (as defined below) also may
charge
their clients fees in connection with investments in Fund shares, which fees
are
not reflected in the table. For more complete descriptions of the various
costs
and expenses, see "Management of the Fund" in this Prospectus and the
Statement
of Additional Information.
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year ended January
31,
1994 is derived from the Fund's Financial Statements audited by Ernst &
Young,
independent accountants. This information should be read in conjunction with
the
financial statements and notes thereto that appear in the Statement
of
Additional Information.
PRIME MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD
ENDED PERIOD ENDED PERIOD ENDED
1/31/94* 1/31/94* 1/31/94*
CLASS
A CLASS B CLASS C
<S> <C>
<C> <C>
Net asset value, beginning of period..................................
$1.00 $1.00 $1.00
Net investment income(1)..............................................
0.0310 0.0110 0.0001
Dividends from net investment income..................................
(0.0310) (0.0110) (0.0001)
Net asset value, end of period........................................
$1.00 $1.00 $1.00
Total return(2).......................................................
3.14% 0.99% --(3)
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)..................................
$2,866,353 $350,666 --(4)
Ratio of net investment income to average net assets(5)...............
3.16% 2.91% 2.81%
Ratio of operating expenses to average net assets(5)(6)...............
0.11% 0.36% 0.46%
<FN>
---------
* The Prime Money Market Fund Class A, Class B and Class C Shares
commenced
operations on February 8, 1993, September 2, 1993 and December 27,
1993,
respectively.
(1) Net investment income before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Administrator for Class A, Class B and Class C were $0.0289, $0.0102
and
$0.0001, respectively.
(2) Total return represents aggregate total return for the period indicated.
(3) Full amount of shares offered to the public on December 27, 1993 and
were
redeemed on December 28, 1993, therefore, total return deemed not to
be
meaningful.
(4) Total net assets for Class C was $100 at January 31, 1994.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
(5) Annualized.
(6) Annualized expense ratio before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Administrator for Class A, Class B and Class C were 0.33%, 0.58% and
0.68%, respectively.
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to provide current income and
stability
of principal. In pursuing its investment objective, the Fund, which operates
as
a diversified investment portfolio, invests in a broad range of short-
term
instruments, including U.S. government and U.S. bank and commercial
obligations
and repurchase agreements relating to such obligations.
PRICE AND PORTFOLIO MATURITY. The Fund invests only in securities that
are
purchased with and payable in U.S. dollars and that have (or, pursuant
to
regulations adopted by the Securities and Exchange Commission, will be deemed
to
have) remaining maturities of thirteen months or less at the date of purchase
by
the Fund. The Fund maintains a dollar-weighted average portfolio maturity of
90
days or less. The Fund follows these policies to maintain a constant net
asset
value of $1.00 per share, although there is no assurance that it can do so on
a
continuing basis.
PORTFOLIO QUALITY AND DIVERSIFICATION. The Fund will limit its
portfolio
investments to securities that the Trust's Board of Trustees determines
present
minimal credit risks and which are "First Tier Eligible Securities" at the
time
of acquisition by the Fund. The term First Tier Eligible Securities
includes
securities rated by the "Requisite NRSROs" in the highest short-term
rating
categories, securities of issuers that have received such ratings with
respect
to other short-term debt securities and comparable unrated
securities.
"Requisite NRSROs" means (a) any two nationally recognized statistical
rating
organizations ("NRSROs") that have issued a rating with respect to a security
or
class of debt obligations of an issuer, or (b) one NRSRO, if only one NRSRO
has
issued such a rating at the time that the Fund acquires the security.
Currently,
there are six NRSROs: Standard & Poor's Corporation, Moody's Investors
Service,
Inc., Fitch Investors Services, Inc., Duff and Phelps, Inc., IBCA Limited
and
its affiliate, IBCA, Inc. and Thomson Bankwatch. A discussion of the
ratings
categories of the NRSROs is contained in the Appendix to the Statement
of
Additional Information. The Fund generally may not invest more than 5% of
its
total assets in the securities of any one issuer, except for U.S.
government
securities.
The following descriptions illustrate the kinds of instruments in which
the
Fund invests:
The Fund may purchase U.S. bank and bank holding company obligations such
as
commercial paper, notes, certificates of deposit, bankers' acceptances and
time
deposits, including instruments issued or supported by the credit of
domestic
banks or savings institutions having total assets at the time of purchase
in
excess of $1 billion. The Fund may also make interest-bearing savings
deposits
in commercial and savings banks in amounts not in excess of 5% of the
Fund's
assets.
The Fund may invest in commercial paper and other short-term
obligations.
The Fund may not invest in commercial paper or obligations of foreign issuers.
4
<PAGE>
The Fund may purchase variable or floating rate notes, which are
unsecured
instruments that provide for adjustments in the interest rate on certain
reset
dates or whenever a specified interest rate index changes, respectively.
Such
notes may not be actively traded in a secondary market, but, in some cases,
the
Fund may be able to resell such notes in the dealer market. Variable
and
floating notes typically are rated by credit rating agencies, and their
issuers
must satisfy the same quality criteria as set forth above. The Fund invests
in
variable or floating rate notes only when the Investment Adviser deems
the
investment to involve minimal credit risk.
The Fund may purchase instruments from financial institutions, such as
banks
and broker-dealers, subject to the seller's agreement to repurchase them at
an
agreed upon time and price ("repurchase agreements"). The seller under
a
repurchase agreement will be required to maintain the value of the
securities
subject to the agreement at not less than the repurchase price. Default by
the
seller would, however, expose the Fund to possible loss because of
adverse
market action or delay in connection with the disposition of the
underlying
obligations.
The Fund may also purchase securities on a "when-issued" basis. When-
issued
securities are securities purchased for delivery beyond the normal
settlement
date at a stated price and yield. The Fund will generally not pay for
such
securities or start earning interest on them until they are received.
Securities
purchased on a when-issued basis are recorded as an asset and are subject
to
changes in value based upon changes in the general level of interest rates.
The
Fund expects that commitments to purchase when-issued securities will not
exceed
25% of the value of its total assets absent unusual market conditions. The
Fund
does not intend to purchase when-issued securities for speculative purposes
but
only in furtherance of its investment objective.
The Fund may purchase obligations issued or guaranteed by the
U.S.
government or its agencies and instrumentalities. Obligations of
certain
agencies and instrumentalities of the U.S. government are backed by the
full
faith and credit of the United States. Others are backed by the right of
the
issuer to borrow from the U.S. Treasury or are backed only by the credit of
the
agency or instrumentality issuing the obligation.
In addition, the Fund may, when deemed appropriate in light of the
Fund's
investment objective, invest in high quality, short-term obligations issued
by
the state and local governmental issuers which carry yields that are
competitive
with those of other types of money market instruments of comparable quality.
The Fund will not knowingly invest more than 10% of the value of its
total
assets in illiquid securities, including time deposits and repurchase
agreements
having maturities longer than seven days. Securities that have readily
available
market quotations are not deemed illiquid for purposes of this
limitation
(irrespective of any legal or contractual restrictions on resale). The Fund
may
invest in commercial obligations issued in reliance on the so-called
"private
placement" exemption from registration afforded by Section 4(2) of
the
Securities Act of 1933, as amended ("Section 4(2) paper"). The Fund may
also
purchase securities that are not registered under the Securities Act of 1933,
as
amended, but which can be sold to qualified institutional buyers in
accordance
with Rule 144A under that Act ("Rule 144A securities"). Section 4(2) paper
is
restricted as to disposition under the federal securities laws, and generally
is
sold to institutional investors such as the Fund who agree that they
are
purchasing the paper for investment and not with a view to public
distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2)
paper
normally is resold to other institutional investors like the Fund through
or
with the assistance of the issuer or investment dealers who make a market in
the
Section
5
<PAGE>
4(2) paper, thus providing liquidity. Rule 144A securities generally must
be
sold to other qualified institutional buyers. If a particular investment
in
Section 4(2) paper or Rule 144A securities is not determined to be liquid,
that
investment will be included within the 10% limitation on investment in
illiquid
securities.
There can be no assurance that the Fund will achieve its
investment
objective.
INVESTMENT LIMITATIONS
The Fund's investment objective and the policies described above are
not
fundamental and may be changed by the Trust's Board of Trustees without a
vote
of shareholders. If there is a change in the investment objective,
investors
should consider whether the Fund remains an appropriate investment in light
of
their then current financial position and needs. The Fund's
investment
limitations summarized below may not be changed without the affirmative vote
of
the holders of a majority of its outstanding shares. (A complete list of
the
investment limitations that cannot be changed without a vote of shareholders
is
contained in the Statement of Additional Information under "Investment
Objective
and Policies.")
The Fund may not:
1. Borrow money, except from banks for temporary purposes and then
in
amounts not in excess of 10% of the value of the Fund's assets at the
time
of such borrowing; or pledge any assets except in connection with any
such
borrowing and in amounts not in excess of the lesser of the dollar
amounts
borrowed or 10% of the value of the Fund's assets at the time of
such
borrowing. Additional investments will not be made when borrowings exceed
5%
of the Fund's assets.
2. Purchase any securities which would cause 25% or more of the
value
of its total assets at the time of purchase to be invested in the
securities
of issuers conducting their principal business activities in the
same
industry, provided that there is no limitation with respect to
investments
in U.S. government obligations and obligations of domestic banks.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Shares of the Fund are sold at the net asset value per share of the
Fund
next determined after receipt of a purchase order by Lehman Brothers,
the
Distributor of the Fund's shares. Purchase orders for shares are accepted
only
on days on which both Lehman Brothers and the Federal Reserve Bank of Boston
are
open for business and must be transmitted to Lehman Brothers, by telephone
at
1-800-851-3134. Orders received prior to noon, Eastern time, for which
payment
has been received by Boston Safe Deposit and Trust Company ("Boston Safe"),
the
Fund's Custodian, will be executed at noon. Orders received between noon
and
3:00 P.M., Eastern time, will be executed at 3:00 P.M., Eastern time, if
payment
has been received by Boston Safe by 3:00 P.M. and will be executed at 4:00
P.M.
if payment has been received by 4:00 P.M. Orders received after 3:00 P.M.,
and
orders for which payment has not been received by 4:00 P.M., Eastern time,
will
not be accepted, and notice thereof will be given to the institution placing
the
order. Payment for Fund shares may be made only in federal funds
immediately
available to Boston Safe. (Payment for orders which are not received or
accepted
by Lehman Brothers will be returned after prompt inquiry to the
sending
institution.) The Fund may in its discretion reject any order for shares.
6
<PAGE>
The minimum aggregate initial investment by an institution in the
investment
portfolios that comprise the Trust is $1 million (with not less than
$25,000
invested in any one investment portfolio offered by the Trust);
however,
broker-dealers and other institutional investors may set a higher minimum
for
their customers. To reach the minimum Trust-wide initial investment,
purchases
of shares may be aggregated over a period of six months. There is no
minimum
subsequent investment.
Conflict of interest restrictions may apply to an institution's receipt
of
compensation paid by the Fund in connection with the investment of
fiduciary
funds in Class B or Class C shares. See also "Management of the Fund--
Service
Organizations." Institutions, including banks regulated by the Comptroller
of
the Currency and investment advisers and other money managers subject to
the
jurisdiction of the Securities and Exchange Commission, the Department of
Labor
or state securities commissions, are urged to consult their legal
advisors
before investing fiduciary funds in Class B or Class C shares.
SUBACCOUNTING SERVICES. Institutions are encouraged to open single
master
accounts. However, certain institutions may wish to use the Transfer
Agent's
subaccounting system to minimize their internal recordkeeping requirements.
The
Transfer Agent charges a fee based on the level of subaccounting
services
rendered. Institutions holding Fund shares in a fiduciary, agency, custodial
or
similar capacity may charge or pass through subaccounting fees as part of or
in
addition to normal trust or agency account fees. They may also charge fees
for
other services provided which may be related to the ownership of Fund
shares.
This Prospectus should, therefore, be read together with any agreement
between
the customer and the institution with regard to the services provided, the
fees
charged for those services and any restrictions and limitations imposed.
REDEMPTION PROCEDURES
Redemption orders must be transmitted to Lehman Brothers by telephone
at
1-800-851-3134. Payment for redeemed shares for which a redemption order
is
received by Lehman Brothers before 3:00 P.M., Eastern time, on a day that
both
Lehman Brothers and the Federal Reserve Bank of Boston are open for business
is
normally made in federal funds wired to the redeeming shareholder on the
same
business day. Payment for redemption orders which are received between 3:00
P.M.
and 4:00 P.M., Eastern time, is normally wired in federal funds on the
next
business day following redemption.
Shares are redeemed at the net asset value per share next determined
after
Lehman Brothers' receipt of the redemption order. While the Fund intends to
use
its best efforts to maintain its net asset value per share at $1.00,
the
proceeds paid to an investor upon redemption may be more or less than the
amount
invested depending upon a share's net asset value at the time of redemption.
To
allow the Fund's Investment Adviser to manage the Fund effectively,
investors
are strongly urged to initiate all investments or redemptions of Fund shares
as
early in the day as possible and to notify Lehman Brothers at least one day
in
advance of transactions in excess of $5 million.
The Fund reserves the right to wire redemption proceeds within seven
days
after receiving the redemption order if, in the judgment of the
Investment
Adviser, an earlier payment could adversely affect the Fund. The Fund shall
have
the right to redeem involuntarily shares in any account at their net asset
value
if the value of the account is less than $10,000 after 60 days' prior
written
notice to the investor. Any such redemption shall be effected at the net
asset
value per share next determined after the redemption order is entered. If
during
the 60-day period the investor increases the value of its account to $10,000
or
more, no such redemption shall take place. In addition, the Fund may
redeem
shares involuntarily or suspend the right of redemption as
permitted
7
<PAGE>
under the Investment Company Act of 1940, as amended (the "1940 Act"), or
under
certain special circumstances described in the Statement of
Additional
Information under "Additional Purchase and Redemption Information."
VALUATION OF SHARES--NET ASSET VALUE
The Fund's net asset value per share for purposes of pricing purchase
and
redemption orders is determined by the Fund's Administrator as of noon,
3:00
P.M. and 4:00 P.M., Eastern time, on each weekday, with the exception of
those
holidays on which either Lehman Brothers or the Federal Reserve Bank of
Boston
is closed. Currently, one or both of these institutions are closed on
the
customary national business holidays of New Year's Day, Martin Luther
King,
Jr's. Birthday (observed), Presidents' Day (Washington's Birthday), Good
Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day (observed),
Veterans
Day, Thanksgiving Day and Christmas Day, and on the preceding Friday
or
subsequent Monday when one of these holidays falls on a Saturday or
Sunday,
respectively. The net asset value per share of Fund shares is calculated
by
adding the value of all securities and other assets of the Fund,
subtracting
liabilities, and dividing the result by the total number of the
Fund's
outstanding shares (irrespective of class or sub-class). In computing net
asset
value, the Fund uses the amortized cost method of valuation as described in
the
Statement of Additional Information under "Additional Purchase and
Redemption
Information." The Fund's net asset value per share for purposes of
pricing
purchase and redemption orders is determined independently of the net
asset
values of the shares of the Trust's other investment portfolios.
OTHER MATTERS
Fund shares are sold and redeemed without charge by the Fund.
Institutional
investors purchasing or holding Fund shares for their customer accounts
may
charge customers fees for cash management and other services provided
in
connection with their accounts. A customer should, therefore, consider the
terms
of its account with an institution before purchasing Fund shares. An
institution
purchasing or redeeming Fund shares on behalf of its customers is
responsible
for transmitting orders to Lehman Brothers in accordance with its
customer
agreements.
DIVIDENDS
** 1 Investors of the Fund are entitled to dividends and
distributions
arising only from the net investment income and capital gains, if any, earned
on
investments held by the Fund. The Fund's net investment income is declared
daily
as a dividend to shares held of record at the close of business on the day
of
declaration. Shares begin accruing dividends on the day the purchase order
for
the shares is executed and continue to accrue dividends through, and
including,
the day before the redemption order for the shares is executed. Dividends
are
paid monthly by wire transfer, within five business days after the end of
the
month or within five business days after a redemption of all of an
investor's
shares of a particular class. The Fund does not expect to realize net long-
term
capital gains.
** 2 Dividends are determined in the same manner and are paid in the
same
amount for each Fund share, except that Class B and Class C shares bear all
the
expense of fees paid to Service Organizations. As a result, at any given
time,
the net yield on Class B and Class C shares will be .25% and .35%,
respectively,
lower than the net yield on Class A shares.
8
<PAGE>
Institutional shareholders may elect to have their dividends reinvested
in
additional full and fractional shares of the same class of shares with
respect
to which such dividends are declared at the net asset value of such shares
on
the payment date. Reinvested dividends receive the same tax treatment
as
dividends paid in cash. Such election, or any revocation thereof, must be
made
in writing to the Fund's Distributor, at 260 Franklin Street, 15th
Floor,
Boston, Massachusetts 02110-9624, and will become effective after its receipt
by
the Distributor, with respect to dividends paid.
** 3 TSSG, as Transfer Agent, will send each investor or its
authorized
representative, if any, an annual statement designating the amount, of
any
dividends and capital gains distributions made during each year and
their
federal tax qualification.
TAXES
The Fund qualified in its last taxable year and intends to qualify in
future
years as a "regulated investment company" under the Internal Revenue Code
of
1986, as amended (the "Code"). A regulated investment company is exempt
from
federal income tax on amounts distributed to its investors.
** 4 Qualification as a regulated investment company under the Code for
a
taxable year requires, among other things, that the Fund distribute to
its
investors at least 90% of its investment company taxable income for such
year.
In general, the Fund's investment company taxable income will be its
taxable
income (including dividends and short-term capital gains, if any) subject
to
certain adjustments and excluding the excess of any net long-term capital
gain
for the taxable year over the net short-term capital loss, if any, for
such
year. The Fund intends to distribute substantially all of its investment
company
taxable income each year. Such distributions will be taxable as ordinary
income
to Fund investors who are not currently exempt from federal income
taxes,
whether such income is received in cash or reinvested in additional shares.
It
is anticipated that none of the Fund's distributions will be eligible for
the
dividends received deduction for corporations. The Fund does not expect
to
realize long-term capital gains and, therefore, does not contemplate payment
of
any "capital gain dividends" as described in the Code.
** 5 Dividends declared in October, November or December of any year
payable
to investors of record on a specified date in such months will be deemed to
have
been received by the investors and paid by the Fund on December 31 of such
year
in the event such dividends are actually paid during January of the
following
year.
** 6 Investors will be advised at least annually as to the federal
income
tax status of distributions made to them each year.
** 7 The foregoing discussion is only a brief summary of some of
the
important federal tax considerations generally affecting the Fund and
its
investors. No attempt is made to present a detailed explanation of the
federal,
state or local income tax treatment of the Fund or its investors, and
this
discussion is not intended as a substitute for careful tax
planning.
Accordingly, potential investors in the Fund should consult their tax
advisors
with specific reference to their own tax situation.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the
Trust's Board of Trustees. The Trustees approve all significant
agreements
between the Trust and the persons or companies that
furnish
9
<PAGE>
services to the Fund, including agreements with its Distributor,
Investment
Adviser, Administrator, Custodian and Transfer Agent. The day-to-day
operations
of the Fund are delegated to the Fund's Investment Adviser and
Administrator.
The Statement of Additional Information relating to the Fund contains
general
background information regarding each Trustee and executive officer of
the
Trust.
DISTRIBUTOR
Lehman Brothers, located at 3 World Financial Center, New York, New
York
10285, is the Distributor of the Fund's shares. Lehman Brothers, a leading
full
service investment firm, meets the diverse financial needs of
individuals,
institutions and governments around the world. Lehman Brothers has entered
into
a Distribution Agreement with the Trust pursuant to which it has
the
responsibility for distributing shares of the Fund.
INVESTMENT ADVISER--LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located at 3
World
Financial Center, New York, New York 10285, serves as the Fund's
Investment
Adviser. LBGAM is a wholly owned subsidiary of Lehman Brothers Holdings
Inc.
("Holdings"). LBGAM, together with the other Lehman Brothers investment
advisory
affiliates serves as Investment Adviser to investment companies and
private
accounts and has assets under management in excess of [$15] billion as
of
___________, 1994.
As Investment Adviser to the Fund, LBGAM will among other
things,
participate in the formulation of the Fund's investment policies,
analyze
economic trends affecting the Fund , and monitor and evaluate the
Fund's
investment objective and policies and the Fund's investment performance. For
its
services LBGAM is entitled to receive a monthly fee from the Fund at the
annual
rate of .10% of the value of the Fund's average daily net assets. For the
period
February 8, 1993 (commencement of operations) to January 31, 1994,
LBGAM
received an advisory fee from the Fund in the amount of .__% of, average
daily
net assets.
ADMINISTRATOR AND TRANSFER AGENT--THE SHAREHOLDER SERVICES GROUP, INC.
The Shareholder Services Group, Inc. ("TSSG"), located at One
Exchange
Place, 53 State Street Boston, Massachusetts 02109, serves as the
Fund's
Administrator and Transfer Agent. TSSG is a wholly owned subsidiary of
First
Data Corporation. As Administrator, TSSG calculates the net asset value of
the
Fund's shares and generally assists in all aspects of the Fund's
administration
and operation. As compensation for TSSG's services as Administrator, TSSG
is
entitled to receive from the Fund a monthly fee at the annual rate of .10%
of
the value of the Fund's average daily net assets. TSSG is also entitled
to
receive a fee from the Fund for its services as Transfer Agent. TSSG pays
Boston
Safe, the Fund's Custodian, a portion of its monthly administration fee
for
custody services rendered to the Fund.
CUSTODIAN--BOSTON SAFE DEPOSIT AND TRUST COMPANY
Boston Safe, a wholly owned subsidiary of The Boston Company, Inc.,
located
at One Boston Place, Boston, Massachusetts 02108, serves as the
Fund's
Custodian.
SERVICE ORGANIZATIONS
Financial institutions, such as banks, savings and loan associations
and
other such institutions ("Service Organizations") and/or institutional
customers
of Service Organizations may purchase Class B or Class C shares. These
shares
are identical in all respects to Class A shares except that they bear the
fees
described below and enjoy certain exclusive voting rights on matters relating
to
these fees. The Fund will enter into an agreement
10
<PAGE>
with each Service Organization whose customers ("Customers") are the
beneficial
owners of Class B or Class C shares that requires the Service Organization
to
provide certain services to Customers in consideration of the Fund's payment
of
service fees at the annual rate of .25% or .35%, respectively, of the
average
daily net asset value of the respective Class beneficially owned by
Customers.
Such services, which are described more fully in the Statement of
Additional
Information under "Management of the Fund's -- Service Organizations,"
may
include aggregating and processing purchase and redemption requests
from
Customers and placing net purchase and redemption orders with Lehman
Brothers;
processing dividend payments from the Fund on behalf of Customers;
providing
information periodically to Customers showing their positions in
shares;
arranging for bank wires; responding to Customer inquiries relating to
the
services provided by the Service Organization and handling
correspondence;
acting as shareholder of record and nominee; and providing reasonable
assistance
in connection with the distribution of shares to Customers. Services
provided
with respect to Class B shares will generally be more limited than
those
provided with respect to Class C shares. Under the terms of the
agreements,
Service Organizations are required to provide to their Customers a schedule
of
any fees that they may charge Customers in connection with their investments
in
Class B or Class C shares. Class A shares are sold to financial
institutions
that have not entered into servicing agreements with the Fund in connection
with
their investments. A salesperson and any other person entitled to
receive
compensation for selling or servicing shares of the Fund may receive
different
compensation for selling or servicing one Class of shares over another Class.
EXPENSES
The Fund bears all its own expenses. The Fund's expenses include
taxes,
interest, fees and salaries of the Trust's trustees and officers who are
not
directors, officers or employees of the Fund's service contractors,
Securities
and Exchange Commission fees, state securities qualification fees, costs
of
preparing and printing prospectuses for regulatory purposes and for
distribution
to investors, advisory and administration fees, charges of the
custodian,
transfer agent and dividend disbursing agent, Service Organization fees,
certain
insurance premiums, outside auditing and legal expenses, costs of
shareholder
reports and shareholder meetings and any extraordinary expenses. The Fund
also
pays for brokerage fees and commissions (if any) in connection with the
purchase
and sale of portfolio securities. In order to maintain a competitive
expense
ratio during 1994, LBGAM and TSSG have agreed voluntarily to reimburse the
Fund
if and to the extent that the Fund's total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees under the 1940 Act
and
extraordinary expenses) exceed .16% of average daily net assets through
December
31, 1994. The Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets thereafter. This voluntary reimbursement will not be changed
unless
investors are provided at least 60 days' advance notice. In addition,
these
service providers have agreed to reimburse the Fund to the extent required
by
applicable state law for certain expenses that are described in the Statement
of
Additional Information relating to the Fund. Any fees charged by
Service
Organizations or other institutional investors to their customers in
connection
with investments in Fund shares are not reflected in the Fund's expenses.
* 1 moved from here; text not shown
* 2 moved from here; text not shown
* 3 moved from here; text not shown
* 4 moved from here; text not shown
11
<PAGE>
* 5 moved from here; text not shown
* 6 moved from here; text not shown
* 7 moved from here; text not shown
YIELDS
From time to time the "yields" and "effective yields" for Class A, Class
B
and Class C shares may be quoted in advertisements or in reports to
investors.
Yield quotations are computed separately for each Class of shares. The
"yield"
quoted in advertisements for a particular class or sub-class of shares refers
to
the income generated by an investment in such shares over a specified
period
(such as a seven-day period) identified in the advertisement. This income
is
then "annualized;" that is, the amount of income generated by the
investment
during that period is assumed to be generated each such period over a 52-week
or
one-year period and is shown as a percentage of the investment. The
"effective
yield" is calculated similarly but, when annualized, the income earned by
an
investment in a particular class or sub-class is assumed to be reinvested.
The
"effective yield" will be slightly higher than the "yield" because of
the
compounding effect of this assumed reinvestment.
The Fund's yields may be compared to those of other mutual funds
with
similar objectives, to stock or other relevant indices, or to rankings
prepared
by independent services or other financial or industry publications that
monitor
the performance of mutual funds. For example, such data are reported in
national
financial publications such as IBC/DONOGHUE'S MONEY FUND REPORT-R-, THE
WALL
STREET JOURNAL and THE NEW YORK TIMES, reports prepared by LIPPER
ANALYTICAL
SERVICE, INC. and publications of a local or regional nature.
THE FUND'S YIELD FIGURES FOR A CLASS OF SHARES REPRESENT PAST
PERFORMANCE,
WILL FLUCTUATE AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE
RESULTS.
The yield of any investment is generally a function of portfolio quality
and
maturity, type of investment and operating expenses. Since holders of Class B
or
Class C shares bear the service fees for services provided by
Service
Organizations, the net yield on such shares can be expected at any given time
to
be lower than the net yield on Class A shares. Any fees charged by
Service
Organizations or other institutional investors directly to their customers
in
connection with investments in Fund shares are not reflected in the
Fund's
expenses or yields. The methods used to compute the Fund's yields are
described
in more detail in the Statement of Additional Information. Investors may
call
1-800-238-2560 (Class A shares code: 001; Class B shares code: 101; Class
C
shares code: 201) to obtain current yield information.
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust established on November
25,
1992.
The Trust's Declaration of Trust authorizes the Board of Trustees to
issue
an unlimited number of full and fractional shares of beneficial interest in
the
Trust and to classify or reclassify any unissued shares into one or
more
additional classes of shares. The Trust is an open-end management
investment
company, which offers twelve portfolios: Prime Money Market Fund (Class A,
Class
B and Class C), Prime Value Money Market Fund (Class A, Class B, Class C
and
Class D), Government Obligations Money Market Fund (Class A, Class B, Class
C
and Class D), 100% Government Obligations Money Market Fund (Class A, Class
B
and Class C), Treasury Instruments Money Market Fund II (Class A, Class B
and
Class C), 100% Treasury Instruments Money Market Fund (Class A, Class B
and
Class C), Tax-Free Money Market Fund (Class A, Class B and Class C),
Municipal
12
<PAGE>
Money Market Fund (Class A, Class B, Class C and Class D), California
Municipal
Money Market Fund (Class A, Class B and Class C), New York Municipal
Money
Market Fund (Class A, Class B and Class C), Floating Rate U.S. Government
Fund
(Class A and Class B) and Short Duration U.S. Government Fund (Class A and
Class
B). Shares of the New York Municipal Money Market Fund are not currently sold
to
the public. The Declaration of Trust further authorizes the Trustees to
classify
or reclassify any class of shares into one or more sub-classes.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT
OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S
OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
The Trust does not presently intend to hold annual meetings of
shareholders
except as required by the 1940 Act or other applicable law. The Trust will
call
a meeting of shareholders for the purpose of voting upon the question of
removal
of a member of the Board of Trustees upon written request of shareholders
owning
at least 10% of the outstanding shares of the Trust entitled to vote.
Each Fund share represents an equal, proportionate interest in the
assets
belonging to the Fund. Each share, which has a par value of $.001, has
no
preemptive or conversion rights. When issued for payment as described in
this
Prospectus, Fund shares will be fully paid and non-assessable.
Holders of the Fund's shares will vote in the aggregate and not by class
on
all matters, except where otherwise required by law and except that only Class
B
or Class C shares, as the case may be, will be entitled to vote on
matters
submitted to a vote of shareholders pertaining to the Fund's arrangements
with
Service Organizations with respect to the relevant Class. Further,
shareholders
of the Fund and of the Trust's other portfolios will vote in the aggregate
and
not by portfolio except as otherwise required by law or when the Board
of
Trustees determines that the matter to be voted upon affects only the
interests
of the shareholders of a particular portfolio. (See the Statement of
Additional
Information under "Additional Description Concerning Fund Shares" for
examples
where the 1940 Act requires voting by portfolio.) Shareholders of the Trust
are
entitled to one vote for each full share held (irrespective of class
or
portfolio) and fractional votes for fractional shares held. Voting rights
are
not cumulative; and, accordingly, the holders of more than 50% of the
aggregate
shares of the Trust may elect all of the trustees.
For information concerning the redemption of Fund shares and
possible
restrictions on their transferability, see "Purchase and Redemption of
Shares."
13
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
100% Government Obligations Money Market Fund
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
California Municipal Money Market Fund
New York Municipal Money Market Fund
------------------------
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY
REPRESENTATIONS NOT CON-TAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT
OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT
LAWFULLY BE MADE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Background and Expense Information.......... 2
Financial Highlights........................ 3
Investment Objective and Policies........... 4
Purchase and Redemption of Shares........... 6
Dividends................................... 8
Taxes....................................... 9
Management of the Fund...................... 9
Yields...................................... 12
Description of Shares....................... 12
</TABLE>
PRIME MONEY
MARKET FUND
-------------------
PROSPECTUS
May __, 1994
---------------------
LEHMAN BROTHERS
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN
RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
<PAGE>
PROSPECTUS
100% TREASURY INSTRUMENTS MONEY MARKET FUND
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-
load,
open-end, management investment company. The shares described in this
Prospectus
represent interests in the 100% Treasury Instruments Money Market Fund
portfolio
(the "Fund"), one of a family of money market portfolios of the Trust.
To the extent permissible by federal and state law, the Fund is
structured
to provide shareholders with income that is exempt or excluded from taxation
at
the state and local level. See "Taxes." The Fund is also designed to provide
an
economical and convenient means for the investment of short-term funds held
by
banks, trust companies, corporations, employee benefit plans and
other
institutional investors. The investment objective of the Fund is to
provide
current income with liquidity and security of principal. The Fund invests
solely
in U.S. Treasury bills, notes and direct obligations of the U.S. Treasury.
Fund shares may not be purchased by individuals directly, but
institutional
investors may purchase shares for accounts maintained by individuals. The
Fund
currently offers three classes of shares. In addition to Class A
shares,
institutional investors may purchase on behalf of their customers Class B
or
Class C shares which accrue daily dividends in the same manner as Class A
shares
but bear all fees payable by the Fund to institutional investors for
certain
services they provide to the beneficial owners of such shares. See
"Management
of the Fund--Service Organizations."
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
ITS
NET ASSET VALUE OF $1.00 PER SHARE.
LEHMAN BROTHERS, INC. ("Lehman Brothers") sponsors the Fund and acts
as
Distributor of its shares. LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
serves
as the Fund's Investment Adviser.
The address of the Fund is One Exchange Place, Boston, Massachusetts
02109.
The Fund can be contacted as follows: for purchase and redemption orders
only
call 1-800-851-3134; for yield information call 1-800-238-2560 (Class A
shares
code: 007; Class B shares code: 107; Class C shares code: 207); for
other
information call 1-800-368-5556.
This Prospectus briefly sets forth certain information about the Fund
that
investors should know before investing. Investors are advised to read
this
Prospectus and retain it for future reference. Additional information about
the
Fund, contained in a Statement of Additional Information dated May __, 1994,
as
amended or supplemented from time to time, has been filed with the
Securities
and Exchange Commission and is available to investors without charge by
calling
the Fund's Distributor at 1-800-368-5556. The Statement of
Additional
Information is incorporated in its entirety by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR
ENDORSED BY, ANY BANK, AND SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER
GOVERNMENTAL AGENCY. SHARES OF THE FUND INVOLVE CERTAIN INVESTMENT
RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
LEHMAN BROTHERS
May __, 1994
<PAGE>
BACKGROUND AND EXPENSE INFORMATION
The following Expense Summary lists the costs and expenses that an
investor
in the Fund can expect to incur during the Fund's current fiscal year
ending
January 31, 1995. The Fund offers three separate classes of shares. Shares
of
each class represent equal, pro rata interests in the Fund and accrue
daily
dividends in the same manner except that the Class B and Class C shares
bear
fees payable by the Fund (at the rate of .25% and .35% per annum,
respectively)
to institutions for services they provide to the beneficial owners of
such
shares. See "Management of the Fund--Service Organizations."
EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees....................... 0.09%* 0.09%* 0.09%*
Rule 12b-1 fees..................... none .25% .35%
Other Expenses-including
Administration Fees
(net of applicable fee waivers).... 0.06%* 0.06%* 0.06%*
------- ------- -------
Total Fund Operating Expenses (after
fee waivers)....................... .16% .41% .51%
------- ------- -------
------- ------- -------
</TABLE>
---------
*_ The Expense Summary above has been restated to reflect the Fund's
Investment
Adviser's and Administrator's voluntary reimbursement arrangements in
effect
for the Fund's fiscal year ending January 31, 1995. With respect to Class
A,
Class B, Class C shares for the month of January, 1995, the Total
Fund
Operating Expenses included reimbursement of expenses are anticipated to
be
.18%, .43% and .53%, respectively.
In order to maintain a competitive expense ratio during 1994, the
Fund's
Investment Adviser and Administrator have voluntarily agreed to reimburse
the
Fund if and to the extent that total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees and
extraordinary
expenses) exceed .16% of average daily net assets through December 31, 1994.
For
the years 1995-1997, the Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets. The voluntary reimbursement arrangements described above will not
be
changed unless shareholders are provided at least 60 days' advance notice.
The
maximum annual contractual fees payable to the Investment Adviser
and
Administrator total .20% of average daily net assets. Absent reimbursement
of
expenses, the Total Fund Operating Expenses of Class A, Class B and Class
C
would be .25%, .50% and .60%, respectively, of the Fund's average daily
net
assets.
---------
EXAMPLE: An investor would pay the following expenses on a $1,000
investment,
assuming (1) a 5% annual return and (2) redemption at the end of each
time
period with respect to the following shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- --------
<S> <C> <C> <C> <C>
Class A shares:..... $2 $ 5 $ 9 $20
Class B shares:..... $4 $13 $23 $52
Class C shares:..... $5 $16 $29 $64
</TABLE>
2
<PAGE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES
AND
RATES OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
The purpose of the foregoing table is to assist an investor in
understanding
the various costs and expenses that an investor in the Fund will bear
directly
or indirectly. Certain Service Organizations (as defined below) also may
charge
their clients fees in connection with investments in Fund shares, which fees
are
not reflected in the table. For more complete descriptions of the various
costs
and expenses, see "Management of the Fund" in this Prospectus and the
Statement
of Additional Information.
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year ended January
31,
1994 is derived from the Fund's Financial Statements audited by Ernst &
Young,
independent accountants. This information should be read in conjunction with
the
financial statements and notes thereto that appear in the Statement
of
Additional Information.
100% TREASURY INSTRUMENTS MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
1/31/94* 1/31/94*
CLASS A CLASS B
------------- -------------
<S> <C> <C> <C>
<C>
Net asset value, beginning of period......... $1.00 $1.00
Net investment income(1)..................... 0.0292 0.0149
Dividends from net investment income......... (0.0292) (0.0149)
Net asset value, end of period............... $1.00 $1.00
Total return(2).............................. 2.95% 1.55%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's)......... $127,463 $48,000
(3) $ 598
Ratio of net investment income to average net
assets(5)................................... 3.03% 2.97%
2.78% 2.65%
Ratio of operating expenses to average net
assets(5)(6)................................ 0.05% 0.00%
0.30% 0.32%
<FN>
---------
* The 100% Treasury Instruments Money Market Fund Class A and Class B
Shares
commenced operations on February 8, 1993 and May 2, 1993, respectively.
(1) Net investment income before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent, and expenses reimbursed
by
the Investment Adviser and Administrator for Class A and Class B
were
$0.0248 and $0.0124, respectively.
(2) Total return represents aggregate total return for the period indicated.
(3) Total net assets for Class B was $100 at January 31, 1994.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
(4) Annualized expense ratio before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Investment Adviser and Administrator for Class A and Class B were
0.51%
and 0.76%, respectively.
(5) Annualized.
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to provide current income with
liquidity
and security of principal. The Fund, which operates as a diversified
investment
company, invests solely in direct obligations of the U.S. Treasury, such
as
Treasury bills and notes. The Fund does not enter into repurchase agreements
nor
does the Fund purchase obligations of agencies or instrumentalities of the
U.S.
government. Because the Fund invests exclusively in direct U.S.
Treasury
obligations, investors may benefit from income tax exclusions or exemptions
that
are available in certain states and localities. See "Taxes." As a
fundamental
policy, the Fund will invest only in those instruments which will permit
Fund
shares to qualify as "short-term liquid assets" for federally regulated
thrifts.
PRICE AND PORTFOLIO MATURITY. The Fund invests only in securities that
are
purchased with and payable in U.S. dollars (I.E., U.S. dollar
denominated
securities) and that have (or, pursuant to regulations adopted by the
Securities
and Exchange Commission, are deemed to have) remaining maturities of 12
months
or less at the date of purchase by the Fund. The Fund maintains
a
dollar-weighted average portfolio maturity of 90 days or less.
Securities issued or guaranteed by the U.S. government have
historically
involved little risk of loss of principal if held to maturity. However, due
to
fluctuations in interest rates, the market value of such securities may
vary
during the period a shareholder owns shares of the Fund. The Fund may from
time
to time engage in portfolio trading for liquidity purposes, in order to
enhance
its yield or if otherwise deemed advisable. In selling portfolio
securities
prior to maturity, the Fund may realize a price higher or lower than that
paid
to acquire any given security, depending upon whether interest rates
have
decreased or increased since its acquisition.
The Fund may purchase securities on a "when-issued" basis. When-
issued
securities are securities purchased for delivery beyond the normal
settlement
date at a stated price and yield. The Fund will generally not pay for
such
securities or start earning interest on them until they are received.
Securities
purchased on a when-issued basis are recorded as an asset and are subject
to
changes in value based upon changes in the general level of interest rates.
The
Fund expects that commitments to purchase when-issued securities will not
exceed
25% of the value of its total assets absent unusual market conditions. The
Fund
does not intend to purchase when-issued securities for speculative purposes
but
only in furtherance of its investment objective.
There can be no assurance that the Fund will achieve its
investment
objective.
SUITABILITY
The Fund's investment policies are intended to qualify Fund shares for
the
investment of funds of federally regulated thrifts. The Fund intends to
qualify
its shares as "short-term liquid assets" as established in the
published
rulings, interpretations and regulations of the Federal Home Loan Bank
Board.
However, investing institutions are advised to consult their primary
regulator
for concurrence that Fund shares qualify under applicable regulations
and
policies.
4
<PAGE>
INVESTMENT LIMITATIONS
The Fund's investment objective and the policies described above are
not
fundamental and may be changed by the Trust's Board of Trustees without a
vote
of shareholders. If there is a change in the investment objective,
investors
should consider whether the Fund remains an appropriate investment in light
of
their then current financial position and needs. The Fund's
investment
limitations summarized below may not be changed without the affirmative vote
of
the holders of a majority of its outstanding shares. (A complete list of
the
investment limitations that cannot be changed without a vote of shareholders
is
contained in the Statement of Additional Information under "Investment
Objective
and Policies.")
The Fund may not:
1. Borrow money except from banks for temporary purposes and then in
an
amount not exceeding 10% of the value of the Fund's total assets,
or
mortgage, pledge or hypothecate its assets except in connection with
any
such borrowing and in amounts not in excess of the lesser of the
dollar
amounts borrowed or 10% of the value of the Fund's total assets at the
time
of such borrowing. Additional investments will not be made when
borrowings
exceed 5% of the Fund's assets.
2. Make loans except that the Fund may purchase or hold
debt
obligations in accordance with its investment objective and policies.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Shares of the Fund are sold at the net asset value per share of the
Fund
next determined after receipt of a purchase order by Lehman Brothers,
the
Distributor of the Fund's shares. Purchase orders for shares are accepted by
the
Fund only on days on which both Lehman Brothers and the Federal Reserve Bank
of
Boston are open for business and must be transmitted to Lehman Brothers,
by
telephone at 1-800-851-3134. Orders received prior to noon, Eastern time,
for
which payment has been received by Boston Safe Deposit and Trust
Company
("Boston Safe"), the Fund's Custodian, will be executed at noon. Orders
received
between noon and 1:00 P.M., Eastern time, will be executed at 1:00 P.M.,
Eastern
time, if payment has been received by Boston Safe by 1:00 P.M., Eastern
time,
and will be executed at 4:00 P.M., if payment has been received by 4:00
P.M.
Orders received after 1:00 P.M., and orders for which payment has not
been
received by 4:00 P.M., Eastern time, will not be accepted and notice
thereof
will be given to the institution placing the order. Payment for Fund shares
may
be made only in federal funds immediately available to Boston Safe. (Payment
for
orders which are not received or accepted by Lehman Brothers will be
returned
after prompt inquiry to the sending institution.) The Fund may in its
discretion
reject any order for shares.
The minimum aggregate initial investment by an institution in the
investment
portfolios that comprise the Trust is $1 million (with not less than
$25,000
invested in any one investment portfolio offered by the Trust);
however,
broker-dealers and other institutional investors may set a higher minimum
for
their customers. To reach the minimum Trust-wide initial investment,
purchases
of shares may be aggregated over a period of six months. There is no
minimum
subsequent investment.
Conflict of interest restrictions may apply to an institution's receipt
of
compensation paid by the Fund on fiduciary funds that are invested in Class B
or
Class C shares. See also "Management of the Fund--
Service
5
<PAGE>
Organizations." Institutions, including banks regulated by the Comptroller
of
the Currency and investment advisers and other money managers subject to
the
jurisdiction of the Securities and Exchange Commission, the Department of
Labor
or state securities commissions, should consult their legal advisors
before
investing fiduciary funds in Class B or Class C shares.
SUBACCOUNTING SERVICES. Institutions are encouraged to open single
master
accounts. However, certain institutions may wish to use the Transfer
Agent's
subaccounting system to minimize their internal recordkeeping requirements.
The
Transfer Agent charges a fee based on the level of subaccounting
services
rendered. Institutions holding Fund shares in a fiduciary, agency, custodial
or
similar capacity may charge or pass through subaccounting fees as part of or
in
addition to normal trust or agency account fees. They may also charge fees
for
other services provided which may be related to the ownership of Fund
shares.
This Prospectus should, therefore, be read together with any agreement
between
the customer and the institution with regard to the services provided, the
fees
charged for those services and any restrictions and limitations imposed.
REDEMPTION PROCEDURES
Redemption orders must be transmitted to Lehman Brothers by
telephone
1-800-851-3134. Payment for redeemed shares for which a redemption order
is
received by Lehman Brothers before 1:00 P.M., Eastern time, on a day that
both
Lehman Brothers and the Federal Reserve Bank of Boston are open for business
is
normally made in federal funds wired to the redeeming shareholder on the
same
business day. Payment for other redemption orders which are received after
1:00
P.M., Eastern time, is normally wired in federal funds on the next business
day
following redemption.
Shares are redeemed at the net asset value per share next determined
after
Lehman Brothers' receipt of the redemption order. While the Fund intends to
use
its best efforts to maintain its net asset value per share at $1.00,
the
proceeds paid to an investor upon redemption may be more or less than the
amount
invested depending upon a share's net asset value at the time of redemption.
To
allow the Fund's Investment Adviser to manage the Fund effectively,
investors
are strongly urged to initiate all investments or redemptions of Fund shares
as
early in the day as possible and to notify Lehman Brothers at least one day
in
advance of transactions in excess of $5 million.
The Fund reserves the right to wire redemption proceeds within seven
days
after receiving the redemption order if, in the judgment of the
Investment
Adviser, an earlier payment could adversely affect the Fund. The Fund shall
have
the right to redeem involuntarily shares in any account at their net asset
value
if the value of the account is less than $10,000 after 60 days' prior
written
notice to the investor. Any such redemption shall be effected at the net
asset
value per share next determined after the redemption order is entered. If
during
the 60-day period the investor increases the value of its account to $10,000
or
more, no such redemption shall take place. In addition, the Fund may
redeem
shares involuntarily or suspend the right of redemption as permitted under
the
Investment Company Act of 1940, as amended (the "1940 Act"), or under
certain
special circumstances described in the Statement of Additional Information
under
"Additional Purchase and Redemption Information."
VALUATION OF SHARES--NET ASSET VALUE
The Fund's net asset value per share for purposes of pricing purchase
and
redemption orders is determined by the Fund's Administrator as of noon,
1:00
P.M. and 4:00 P.M., Eastern time, on each weekday, with the exception of
those
holidays on which either Lehman Brothers or the Federal Reserve Bank of
Boston
is closed.
6
<PAGE>
Currently, one or both of these institutions are closed on the
customary
national business holidays of New Year's Day, Martin Luther King, Jr.'s
Birthday
(observed), Presidents' Day (Washington's Birthday), Good Friday, Memorial
Day,
Independence Day, Labor Day, Columbus Day (observed), Veterans Day,
Thanksgiving
Day and Christmas Day, and on the preceding Friday or subsequent Monday when
one
of these holidays falls on a Saturday or Sunday, respectively. The net
asset
value per share of the Fund is calculated by adding the value of all
securities
and other assets belonging to the Fund, subtracting liabilities and dividing
the
result by the total number of the Fund's outstanding shares. In computing
net
asset value, the Fund uses the amortized cost method of valuation as
described
in the Statement of Additional Information under "Additional Purchase
and
Redemption Information." The Fund's net asset value per share for purposes
of
pricing purchase and redemption orders is determined independently of the
net
asset values of the shares of the Trust's other investment portfolios.
OTHER MATTERS
Fund shares are sold and redeemed without charge by the Fund.
Institutional
investors purchasing or holding Fund shares for their customer accounts
may
charge customers fees for cash management and other services provided
in
connection with their accounts. A customer should, therefore, consider the
terms
of its account with an institution before purchasing Fund shares. An
institution
purchasing or redeeming shares on behalf of its customers is responsible
for
transmitting orders to Lehman Brothers in accordance with its
customer
agreements.
DIVIDENDS
** 1 Investors of the Fund are entitled to dividends and
distributions
arising only from the net investment income and capital gains, if any, earned
on
its investments. The Fund's net investment income is declared daily as
a
dividend to its shareholders of record at the close of business on the day
of
declaration. Shares begin accruing dividends on the day the purchase order
for
the shares is executed and continue to accrue dividends through, and
including,
the day before the redemption order for the shares is executed. Dividends
are
paid monthly by wire transfer within five business days after the end of
the
month or within five business days after a redemption of all of an
investor's
shares of a particular class. The Fund does not expect to realize net long-
term
capital gains.
** 2 Dividends are determined in the same manner and are paid in the
same
amount for each share of the Fund irrespective of class, except that Class B
and
Class C shares bear all the expense of fees paid to Service Organizations. As
a
result, at any given time, the net yield on Class A shares will be .25%
and
.35%, respectively, lower than the net yield on Class A shares.
Institutional investors may elect to have their dividends reinvested
in
additional full and fractional shares of the same class at the net asset
value
of such shares on the payment date. Reinvested dividends receive the same
tax
treatment as dividends paid in cash. Such election, or any revocation
thereof,
must be made in writing to the Fund's Distributor at 260 Franklin Street,
15th
Floor, Boston, Massachusetts 02110-9624, and will become effective after
its
receipt by the Distributor with respect to dividends paid.
7
<PAGE>
TSSG, as Transfer Agent, will send each investor or its
authorized
representative, if any, an annual statement designating the amount of
any
dividends and capital gains distributions made during each year and
their
federal tax qualification.
TAXES
The Fund qualified in its last taxable year and intends to qualify in
future
years as a "regulated investment company" under the Internal Revenue Code
of
1986, as amended (the "Code"). A regulated investment company is exempt
from
federal income tax on amounts distributed to its investors.
Qualification as a regulated investment company under the Code for a
taxable
year requires, among other things, that the Fund distribute to its investors
at
least 90% of its investment company taxable income for such year. In
general,
the Fund's investment company taxable income will be its taxable
income
(including interest) subject to certain adjustments and excluding the excess
of
any net long-term capital gain for the taxable year over the net short-
term
capital loss, if any, for such year. The Fund intends to
distribute
substantially all of its investment company taxable income each year.
Such
distributions will be taxable as ordinary income to the Fund's investors who
are
not currently exempt from federal income taxes, whether such income is
received
in cash or reinvested in additional shares. It is anticipated that none of
the
Fund's distributions will be eligible for the dividends received deduction
for
corporations. The Fund does not expect to realize long-term capital gains
and
therefore does not expect to distribute any "capital gain dividends"
as
described in the Code.
** 3 Dividends declared in October, November or December of any year
payable
to investors of record on a specified date in such months will be deemed to
have
been received by the Investors and paid by the Fund on December 31 of such
year
in the event such dividends are actually paid during January of the
following
year.
** 4 To the extent permissible by federal and state law, the Fund
is
structured to provide shareholders with income that is exempt or excluded
from
taxation at the state and local level. Substantially all dividends paid
to
investors residing in certain states will be exempt or excluded from
state
income tax. Many states, by statute, judicial decision or administrative
action,
have taken the position that dividends of a regulated investment company such
as
the Fund that are attributable to interest on direct U.S. Treasury
obligations
are the functional equivalent of interest from such obligations and
are,
therefore, exempt from state and local income taxes. Investors should be
aware
of the application of their state and local tax laws to investments in the
Fund.
** 5 The foregoing is only a brief summary of some of the important
federal
tax considerations generally affecting the Fund and its investors. No attempt
is
made to present a detailed explanation of the federal, state or local income
tax
treatment of the Fund or its investors and this discussion is not intended as
a
substitute for careful tax planning. Accordingly, potential investors in
the
Fund should consult their tax advisors with specific reference to their own
tax
situation.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the
Trust's Board of Trustees. The Trustees approve all significant
agreements
between the Trust and the persons or companies that furnish services to
the
Fund, including agreements with its Distributor, Investment
Adviser,
Administrator, Custodian
8
<PAGE>
and Transfer Agent. The day-to-day operations of the Fund are delegated to
the
Fund's Investment Adviser and Administrator. The Statement of
Additional
Information relating to the Fund contains general background
information
regarding each Trustee and executive officer of the Trust.
DISTRIBUTOR
Lehman Brothers, located at 3 World Financial Center, New York, New
York
10285, is the Distributor of the Fund's shares. Lehman Brothers, a leading
full
service investment firm, meets the diverse financial needs of
individuals,
institutions and governments around the world. Lehman Brothers has entered
into
a Distribution Agreement with the Trust pursuant to which it has
the
responsibility for distributing shares of the Fund.
INVESTMENT ADVISER--LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located at 3
World
Financial Center, New York, New York 10285, serves as the Fund's
Investment
Adviser. LBGAM is a wholly owned subsidiary of Lehman Brothers Holdings
Inc.
("Holdings"). LBGAM, together with other Lehman Brother investment
advisory
affiliates, serves as Investment Adviser to investment companies and
private
accounts in excess of [$15] billion as of _________ _, 1994.
As Investment Adviser to the Fund, LBGAM will among other
things,
participate in the formulation of the Fund's investment policies,
analyze
economic trends affecting the Fund, and monitor and evaluate the
Fund's
investment objective and policies and the Fund's investment performance. For
its
services LBGAM is entitled to receive a monthly fee from the Fund at the
annual
rate of .10% of the value of the Fund's average daily net assets. For the
period
February 8, 1993 (commencement of operations) to January 31, 1994,
LBGAM
received an advisory fee from the Fund in the amount of ._%.
ADMINISTRATOR AND TRANSFER AGENT--THE SHAREHOLDER SERVICES GROUP, INC.
The Shareholder Services Group, Inc. ("TSSG"), located at One
Exchange
Place, 53 State Street, Boston, Massachusetts 02109, serves as the
Fund's
Administrator and Transfer Agent. TSSG is a wholly owned subsidiary of
First
Data Corporation. As Administrator, TSSG calculates the net asset value of
the
Fund's shares and generally assists in all aspects of the Fund's
administration
and operation. As compensation for TSSG's services as Administrator, TSSG
is
entitled to receive from the Fund a monthly fee at the annual rate of .10%
of
the value of the Fund's average daily net assets. TSSG is also entitled
to
receive a fee from the Fund for its services as Transfer Agent. TSSG pays
Boston
Safe, the Fund's Custodian, a portion of its monthly administration fee
for
custody services rendered to the Fund.
CUSTODIAN--BOSTON SAFE DEPOSIT AND TRUST COMPANY
Boston Safe, a wholly owned subsidiary of The Boston Company, Inc.,
located
at One Boston Place, Boston, Massachusetts 02108, serves as the
Fund's
Custodian.
SERVICE ORGANIZATIONS
Financial institutions, such as banks, savings and loan associations
and
other financial institutions ("Service Organizations") and/or
institutional
customers of Service Organizations, may purchase Class B or Class C
shares.
These shares are identical in all respects to Class A shares except that
they
bear the fees described below and enjoy certain exclusive voting rights
on
matters relating to these fees. The Fund will enter into an agreement with
each
Service Organization whose customers ("Customers") are the beneficial owners
of
Class B or Class C shares that requires the Service Organization to
provide
certain services in consideration of the Fund's payment
9
<PAGE>
of service fees at the annual rate of .25% or .35%. respectively, of the
average
daily net asset value of the respective Class beneficially owned by
Customers.
Such services, which are described more fully in the Statement of
Additional
Information under "Management of the Funds--Service Organizations," may
include
aggregating and processing purchase and redemption requests from Customers
and
placing net purchase and redemption orders with Lehman Brothers;
processing
dividend payments from the Fund on behalf of Customers; providing
information
periodically to Customers showing their positions in shares; arranging for
bank
wires; responding to Customer inquiries relating to the services provided by
the
Service Organization and handling correspondence; acting as shareholder
of
record and nominee; and providing reasonable assistance in connection with
the
distribution of shares to Customers. Services provided with respect to Class
B
shares will generally be more limited than those provided with respect to
Class
C shares. Under the terms of the agreements, Service Organizations are
required
to provide to their Customers a schedule of any fees that they may charge to
the
Customers relating to the investment of the Customers' assets in Class B
or
Class C shares. Class A shares are sold to financial institutions that have
not
entered into servicing agreements with the Fund in connection with
their
investments. A salesperson and any other person entitled to receive
compensation
for selling or servicing shares of the Fund may receive different
compensation
for selling or servicing one Class of Shares over another Class.
EXPENSES
The Fund bears all of its own expenses. The Fund's expenses include
taxes,
interest, fees and salaries of the Trust's trustees and officers who are
not
directors, officers or employees of the Fund's service contractors,
Securities
and Exchange Commission fees, state securities qualification fees, costs
of
preparing and printing prospectuses for regulatory purposes and for
distribution
to investors, advisory and administration fees, charges of the
custodian,
transfer agent and dividend disbursing agent, Service Organization fees,
certain
insurance premiums, outside auditing and legal expenses, costs of
shareholder
reports and shareholder meetings and any extraordinary expenses. The Fund
also
pays for brokerage fees and commissions (if any) in connection with the
purchase
and sale of portfolio securities. In order to maintain a competitive
expense
ratio during 1994, LBGAM and TSSG have agreed voluntarily to reimburse the
Fund
if and to the extent that the Fund's total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees under the 1940 Act
and
extraordinary expenses) exceed .16% of average daily net assets through
December
31, 1994. The Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets thereafter. This voluntary reimbursement will not be changed
unless
investors are provided at least 60 days' advance notice. In addition,
these
service providers have agreed to reimburse the Fund to the extent required
by
applicable state law for certain expenses that are described in the Statement
of
Additional Information relating to the Fund. Any fees charged by
Service
Organizations or other institutional investors to their customers in
connection
with investments in Fund shares are not reflected in the Fund's expenses.
YIELDS
** 6 From time to time the "yields", "effective yields" and "tax-
equivalent
yields" of its Class A, Class B and Class C shares may be quoted
in
advertisements or in reports to investors. Yield quotations are
computed
separately for each Class of shares. The "yield" quoted in advertisements for
a
particular class or sub-class of shares refers to the income generated by
an
investment in the shares of such class over a specified period
(such
10
<PAGE>
as a seven-day period) identified in the advertisement. This income is
then
"annualized." That is, the amount of income generated by the investment
during
that week is assumed to be generated each week over a 52-week period and
is
shown as a percentage of the investment. The "effective yield" is
calculated
similarly but, when annualized, the income earned by an investment in
a
particular class or sub-class is assumed to be reinvested. The "effective
yield"
will be slightly higher than the "yield" because of the compounding effect
of
this assumed reinvestment. The "tax-equivalent yield" demonstrates the level
of
taxable yield necessary to produce an after-tax yield equivalent to the
Fund's
tax-free yield for each class or sub-class of shares. It is calculated
by
increasing the yield (calculated as above) by the amount necessary to
reflect
the payment of federal taxes at a stated rate. The "tax-equivalent yield"
will
always be higher than the "yield". Yield quotations are computed separately
for
each class or sub-class of shares.
** 7 The Fund's yields may be compared to those of other mutual funds
with
similar objectives, to stock or other relevant indices, or to rankings
prepared
by independent services or other financial or industry publications that
monitor
the performance of mutual funds. For example, such data are reported in
national
financial publications such as IBC/DONOGHUE'S MONEY FUND REPORT-R-, THE
WALL
STREET JOURNAL and THE NEW YORK TIMES, reports prepared by Lipper
Analytical
Service, Inc. and publications of a local or regional nature.
** 8 THE FUND'S YIELD FIGURES FOR A CLASS OF SHARES REPRESENT
PAST
PERFORMANCE, WILL FLUCTUATE AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE
OF
FUTURE RESULTS. The yield of any investment is generally a function of
portfolio
quality and maturity, type of investment and operating expenses. Since
holders
of Class B or Class C shares bear the service fees for services provided
by
Service Organizations, the net yield on such shares can be expected at any
given
time to be lower than the net yield on Class A shares. Any fees charged
by
Service Organizations or other institutional investors directly to
their
customers in connection with investments in Fund shares are not reflected in
the
Fund's expenses or yields. The methods used to compute the Fund's yields
are
described in more detail in the Statement of Additional Information.
Investors
may call 1-800-238-2560 (Class A shares code: 007; Class B shares code:
107;
Class C shares code: 207) to obtain current yield information.
The yields for Class A and Class B shares for the Fund for the seven-
day
period ended January 31, 1994 were __% and __%, respectively.
DESCRIPTION OF SHARES
* 1 moved from here; text not shown
* moved from here; text not shown
* 3 moved from here; text not shown
* 4 moved from here; text not shown
* 5 moved from here; text not shown
The Trust is a Massachusetts business trust established on November
25,
1992.
The Trust's Declaration of Trust authorizes the Board of Trustees to
issue
an unlimited number of full and fractional shares of beneficial interest in
the
Trust and to classify or reclassify any unissued shares into one or
more
additional classes of shares. The Trust is an open-end management
investment
company, which offers twelve portfolios: Prime Money Market Fund (Class A,
Class
B and Class C), Prime Value Money Market Fund
11
<PAGE>
(Class A, Class B, Class C and Class D), Government Obligations Money
Market
Fund (Class A, Class B, Class C and Class D), 100% Government Obligations
Money
Market Fund (Class A, Class B and Class C), Treasury Instruments Money
Market
Fund II (Class A, Class B and Class C), 100% Treasury Instruments Money
Market
Fund (Class A, Class B and Class C), Tax-Free Money Market Fund (Class A,
Class
B and Class C), Municipal Money Market Fund (Class A, Class B, Class C and
Class
D), California Municipal Money Market Fund (Class A, Class B and Class C),
New
York Municipal Money Market Fund (Class A, Class B and Class C), Floating
Rate
U.S. Government Fund (Class A and Class B) and Short Duration U.S.
Government
Fund (Class A and Class B). Shares of the New York Municipal Money Market
Fund
are not currently sold to the public. The Declaration of Trust
further
authorizes the trustees to classify or reclassify any class of shares into
one
or more sub-classes.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT
OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S
OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
The Trust does not presently intend to hold annual meetings of
shareholders
except as required by the 1940 Act or other applicable law. The Trust will
call
a meeting of shareholders for the purpose of voting upon the question of
removal
of a member of the Board of Trustees upon written request of shareholders
owning
at least 10% of the outstanding shares of the Trust entitled to vote.
Each Fund share represents an equal proportionate interest in the
assets
belonging to the Fund. Each share, which has a par value of $.001, has
no
preemptive or conversion rights. When issued for payment as described in
this
Prospectus, shares will be fully paid and non-assessable.
Holders of the Fund's shares will vote in the aggregate and not by class
on
all matters with the Trust, except where otherwise required by law and
except
that only Class B or Class C shares, as the case may be, will be entitled
to
vote on matters submitted to a vote of shareholders pertaining to the
Fund's
arrangements with Service Organizations with respect to the relevant
Class.
Further, shareholders of all of the Trust's portfolios will vote in
the
aggregate and not by portfolio except as otherwise required by law or when
the
Board of Trustees determines that the matter to be voted upon affects only
the
interests of the shareholders of a particular portfolio. (See the Statement
of
Additional Information under "Miscellaneous" for examples where the 1940
Act
requires voting by portfolio.) Shareholders of the Trust are entitled to
one
vote for each full share held (irrespective of class or portfolio)
and
fractional votes for fractional shares held. Voting rights are not
cumulative;
and, accordingly, the holders of more than 50% of the aggregate shares of
the
Trust may elect all of the trustees.
For information concerning the redemption of Fund shares and
possible
restrictions on their transferability, see "Purchase and Redemption of
Shares."
* 6 moved from here; text not shown
*7 moved from here; text not shown
*8 moved from here; text not shown
12
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
100% Government Obligations Money Market Fund
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
California Municipal Money Market Fund
New York Municipal Money Market Fund
------------------------
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT
OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT
LAWFULLY BE MADE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Background and Expense Information........ 3
Financial Highlights...................... 4
Investment Objective and Policies......... 4
Purchase and Redemption of Shares......... 5
Dividends................................. 7
Taxes..................................... 8
Management of the Fund.................... 8
Yields.................................... 10
Description of Shares..................... 11
</TABLE>
100% TREASURY INSTRUMENTS
MONEY MARKET FUND
-------------------
PROSPECTUS
May __, 1994
---------------------
LEHMAN BROTHERS
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN
RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS
<PAGE>
PROSPECTUS
100% GOVERNMENT OBLIGATIONS MONEY MARKET FUND
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-
load,
open-end, management investment company. The shares described in this
Prospectus
represent interests in the 100% Government Obligations Money Market
Fund
portfolio (the "Fund"), one of a family of money market portfolios of the
Trust.
To the extent permissible by federal and state law, the Fund is
structured
to provide shareholders with income that is exempt or excluded from taxation
at
the state and local level. See "Taxes." The Fund is also designed to provide
an
economical and convenient means for the investment of short-term funds held
by
banks, trust companies, corporations, employee benefit plans and
other
institutional investors. The investment objective of the Fund is to
provide
current income with liquidity and security of principal. The Fund invests
in
those obligations issued or guaranteed as to principal and interest by the
U.S.
government or by agencies or instrumentalities thereof the interest income
from
which, under current law, generally may not be subject to state income tax
by
reason of federal law.
Fund shares may not be purchased by individuals directly, but
institutional
investors may purchase shares for accounts maintained by individuals. The
Fund
currently offers three classes of shares. In addition to Class A
shares,
institutional investors may purchase on behalf of their customers Class B
or
Class C shares which accrue daily dividends in the same manner as Class A
shares
but bear all fees payable by the Fund to institutional investors for
certain
services they provide to the beneficial owners of such shares. See
"Management
of the Fund--Service Organizations."
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
ITS
NET ASSET VALUE OF $1.00 PER SHARE.
LEHMAN BROTHERS, INC. ("LEHMAN BROTHERS") sponsors the Fund and acts
as
Distributor of its shares. LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
serves
as the Fund's Investment Adviser.
The address of the Fund is One Exchange Place, Boston, Massachusetts
02109.
The Fund can be contacted as follows: for purchase and redemption orders
only
call 1-800-851-3134; for yield information call 1-800-238-2560 (Class A
shares
code: 004; Class B shares code: 104; Class C shares code: 204); for
other
information call 1-800-368-5556.
This Prospectus briefly sets forth certain information about the Fund
that
investors should know before investing. Investors are advised to read
this
Prospectus and retain it for future reference. Additional information about
the
Fund, contained in a Statement of Additional Information dated May __, 1994,
as
amended or supplemented from time to time, has been filed with the
Securities
and Exchange Commission and is available to investors without charge by
calling
the Fund's Distributor at 1-800-368-5556. The Statement of
Additional
Information is incorporated in its entirety by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR
ENDORSED BY, ANY BANK, AND SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT
AGENCY. SHARES OF THE FUND INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING
THE
POSSIBLE LOSS OF PRINCIPAL.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
LEHMAN BROTHERS
May __, 1994
<PAGE>
BACKGROUND AND EXPENSE INFORMATION
The following Expense Summary lists the costs and expenses that an
investor
in the Fund can expect to incur during the Fund's current fiscal year
ending
January 31, 1995. The Fund offers three separate classes of shares. Shares
of
each class represent equal, pro rata interests in the Fund and accrue
daily
dividends in the same manner except that Class B and Class C shares bear
fees
payable by the Fund (at the rate of .25% and .35% per annum, respectively)
to
institutions for services they provide to the beneficial owners of such
shares.
See "Management of the Fund--Service Organizations."
EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees
(net applicable fee waivers)....... 0.00%* 0.00%* 0.00%*
Rule 12b-1 fees..................... none .25% .35%
Other Expenses--including
Administration Fees
(net of applicable fee waivers).... 0.16% 0.16%* 0.16%*
------- ------- -------
Total Fund Operating Expenses (after
expense reimbursement)*............ .16% .41% .51%
------- ------- -------
------- ------- -------
<FN>
---------
* The Expense Summary above has been restated to reflect the Fund's
Investment
Adviser's and Administrator's Voluntary reimbursement arrangements in
effect
for the Fund's fiscal year ending January 31, 1995. With respect to Class
A,
Class B and Class C share for the month of January, 1995, the Total
Fund
Operating Expenses including reimbursement of expenses are anticipated to
be
.18%, .43%, and .53%, respectively.
</TABLE>
In order to maintain a competitive expense ratio during 1994, the
Funds'
Investment Adviser and Administrator have voluntarily agreed to reimburse
the
Fund if and to the extent that total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees and
extraordinary
expenses) exceed .16% of average daily net assets through December 31, 1994.
For
the years 1995-1997, the Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets. The voluntary reimbursement arrangements described above will not
be
changed unless shareholders are provided at least 60 days' advance notice.
The
maximum annual contractual fees payable to the Investment Adviser
and
Administrator total .20% of average daily net assets. Absent reimbursement
of
expenses, the Total Fund Operating Expenses of Class A, Class B and Class
C
would be .36%, .61% and .71%, respectively, of the Fund's average daily
net
assets.
---------
EXAMPLE: An investor would pay the following expenses on a $1,000
investment,
assuming (1) a 5% annual return and (2) redemption at the end of each
time
period with respect to the following shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- --------
<S> <C> <C> <C> <C>
Class A shares:..... $2 $ 5 $ 9 $20
Class B shares:..... $4 $13 $23 $52
Class C shares:..... $5 $16 $29 $64
</TABLE>
2
<PAGE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES
AND
RATES OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
The purpose of the foregoing table is to assist an investor in
understanding
the various costs and expenses that an investor in the Fund will bear
directly
or indirectly. Certain Service Organizations (as defined below) also may
charge
their clients fees in connection with investments in Fund shares, which fees
are
not reflected in the table. For more complete descriptions of the various
costs
and expenses, see "Management of the Fund" in this Prospectus and the
Statement
of Additional Information.
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year ended January
31,
1994 is derived from the Fund's Financial Statements audited by Ernst &
Young,
independent accountants. This information should be read in conjunction with
the
financial statements and notes thereto that appear in the Statement
of
Additional Information.
100% GOVERNMENT OBLIGATIONS MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD ENDED
1/31/94*
CLASS A
-------------
<S> <C>
Net asset value, beginning of period......... $1.00
Net investment income(1)..................... 0.0304
Distributions from dividends................. (0.0304)
Net asset value, end of period............... $1.00
Total return(2).............................. 3.09%
Ratios/Supplemental Data:
Net assets, end of period (in 000's)......... $41,709
Ratio of net investment income to average net
assets(3)................................... 3.11%
Ratio of operating expenses to average net
assets(3)(4)................................ 0.06%
<FN>
---------
* The 100% Government Obligations Money Market Fund Class A Shares
commenced
operations on February 8, 1993.
(1) Net investment income before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Investment Adviser and Administrator was $0.0220.
(2) Total return represents aggregate total return for the period indicated.
(3) Annualized.
(4) Annualized expense ratio before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Investment Adviser and Administrator was 0.92%.
</TABLE>
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is current income with liquidity
and
security of principal. The Fund, which operates as a diversified
investment
company, invests in obligations issued or guaranteed as to principal
and
interest by the U.S. government or by agencies or instrumentalities thereof
the
interest income from which, under current law, generally may not be subject
to
state income tax by reason of federal law, including securities issued by
the
U.S. Treasury and by certain agencies or instrumentalities such as the
Federal
Home Loan Bank, Federal Farm Credit Banks Funding Corp. and the Student
Loan
Marketing Association. Investors in a particular state that imposes an
income
tax should determine through consultation with their own tax advisors
whether
such interest income, when distributed by the Fund, will be considered by
the
state to have retained exempt status, and whether the Fund's capital gain
and
other income, if any, when distributed will be subject to the state's
income
tax. See "Taxes." Due to state income tax considerations, the Fund will
not
enter into repurchase agreements.
The Fund invests only in securities that are purchased with and payable
in
U.S. dollars (i.e., U.S. dollar denominated securities) and that have
(or,
pursuant to regulations adopted by the Securities and Exchange Commission,
are
deemed to have) remaining maturities of 13 months or less at the date
of
purchase by the Fund. The Fund maintains a dollar-weighted average
portfolio
maturity of 90 days or less.
Securities issued or guaranteed by the U.S. government, its agencies
and
instrumentalities have historically involved little risk of loss of principal
if
held to maturity. However, due to fluctuations in interest rates, the
market
value of such securities may vary during the period a shareholder owns shares
of
the Fund. The Fund may from time to time engage in portfolio trading
for
liquidity purposes, in order to enhance its yield or if otherwise
deemed
advisable. In selling portfolio securities prior to maturity, the Fund
may
realize a price higher or lower than that paid to acquire any given
security,
depending upon whether interest rates have decreased or increased since
its
acquisition.
The Fund may purchase securities on a "when-issued" basis. When-
issued
securities are securities purchased for delivery beyond the normal
settlement
date at a stated price and yield. The Fund will generally not pay for
such
securities or start earning interest on them until they are received.
Securities
purchased on a when-issued basis are recorded as an asset and are subject
to
changes in value based upon changes in the general level of interest rates.
The
Fund expects that commitments to purchase when-issued securities will not
exceed
25% of the value of its total assets absent unusual market conditions. The
Fund
does not intend to purchase when-issued securities for speculative purposes
but
only in furtherance of its investment objective.
There can be no assurance that the Fund will achieve its
investment
objective.
INVESTMENT LIMITATIONS
The Fund's investment objective and the policies described above may
be
changed by the Trust's Board of Trustees without a vote of shareholders.
If
there is a change in the investment objective, investors should consider
whether
the Fund remains an appropriate investment in light of their then
current
financial position and needs. The Fund's investment limitations summarized
below
may not be changed without the affirmative
4
<PAGE>
vote of the holders of a majority of its outstanding shares. (A complete list
of
the investment limitations that cannot be changed without a vote of
shareholders
is contained in the Statement of Additional Information under
"Investment
Objective and Policies.")
The Fund may not:
1. Borrow money except from banks for temporary purposes and then in
an
amount not exceeding 10% of the value of the Fund's total assets,
or
mortgage, pledge or hypothecate its assets except in connection with
any
such borrowing and in amounts not in excess of the lesser of the
dollar
amounts borrowed or 10% of the value of the Fund's total assets at the
time
of such borrowing. Additional investments will not be made when
borrowings
exceed 5% of the Fund's assets.
2. Make loans except that the Fund may purchase or hold
debt
obligations in accordance with its investment objective and policies.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Shares of the Fund are sold at the net asset value per share of the
Fund
next determined after receipt of a purchase order by Lehman Brothers,
the
Distributor of the Fund's shares. Purchase orders for shares are accepted by
the
Fund only on days on which both Lehman Brothers and the Federal Reserve Bank
of
Boston are open for business and must be transmitted to Lehman Brothers,
by
telephone at 1-800-851-3134. Orders received prior to noon, Eastern time,
for
which payment has been received by Boston Safe Deposit and Trust
Company
("Boston Safe"), the Fund's Custodian, will be executed at noon. Orders
received
between noon and 1:00 P.M., Eastern time, will be executed at 1:00 P.M.,
Eastern
time, if payment has been received by Boston Safe by 1:00 P.M., Eastern
time,
and will be executed at 4:00 P.M. if payment has been received by 4:00
P.M.
Orders received after 1:00 P.M., and orders for which payment has not
been
received by 4:00 P.M., Eastern time, will not be accepted and notice
thereof
will be given to the institution placing the order. Payment for Fund shares
may
be made only in federal funds immediately available to Boston Safe. (Payment
for
orders which are not received or accepted by Lehman Brothers will be
returned
after prompt inquiry to the sending institution.) The Fund may in its
discretion
reject any order for shares.
The minimum aggregate initial investment by an institution in the
investment
portfolios that comprise the Trust is $1 million (with not less than
$25,000
invested in any one investment portfolio offered by the Trust);
however,
broker-dealers and other institutional investors may set a higher minimum
for
their customers. To reach the minimum Trust-wide investment, purchases of
shares
may be aggregated over a period of six months. There is no minimum
subsequent
investment.
Conflict of interest restrictions may apply to an institution's receipt
of
compensation paid by the Fund on fiduciary funds that are invested in Class B
or
Class C shares. See also "Management of the Fund--Service
Organizations."
Institutions, including banks regulated by the Comptroller of the Currency
and
investment advisers and other money managers subject to the jurisdiction of
the
Securities and Exchange Commission, the Department of Labor or state
securities
commissions, should consult their legal advisors before investing
fiduciary
funds in Class B or Class C shares.
5
<PAGE>
SUBACCOUNTING SERVICES. Institutions are encouraged to open single
master
accounts. However, certain institutions may wish to use the Transfer
Agent's
subaccounting system to minimize their internal recordkeeping requirements.
The
Transfer Agent charges a fee based on the level of subaccounting
services
rendered. Institutions holding Fund shares in a fiduciary, agency, custodial
or
similar capacity may charge or pass through subaccounting fees as part of or
in
addition to normal trust or agency account fees. They may also charge fees
for
other services provided which may be related to the ownership of Fund
shares.
This Prospectus should, therefore, be read together with any agreement
between
the customer and the institution with regard to the services provided, the
fees
charged for those services and any restrictions and limitations imposed.
REDEMPTION PROCEDURES
Redemption orders must be transmitted to Lehman Brothers by
telephone
1-800-851-3134. Payment for redeemed shares for which a redemption order
is
received by Lehman Brothers prior to 3:00 P.M., Eastern time, on a day that
both
Lehman Brothers and the Federal Reserve Bank of Boston are open for business
is
normally made in federal funds wired to the redeeming shareholder on the
same
business day. Payment for other redemption orders which are received after
3:00
P.M. and 4:00 P.M., Eastern time, is normally wired in federal funds on the
next
business day following redemption.
Shares are redeemed at the net asset value per share next determined
after
Lehman Brothers' receipt of the redemption order. While the Fund intends to
use
its best efforts to maintain its net asset value per share at $1.00,
the
proceeds paid to an investor upon redemption may be more or less than the
amount
invested depending upon a share's net asset value at the time of redemption.
To
allow the Fund's Investment Adviser to manage the Fund effectively,
investors
are strongly urged to initiate all investments or redemptions of Fund shares
as
early in the day as possible and to notify Lehman Brothers at least one day
in
advance of transactions in excess of $5 million.
The Fund reserves the right to wire redemption proceeds within seven
days
after receiving the redemption order if, in the judgment of the
Investment
Adviser, an earlier payment could adversely affect the Fund. The Fund shall
have
the right to redeem involuntarily shares in any account at their net asset
value
if the value of the account is less than $10,000 after 60 days' prior
written
notice to the investor. Any such redemption shall be effected at the net
asset
value per share next determined after the redemption order is entered. If
during
the 60-day period the investor increases the value of its account to $10,000
or
more, no such redemption shall take place. In addition, the Fund may
redeem
shares involuntarily or suspend the right of redemption as permitted under
the
Investment Company Act of 1940, as amended (the "1940 Act"), or under
certain
special circumstances described in the Statement of Additional Information
under
"Additional Purchase and Redemption Information."
VALUATION OF SHARES--NET ASSET VALUE
The Fund's net asset value per share for purposes of pricing purchase
and
redemption orders is determined by the Fund's Administrator as of noon,
3:00
P.M. and 4:00 P.M., Eastern time, on each weekday, with the exception of
those
holidays on which either Lehman Brothers or the Federal Reserve Bank of
Boston
is closed. Currently, one or both of these institutions are closed on
the
customary national business holidays of New Year's Day, Martin Luther
King,
Jr.'s Birthday (observed), Presidents' Day (Washington's Birthday), Good
Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans
Day,
Thanksgiving Day and Christmas Day, and on the preceding Friday or
subsequent
Monday when one of these holidays falls on a Saturday
or
6
<PAGE>
Sunday, respectively. The net asset value per share of the Fund is calculated
by
adding the value of all securities and other assets belonging to the
Fund,
subtracting liabilities and dividing the result by the total number of
the
Fund's outstanding shares. In computing net asset value, the Fund uses
the
amortized cost method of valuation as described in the Statement of
Additional
Information under "Additional Purchase and Redemption Information." The
Fund's
net asset value per share for purposes of pricing purchase and redemption
orders
is determined independently of the net asset values of the shares of the
Trust's
other investment portfolios.
OTHER MATTERS
Fund shares are sold and redeemed without charge by the Fund.
Institutional
investors purchasing or holding Fund shares for their customer accounts
may
charge customers fees for cash management and other services provided
in
connection with their accounts. A customer should, therefore, consider the
terms
of its account with an institution before purchasing Fund shares. An
institution
purchasing or redeeming shares on behalf of its customers is responsible
for
transmitting orders to Lehman Brothers in accordance with its
customer
agreements.
DIVIDENDS
** 1 Investors of the Fund are entitled to dividends and
distributions
arising only from the net investment income and capital gains, if any, earned
on
its investments held by the Fund. The Fund's net investment income is
declared
daily as a dividend to shares held of record at the close of business on the
day
of declaration. Shares begin accruing dividends on the day the purchase
order
for the shares is effected and continue to accrue dividends through, the
day
before such shares are redeemed. Dividends are paid monthly by wire
transfer,
within five business days after the end of the month or within five
business
days after a redemption of all of a shareholder's shares of a particular
class.
The Fund does not expect to realize net long-term capital gains.
** 2 Dividends are determined in the same manner and are paid in the
same
amount for each share of the Fund share, except that Class B and Class C
shares
bear all the expense of fees paid to Service Organizations. As a result, at
any
given time, the net yield on Class B and Class C shares will be .25% and
.35%,
respectively, lower than the net yield on Class A shares.
Institutional investors may elect to have their dividends reinvested
in
additional full and fractional shares of the same class with respect to
which
such dividends are declared at the net asset value of such shares on the
payment
date. Reinvested dividends receive the same tax treatment as dividends paid
in
cash. Such election, or any revocation thereof, must be made in writing to
as
the Fund's Distributor at 260 Franklin Street, 15th Floor, Boston,
Massachusetts
02110-9624 and will become effective after its receipt by the Distributor
with
respect to dividends paid.
The Shareholder Services Group, Inc. ("TSSG"), as Transfer Agent, will
send
each investor or its authorized representative, if any, an annual
statement
designating the amount, of any dividends and capital gains distributions
made
during each year and their federal tax qualification.
7
<PAGE>
TAXES
The Fund qualified in its last taxable year and intends to qualify in
future
years as a "regulated investment company" under the Internal Revenue Code
of
1986, as amended (the "Code"). A regulated investment company is exempt
from
federal income tax on amounts distributed to its investors.
** 3 Qualification as a regulated investment company under the Code for
a
taxable year requires, among other things, that the Fund distribute to
its
investors at least 90% of its investment company taxable income for such
year.
In general, the Fund's investment company taxable income will be its
taxable
income (including interest) subject to certain adjustments and excluding
the
excess of any net long-term capital gain for the taxable year over the
net
short-term capital loss, if any, for such year. The Fund intends to
distribute
substantially all of its investment company taxable income each year.
Such
distributions will be taxable as ordinary income to the Fund's investors who
are
not currently exempt from federal income taxes, whether such income is
received
in cash or reinvested in additional shares. It is anticipated that none of
the
Fund's distributions will be eligible for the dividends received deduction
for
corporations. The Fund does not expect to realize long-term capital gains
and,
therefore, does not contemplate payment of any "capital gain dividends"
as
described in the Code.
** 4 Dividends declared in October, November or December of any year
payable
to investors of record on a specified date in such months will be deemed to
have
been received by the investors and paid by the Fund on December 31 of such
year
in the event such dividends are actually paid during January of the
following
year.
** 5 To the extent permissible by federal and state law, the Fund
is
structured to provide investors with income that is exempt or excluded
from
taxation at the state and local level. Substantially all dividends paid
to
investors residing in certain states will be exempt or excluded from
state
income tax. Many states, by statute, judicial decision or administrative
action,
have taken the position that dividends of a regulated investment company such
as
the Fund that are attributable to interest on obligations of the U.S.
Treasury
and certain U.S. government agencies and instrumentalities are the
functional
equivalent of interest from such obligations and are, therefore, exempt
from
state and local income taxes. Investors should be aware of the application
of
their state and local tax laws to investments in the Fund.
** 6 The foregoing discussion is only a brief summary of some of
the
important federal tax considerations generally affecting the Fund and
its
investors. No attempt is made to present a detailed explanation of the
federal,
state or local income tax treatment of the Fund or its investors and
this
discussion is not intended as a substitute for careful tax
planning.
Accordingly, potential investors in the Fund should consult their tax
advisors
with specific reference to their own tax situation.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the
Trust's Board of Trustees. The Trustees approve all significant
agreements
between the Trust and the persons or companies that furnish services to
the
Fund, including agreements with its Distributor, Investment
Adviser,
Administrator, Custodian and Transfer Agent. The day-to-day operations of
the
Fund are delegated to the Fund's Investment Adviser and Administrator.
The
Statement of Additional Information relating to the Fund contains
general
background information regarding each Trustee and executive officer of
the
Trust.
8
<PAGE>
DISTRIBUTOR
Lehman Brothers, located at Three World Financial Center, New York, New
York
10285, is the Distributor of the Fund's shares. Lehman Brothers, a leading
full
service investment firm, meets the diverse financial needs of
individuals,
institutions and governments around the world. Lehman Brothers has entered
into
a Distribution Agreement with the Trust pursuant to which it has
the
responsibility for distributing shares of the Fund.
INVESTMENT ADVISER--LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located at 3
World
Financial Center, New York, New York 10285, serves as the Fund's
Investment
Adviser. LBGAM is a wholly owned subsidiary of Lehman Brothers Holdings
Inc.
("Holdings"). LBGAM, together with other Lehman Brother investment
advisory
affiliates, serves as Investment Adviser to investment companies and
private
accounts and has assets under management in excess of [$15] billion as
of
_______, 1994.
As Investment Adviser to the Fund, LBGAM will among other
things,
participate in the formulation of the Fund's investment policies,
analyze
economic trends affecting the Fund, and monitor and evaluate the
Fund's
investment objective and policies and the Fund's investment performance. For
its
services LBGAM is entitled to receive a monthly fee from the Fund at the
annual
rate of .10% of the value of the Fund's average daily net assets. For the
period
February 8, 1993 (commencement of operations) to January 31, 1994,
LBGAM
received an advisory fee from the Fund in the amount of _%.
ADMINISTRATOR AND TRANSFER AGENT--THE SHAREHOLDER SERVICE GROUP, INC.
The Shareholder Services Group, Inc. ("TSSG"), located at One
Exchange
Place, 53 State Street, Boston, Massachusetts 02109, serves as the
Fund's
Administrator and Transfer Agent. TSSG is a wholly owned subsidiary of
First
Data Corporation. As Administrator, TSSG calculates the net asset value of
the
Fund's shares and generally assists in all aspects of the Fund's
administration
and operation. As compensation for TSSG's services as Administrator, TSSG
is
entitled to receive from the Fund a monthly fee at the annual rate of .10%
of
the value of the Fund's average daily net assets. TSSG is also entitled
to
receive a fee from the Fund for its services as Transfer Agent. TSSG pays
Boston
Safe, the Fund's Custodian, a portion of its monthly administration fee
for
custody services rendered to the Fund.
CUSTODIAN--BOSTON SAFE DEPOSIT AND TRUST COMPANY
Boston Safe, a wholly owned subsidiary of The Boston Company, Inc.,
located
at One Boston Place, Boston, Massachusetts 02108, serves as the
Fund's
Custodian.
SERVICE ORGANIZATIONS
Financial institutions, such as banks, savings and loan associations
and
other such institutions ("Service Organizations") and/or institutional
customers
of Service Organizations may purchase Class B or Class C shares. These
shares
are identical in all respects to Class A shares except that they bear the
fees
described below and enjoy certain exclusive voting rights on matters relating
to
these fees. The Fund will enter into an agreement with each Service
Organization
whose customers ("Customers") are the beneficial owners of Class B or Class
C
shares that requires the Service Organization to provide certain services
to
Customers in consideration of the Fund's payment of service fees at the
annual
rate of .25% or .35%, respectively of the average daily net asset value of
the
respective Class beneficially owned by Customers. Such services, which
are
described more fully in the Statement of Additional Information
under
"Management of the Funds Service Organizations," may
include
9
<PAGE>
aggregating and processing purchase and redemption requests from Customers
and
placing net purchase and redemption orders with Lehman Brothers;
processing
dividend payments from the Fund on behalf of Customers; providing
information
periodically to Customers showing their positions in shares; arranging for
bank
wires; responding to Customer inquiries relating to the services provided by
the
Service Organization and handling correspondence; acting as shareholder
of
record and nominee; and providing reasonable assistance in connection with
the
distribution of shares to Customers. Services provided with respect to Class
B
shares will generally be more limited than those provided with respect to
Class
C shares. Under the terms of the agreements, Service Organizations are
required
to provide to their Customers a schedule of any fees that they may
charge
Customers in connection with their investments in Class B or Class C
shares.
Class A shares are sold to financial institutions that have not entered
into
servicing agreements with the Fund in connection with their investments.
A
salesperson and any person entitled to receive compensation for selling
or
servicing shares of the Fund may receive different compensation for selling
or
servicing one Class of shares over another Class.
EXPENSES
The Fund bears all of its own expenses. The Fund's expenses include
taxes,
interest, fees and salaries of the Trust's trustees and officers who are
not
directors, officers or employees of the Fund's service contractors,
Securities
and Exchange Commission fees, state securities qualification fees, costs
of
preparing and printing prospectuses for regulatory purposes and for
distribution
to investors, advisory and administration fees, charges of the
Custodian,
Transfer Agent and dividend disbursing agent, Service Organization fees,
certain
insurance premiums, outside auditing and legal expenses, costs of
shareholder
reports and shareholder meetings and any extraordinary expenses. The Fund
also
pays for brokerage fees and commissions (if any) in connection with the
purchase
and sale of portfolio securities. In order to maintain a competitive
expense
ratio during 1994, LBGAM and TSSG have agreed voluntarily to reimburse the
Fund
if and to the extent that the Fund's total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees under the 1940 Act
and
extraordinary expenses) exceed .16% of average daily net assets through
December
31, 1994. The Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets thereafter. This voluntary reimbursement will not be changed
unless
investors are provided at least 60 days' advance notice. In addition,
these
service providers have agreed to reimburse the Fund to the extent required
by
applicable state law for certain expenses that are described in the Statement
of
Additional Information relating to the Fund. Any fees charged by
Service
Organizations or other institutional investors to their customers in
connection
with investments in Fund shares are not reflected in the Fund's expenses.
YIELDS
** 7 From time to time the "yields", "effective yields" and "tax-
equivalent
yields" for Class A, Class B and Class C shares may be quoted in
advertisements
or in reports to investors. Yield figures are based on historical earnings
and
are not intended to indicate future performance. The "yield" quoted
in
advertisements for a particular class or sub-class of shares refers to
the
income generated by an investment in such shares over a specified period
(such
as a seven-day period) identified in the advertisement. This income is
then
"annualized," that is, the amount of income generated by the investment
during
that period is assumed to be generated each week over a 52-week or one-
year
period and is shown as a percentage of the investment. The "effective yield"
is
calculated similarly but, when annualized, the income earned by an investment
in
a particular class or sub-class
10
<PAGE>
is assumed to be reinvested. The "effective yield" will be slightly higher
than
the "yield" because of the compounding effect of this assumed reinvestment.
The
"tax-equivalent yield" demonstrates the level of taxable yield necessary
to
produce an after-tax yield equivalent to the Fund's tax-free yield for
each
Class of shares. It is calculated by increasing the yield (calculated as
above)
by the amount necessary to reflect the payment of federal taxes at a
stated
rate. The "tax-equivalent yield" will always be higher than the "yield."
Yield
quotations are computed separately for each Class of shares.
** 8 The Fund's yields may be compared to those of other mutual funds
with
similar objectives, to stock or other relevant indices, or to rankings
prepared
by independent services or other financial or industry publications that
monitor
the performance of mutual funds. For example, such data are reported in
national
financial publications such as IBC/DONOGHUE'S MONEY FUND REPORT-R-, THE
WALL
STREET JOURNAL and THE NEW YORK TIMES, reports prepared by LIPPER
ANALYTICAL
SERVICE, INC. and publications of a local or regional nature.
** 9 THE FUND'S YIELD FIGURES FOR A CLASS OF SHARES REPRESENT
PAST
PERFORMANCE, WILL FLUCTUATE AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE
OF
FUTURE RESULTS. The yield of any investment is generally a function of
portfolio
quality and maturity, type of investment and operating expenses. Since
holders
of Class B or Class C shares bear the service fees for services provided
by
Service Organizations, the net yield on such shares can be expected at any
given
time to be lower than the net yield on Class A shares. Any fees charged
by
Service Organizations or other institutional investors directly to
their
customers in connection with investments in Fund shares are not reflected in
the
Fund's expenses or yields. The methods used to compute the Fund's yields
are
described in more detail in the Statement of Additional Information.
Investors
may call 1-800-238-2560 (Class A shares code: 004; Class B shares code:
104;
Class C shares code: 204) to obtain current yield information.
DESCRIPTION OF SHARES AND MISCELLANEOUS
* 1 moved from here; text not shown
* 2 moved from here; text not shown
* 3 moved from here; text not shown
* 4 moved from here; text not shown
* 5 moved from here; text not shown
* 6 moved from here; text not shown
The Trust is a Massachusetts business trust established on November
25,
1992.
The Trust's Declaration of Trust authorizes the Board of Trustees to
issue
an unlimited number of full and fractional shares of beneficial interest in
the
Trust and to classify or reclassify any unissued shares into one or
more
additional classes of shares. The Trust is an open-end management
investment
company, which offers twelve portfolios: Prime Money Market Fund (Class A,
Class
B and Class C), Prime Value Money Market Fund (Class A, Class B, Class C
and
Class D), Government Obligations Money Market Fund (Class A, Class B, Class
C
and Class D) 100% Government Obligations Money Market Fund (Class A, Class B
and
Class C), Treasury Instruments Money Market Fund II (Class A, Class B and
Class
C), 100% Treasury Instruments Money Market Fund (Class A, Class B and Class
C),
Tax-Free Money Market Fund (Class A, Class B and Class C), Municipal
Money
Market Fund (Class A, Class B, Class C and Class D), California Municipal
Money
Market Fund
11
<PAGE>
(Class A, Class B and Class C), New York Municipal Money Market Fund (Class
A,
Class B and Class C), Floating Rate U.S. Government Fund (Class A and Class
B)
and Short Duration U.S. Government Fund (Class A and Class B). Shares of the
New
York Municipal Money Market Fund are not currently sold to the public.
The
Declaration of Trust further authorizes the Trustees to classify or
reclassify
any class of shares into one or more sub-classes.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT
OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S
OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
The Trust does not presently intend to hold annual meetings of
shareholders
except as required by the 1940 Act or other applicable law. The Trust will
call
a meeting of shareholders for the purpose of voting on the question of
removal
of a member of the Board of Trustees upon written request of shareholders
owning
at least 10% of the outstanding shares of the Trust entitled to vote.
Each Fund share represents an equal proportionate interest in the
assets
belonging to the Fund. Each share, which has a par value of $.001, has
no
preemptive or conversion rights. When issued for payment as described in
this
Prospectus, shares will be fully paid and non-assessable.
Holders of the Fund's shares will vote in the aggregate and not by class
on
all matters, except where otherwise required by law and except that only Class
B
or Class C shares, as the case may be, will be entitled to vote on
matters
submitted to a vote of shareholders pertaining to the Fund's arrangements
with
Service Organizations with respect to the relevant Class. Further,
shareholders
of all of the Trust's portfolios will vote in the aggregate and not by
portfolio
except as otherwise required by law or when the Board of Trustees
determines
that the matter to be voted upon affects only the interests of the
shareholders
of a particular portfolio. (See the Statement of Additional Information
under
"Miscellaneous" for examples where the 1940 Act requires voting by
portfolio.)
Shareholders of the Trust are entitled to one vote for each full share
held
(irrespective of class or portfolio) and fractional votes for fractional
shares
held. Voting rights are not cumulative; and, accordingly, the holders of
more
than 50% of the aggregate shares of the Trust may elect all of the trustees.
For information concerning the redemption of Fund shares and
possible
restrictions on their transferability, see "Purchase and Redemption of
Shares."
* 7 moved from here; text not shown
* 8 moved from here; text not shown
* 9 moved from here; text not shown
12
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
100% Government Obligations Money Market Fund
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
California Municipal Money Market Fund
New York Municipal Money Market Fund
------------------------
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT
OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT
LAWFULLY BE MADE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Background and Expense Information........ 2
Financial Highlights...................... 3
Investment Objective and Policies......... 4
Purchase and Redemption of Shares......... 5
Dividends................................. 7
Taxes..................................... 8
Management of the Fund.................... 8
Yields.................................... 10
Description of Shares..................... 11
</TABLE>
100% GOVERNMENT
OBLIGATIONS
MONEY MARKET FUND
-------------------
PROSPECTUS
May __, 1994
---------------------
LEHMAN BROTHERS
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN
RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
<PAGE>
PROSPECTUS
TREASURY INSTRUMENTS MONEY MARKET FUND
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-
load,
open-end, management investment company. The shares described in this
Prospectus
represent interests in the Treasury Instruments Money Market Fund portfolio
(the
"Fund"), one of a family of money market portfolios of the Trust.
The Fund's INVESTMENT OBJECTIVE is to provide current income with
liquidity
and security of principal. The Fund invests in a portfolio consisting of
U.S.
Treasury bills, notes and direct obligations of the U.S. Treasury and
repurchase
agreements relating to direct Treasury obligations.
Fund shares may not be purchased by individuals directly, but
INSTITUTIONAL
INVESTORS MAY PURCHASE SHARES for accounts maintained by individuals. The
Fund
currently offers three classes of shares. In addition to Class A
shares,
institutional investors may purchase on behalf of their customers Class B
or
Class C shares which accrue daily dividends in the same manner as Class A
shares
but bear all fees payable by the Fund to institutional investors for
certain
services they provide to the beneficial owners of such shares. See
"Management
of the Fund--Service Organizations."
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
ITS
NET ASSET VALUE OF $1.00 PER SHARE.
LEHMAN BROTHERS, INC. ("LEHMAN BROTHERS") sponsors the Fund and acts
as
Distributor of its shares. LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
serves
as the Fund's Investment Adviser.
The address of the Fund is One Exchange Place, Boston, Massachusetts
02109.
The Fund can be contacted as follows: FOR PURCHASE AND REDEMPTION ORDERS
ONLY
CALL 800-851-3134; for yield information call 800-238-2560 (Class A shares
code:
005; Class B shares code: 105; Class C shares code: 205); for other
information
call 800-368-5556.
This Prospectus briefly sets forth certain information about the Fund
that
investors should know before investing. Investors are advised to read
this
Prospectus and retain it for future reference. Additional information about
the
Fund, contained in a Statement of Additional Information dated May __, 1994,
as
amended or supplemented from time to time, has been filed with the
Securities
and Exchange Commission and is available to investors without charge by
calling
the Fund's distributor at 800-368-5556. The Statement of Additional
Information
is incorporated in its entirety by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR
ENDORSED BY, ANY BANK, AND SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT
AGENCY. SHARES OF THE FUND INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING
THE
POSSIBLE LOSS OF PRINCIPAL.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
LEHMAN BROTHERS
May __, 1994
<PAGE>
BACKGROUND AND EXPENSE INFORMATION
The following Expense Summary lists the costs and expenses that an
investor
in the Fund can expect to incur during the Fund's current fiscal year
ending
January 31, 1995. The Fund offers three separate classes of shares. Shares
of
each class represent equal, pro rata interests in the Fund and accrue
daily
dividends in the same manner except that Class B and C shares bear fees
payable
by the Fund (at the rate of .25% and .35% per annum, respectively)
to
institutional investors for services they provide to the beneficial owners
of
such shares. See "Management of the Fund--Service Organizations."
EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees
(net of applicable fee waivers).... 0.09%* 0.09%* 0.09%*
Rule 12b-1 fees..................... none .25% .35%
Other Expenses--including
Administration Fees
(net of applicable fee waivers).... 0.06% 0.06%* 0.06%*
------- ------- -------
Total Fund Operating Expenses (after
fee waivers)*...................... .16% .41% .51%
------- ------- -------
------- ------- -------
<FN>
---------
* The Expense Summary above has been restated to reflect the Fund's
Investment
Adviser's and Administrator's Voluntary reimbursement arrangements in
effect
for the Fund's fiscal year ending January 31, 1995. With respect to Class
A,
Class B and Class C share for the month of January, 1995, the Total
Fund
Operating Expenses including reimbursement of expenses are anticipated to
be
.18%, .43%, and .53%, respectively.
</TABLE>
In order to maintain a competitive expense ratio during 1994, the
Funds'
Investment Adviser and Administrator have voluntarily agreed to reimburse
the
Fund if and to the extent that total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees and
extraordinary
expenses) exceed .16% of average daily net assets through December 31, 1994.
For
the years 1995-1997, the Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets. The voluntary reimbursement arrangements described above will not
be
changed unless shareholders are provided at least 60 days' advance notice.
The
maximum annual contractual fees payable to the Investment Adviser
and
Administrator total .20% of average daily net assets. Absent reimbursement
of
expenses, the Total Fund Operating Expenses of Class A, Class B and Class
C
would be .25%, .50% and .60%, respectively, of the Fund's average daily
net
assets.
---------
EXAMPLE: An investor would pay the following expenses on a $1,000
investment,
assuming (1) a 5% annual return and (2) redemption at the end of each
time
period with respect to the following shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- --------
<S> <C> <C> <C> <C>
Class A shares:..... $2 $ 5 $ 9 $20
Class B shares:..... $4 $13 $23 $52
Class C shares:..... $5 $16 $29 $64
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES
AND
RATES OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
The purpose of the foregoing table is to assist an investor in
understanding
the various costs and expenses that an investor in the Fund will bear
directly
or indirectly. Certain Service Organizations (as defined below) also may
charge
their clients fees in connection with investments in Fund shares, which fees
are
not reflected in the table. For more complete descriptions of the various
costs
and expenses, see "Management of the Fund" in this Prospectus and the
Statement
of Additional Information.
FINANCIAL HIGHLIGHTS
TREASURY INSTRUMENTS MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
1/31/94* 1/31/94*
------------- -------------
<S> <C> <C>
CLASS A CLASS B
------------- -------------
Net asset value, beginning of period......... $1.00 $1.00
------------- -------------
Net investment income(1)..................... 0.0292 0.0100
Dividends from net investment income......... (0.0292) (0.0100)
------------- -------------
Net asset value, end of period............... $1.00 $1.00
------------- -------------
------------- -------------
Total return(2).............................. 2.94% 1.00%
------------- -------------
------------- -------------
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's)....... $ 3,000 --#
Ratio of net investment income to average
net assets(3)............................. 2.99% 2.74%
Ratio of operating expenses to average net
assets(3)(4).............................. 0.00% 0.25%
<FN>
---------
* The Treasury Instruments Money Market Fund Class A and Class B
Shares
commenced operations on February 8, 1993, and April 21,
1993,
respectively.
(1) Net investment loss before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Investment Adviser and Administrator for Class A and Class B
were
$(0.0003) and $(0.0010), respectively.
(2) Total return represents aggregate total return for the period indicated.
(3) Annualized.
(4) Annualized expense ratio before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Investment Adviser and Administrator for Class A and Class B were
3.02%
and 3.27%, respectively.
# Total net assets for Class B was $100 at January 31, 1994.
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is current income with liquidity
and
security of principal. The Fund, which operates as a diversified
investment
company, invests solely in direct obligations of the U.S. Treasury, such
as
Treasury bills and notes and repurchase agreements relating to direct
Treasury
obligations. The Fund invests only in securities which are purchased with
and
payable in U.S. dollars (I.E., U.S. dollar denominated
securities)
3
<PAGE>
and which have (or, pursuant to regulations adopted by the Securities
and
Exchange Commission, are deemed to have) remaining maturities of 13 months
or
less at the date of purchase by the Fund. The Fund maintains a dollar-
weighted
average portfolio maturity of 90 days or less.
Securities issued or guaranteed by the U.S. Government have
historically
involved little risk of loss of principal if held to maturity. However, due
to
fluctuations in interest rates, the market value of such securities may
vary
during the period a shareholder owns shares of the Fund. Certain
government
securities held by the Fund may have remaining maturities exceeding
thirteen
months if such securities provide for adjustments in their interest rates
not
less frequently than every thirteen months.
The Fund may purchase government securities from financial
institutions,
such as banks and broker-dealers, subject to the seller's agreement
to
repurchase them at an agreed upon time and price ("repurchase agreements").
The
Fund will not invest more than 10% of the value of its net assets in
repurchase
agreements which do not provide for settlement within seven days. The
seller
under a repurchase agreement will be required to maintain the value of
the
securities subject to the agreement at not less than the repurchase
price
(including accrued interest). Default by or bankruptcy of the seller
would,
however, expose the Fund to possible loss because of adverse market action
or
delay in connection with the disposition of the underlying obligations.
The Fund may borrow funds for temporary purposes by entering into
reverse
repurchase agreements in accordance with the investment restrictions
described
below. Pursuant to such agreements, the Fund would sell portfolio securities
to
financial institutions and agree to repurchase them at an agreed upon date
and
price. The Fund would consider entering into reverse repurchase agreements
to
avoid otherwise selling securities during unfavorable market conditions to
meet
redemptions. Reverse repurchase agreements involve the risk that the
market
value of the portfolio securities sold by the Fund may decline below the
price
of the securities the Fund is obligated to repurchase.
The Fund may purchase securities on a "when-issued" basis. When-
issued
securities are securities purchased for delivery beyond the normal
settlement
date at a stated price and yield. The Fund will generally not pay for
such
securities or start earning interest on them until they are received.
Securities
purchased on a when-issued basis are recorded as an asset and are subject
to
changes in value based upon changes in the general level of interest rates.
The
Fund expects that commitments to purchase when-issued securities will not
exceed
25% of the value of its total assets absent unusual market conditions. The
Fund
does not intend to purchase when-issued securities for speculative purposes
but
only in furtherance of its investment objective.
The Fund may also lend its portfolio securities to financial institutions
in
accordance with the investment restrictions described below. The Fund may
lend
portfolio securities against collateral consisting of cash or securities
which
are consistent with the Fund's permitted investments, which is equal at
all
times to at least 100% of the value of the securities loaned. There is
no
limitation on the amount of securities that may be loaned. Such loans
would
involve risks of delay in receiving additional collateral or in recovering
the
securities loaned or even loss of rights in the collateral should the
borrower
of the securities fail financially. However, loans will be made only
to
borrowers deemed by the Fund's investment adviser to be of good standing
and
only when, in the adviser's judgment, the income to be earned from the
loans
justifies the attendant risks.
There can be no assurance that the Fund will achieve its
investment
objective.
INVESTMENT LIMITATIONS
The Fund's investment objective and policies described above are
not
fundamental and may be changed by the Trust's Board of Trustees without a
vote
of shareholders. If there is a change in the investment objective,
shareholders
should consider whether the Fund remains an appropriate investment in light
of
their then current financial position and needs. The Fund's borrowing
limitation
summarized below may not be changed without
4
<PAGE>
the affirmative vote of the holders of majority of its outstanding shares.
(A
complete list of the investment limitations that cannot be changed without
a
vote of shareholders is contained in the Statement of Additional
Information
under "Investment Objective and Policies.")
The Fund may not borrow money except from banks for temporary purposes
and
then in an amount not exceeding 10% of the value of the Fund's total assets,
or
mortgage, pledge or hypothecate its assets except in connection with any
such
borrowing and in amounts not in excess of the lesser of the dollar
amounts
borrowed or 10% of the value of the Fund's total assets at the time of
such
borrowing. Additional investments will not be made when borrowings exceed 5%
of
the Fund's assets.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Shares of the Fund are sold at the net asset value per share of the
Fund
next determined after receipt of a purchase order by Lehman Brothers,
the
Distributor of the Fund's shares. Purchase orders for shares are accepted by
the
Fund only on days on which both Lehman Brothers and the Federal Reserve Bank
of
Boston are open for business and must be transmitted to Lehman Brothers,
by
telephone at 800-851-3134. Orders received before noon, Eastern time, for
which
payment has been received by Boston Safe Deposit and Trust Company
("Boston
Safe"), the Fund's custodian, will be executed at noon. Orders received
between
noon and 3:00 P.M., Eastern time, will be executed at 3:00 P.M., Eastern
time,
if payment has been received by Boston Safe by 3:00 P.M. and will be executed
at
4:00 P.M. if payment has been received by 4:00 P.M. Orders received after
3:00
P.M. and orders for which payment has not been received by 4:00 P.M.,
Eastern
time, will not be accepted and notice thereof will be given to the
institution
placing the order. Payment for Fund shares may be made only in federal
funds
immediately available to Boston Safe. (Payment for orders which are not
received
or accepted by Lehman Brothers will be returned after prompt inquiry to
the
sending institution.) The Fund may in its discretion reject any order
for
shares.
The minimum aggregate initial investment by an institution in the
investment
portfolios that comprise the Trust is $1 million (with not less than
$25,000
invested in any one investment portfolio offered by the Trust);
however,
broker-dealers and other institutional investors may set a higher minimum
for
their customers. To reach the minimum Trust-wide initial investment,
purchases
of shares may be aggregated over a period of six months. There is no
minimum
subsequent investment.
Conflict of interest restrictions may apply to an institution's receipt
of
compensation paid by the Fund on fiduciary funds that are invested in Class B
or
Class C shares. See also "Management of the Fund--Service
Organizations."
Institutions, including banks regulated by the Comptroller of the Currency
and
investment advisers and other money managers subject to the jurisdiction of
the
Securities and Exchange Commission, the Department of Labor or state
securities
commissions, should consult their legal advisors before investing
fiduciary
funds in Class B or Class C shares.
SUBACCOUNTING SERVICES. Institutions are encouraged to open single
master
accounts. However, certain institutions may wish to use the transfer
agent's
subaccounting system to minimize their internal recordkeeping requirements.
The
transfer agent charges a fee based on the level of subaccounting
services
rendered. Institutions holding Fund shares in a fiduciary, agency, custodial
or
similar capacity may charge or pass through subaccounting fees as part of or
in
addition to normal trust or agency account fees. They may also charge fees
for
other services provided which may be related to the ownership of Fund
shares.
This Prospectus should, therefore, be read together with any agreement
between
the customer and the institution with regard to the services provided, the
fees
charged for those services and any restrictions and limitations imposed.
5
<PAGE>
REDEMPTION PROCEDURES
Redemption orders must be transmitted to Lehman Brothers at 1-800-581-
3134.
Payment for redeemed shares for which a redemption order is received by
Lehman
Brothers before 3:00 P.M., Eastern time, on a day that both Lehman Brothers
and
the Federal Reserve Bank of Boston are open for business is normally made
in
federal funds wired to the redeeming shareholder on the same business
day.
Payment for other redemption orders which are received between 3:00 P.M.
and
4:00 P.M., Eastern time, is normally wired in federal funds on the next
business
day following redemption.
Shares are redeemed at the net asset value per share next determined
after
Lehman Brothers' receipt of the redemption order. While the Fund intends to
use
its best efforts to maintain its net asset value per share at $1.00,
the
proceeds paid to a shareholder upon redemption may be more or less than
the
amount invested depending upon a share's net asset value at the time
of
redemption. To allow the Fund's investment adviser and sub-investment adviser
to
manage the Fund effectively, investors are strongly urged to initiate
all
investments or redemptions of Fund shares as early in the day as possible and
to
notify Lehman Brothers at least one day in advance of transactions in excess
of
$5 million.
The Fund reserves the right to wire redemption proceeds within seven
days
after receiving the redemption order if, in the judgment of the
Investment
Adviser, an earlier payment could adversely affect the Fund. The Fund shall
have
the right to redeem involuntarily shares in any account at their net asset
value
if the value of the account is less than $10,000 after sixty days' prior
written
notice to the shareholder. Any such redemption shall be effected at the
net
asset value per share next determined after the redemption order is entered.
If
during the sixty-day period the shareholder increases the value of its
account
to $10,000 or more, no such redemption shall take place. In addition, the
Fund
may redeem shares involuntarily or suspend the right of redemption as
permitted
under the Investment Company Act of 1940, as amended (the "1940 Act"), or
under
certain special circumstances described in the Statement of
Additional
Information under "Additional Purchase and Redemption Information."
VALUATION OF SHARES--NET ASSET VALUE
The Fund's net asset value per share for purposes of pricing purchase
and
redemption orders is determined by the Fund's administrator as of noon,
3:00
P.M. and 4:00 P.M., Eastern time, on each weekday, with the exception of
those
holidays on which either Lehman Brothers or the Federal Reserve Bank of
Boston
is closed. Currently, one or both of these institutions are closed on
customary
national business holidays of New Year's Day, Martin Luther King, Jr.
Day,
Presidents' Day (Washington's Birthday), Good Friday, Memorial Day
(observed),
Independence Day (observed), Labor Day, Columbus Day, Veterans Day,
Thanksgiving
Day and Christmas Day and on the preceding Friday or subsequent Monday when
one
of these holidays falls on a Saturday or Sunday, respectively. The net
asset
value per share of the Fund is calculated by adding the value of all
securities
and other assets belonging to the Fund, subtracting liabilities and dividing
the
result by the total number of the Fund's outstanding shares. In computing
net
asset value, the Fund uses the amortized cost method of valuation as
described
in the Statement of Additional Information under "Additional Purchase
and
Redemption Information." The Fund's net asset value per share for purposes
of
pricing purchase and redemption orders is determined independently of the
net
asset values of the shares of the Trust's other investment portfolios.
OTHER MATTERS
Fund shares are sold and redeemed without charge by the Fund.
Institutional
investors purchasing or holding Fund shares for their customer accounts
may
charge customers fees for cash management and other services provided
in
connection with their accounts. A customer should, therefore, consider the
terms
of its
6
<PAGE>
account with an institution before purchasing Fund shares. An
institution
purchasing or redeeming shares on behalf of its customers is responsible
for
transmitting orders to Lehman Brothers in accordance with its
customer
agreements.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the
Trust's Board of Trustees. The Trustees approve all significant
agreements
between the Trust and the persons or companies that furnish services to
the
Fund, including agreements with its Distributors, Investment
Adviser,
Administrator, Custodian and Transfer Agent. The day-to-day operations of
the
Fund are delegated to the Fund's Investment Adviser and Administrator.
The
Statement of Additional Information relating to the Fund contains
general
background information regarding each Trustee and executive officer of
the
Trust.
DISTRIBUTOR
Lehman Brothers, located at Three World Financial Center, New York, New
York
10285, is the Distributor of the Fund's shares. Lehman Brothers, a leading
full
service investment firm, meets the diverse financial needs of
individuals,
institutions and governments around the world. Lehman Brothers has entered
into
a Distribution Agreement with the Trust pursuant to which it has
the
responsibility for distributing shares of the Fund.
INVESTMENT ADVISER--LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located at 3
World
Financial Center, New York, New York 10285, serves as the Fund's
Investment
Adviser. LBGAM is a wholly owned subsidiary of Lehman Brothers Holdings
Inc.
("Holdings"). LBGAM, together with other Lehman Brothers investment
advisory
affiliates, serves as Investment Adviser to investment companies and
private
accounts and has assets under Management in excess of $15 billion.
As Investment Adviser to the Fund, LBGAM will, among other
things,
participate in the formulation of the Fund's investment policies,
analyze
economic trends affecting the Fund and monitor and evaluate the
Fund's
investment objective and policies and the Fund's performance. For its
services
LBGAM will be paid a monthly fee by the Fund at the annual rate of .10% of
the
value of the Fund's average daily net assets. For the period February 8,
1993
(commencement of operations) to January 31, 1994, LBGAM received an advisory
fee
from the Fund in the amount of .__% of average daily net assets.
ADMINISTRATOR AND TRANSFER AGENT--SHAREHOLDER SERVICES GROUP
The Shareholder Services Group, Inc. ("TSSG"), located at One
Exchange
Place, 53 State Street, Boston, Massachusetts 02109, serves as the
Fund's
Administrator and Transfer Agent. TSSG is a wholly owned subsidiary of
First
Data Corporation. As Administrator, TSSG calculates the net asset value of
the
Fund's shares and generally assists in all aspects of the Fund's
administration
and operation. As compensation for TSSG's services as Administrator, TSSG
is
entitled to receive from the Fund a monthly fee at the annual rate of 10% of
the
value of the Fund's average daily net assets. TSSG is also entitled to receive
a
fee from the Fund for its services as Transfer Agent. TSSG pays Boston Safe,
the
Fund's Custodian, a portion of its monthly administration fee for
custody
services rendered to the Fund.
CUSTODIAN--BOSTON SAFE DEPOSIT AND TRUST COMPANY
Boston Safe, a wholly owned subsidiary of The Boston Company, Inc.,
located
at One Boston Place, Boston, Massachusetts 02108, serves as the
Fund's
Custodian.
7
<PAGE>
SERVICE ORGANIZATIONS
Institutional investors, such as banks, savings and loan associations
and
other financial institutions ("Service Organizations") and/or
institutional
customers of Service Organizations may purchase Class B or Class C shares.
These
shares are identical in all respects to Class A shares except that they bear
the
fees described below and enjoy certain exclusive voting rights on
matters
relating to these fees. The Fund will enter into an agreement with each
Service
Organization whose customers ("Customers") are the beneficial owners of Class
B
or Class C shares that requires the Service Organization to provide
certain
services to Customers in consideration of the Fund's payment of service fees
at
the annual rate of .25% or .35%, respectively of the average daily net
asset
value of the respective class beneficially owned by Customers. Such
services,
which are described more fully in the Statement of Additional Information
under
"Management of the Funds--Service Organizations," include aggregating
and
processing purchase and redemption requests from Customers and placing
net
purchase and redemption orders with Lehman Brothers; processing
dividend
payments from the Fund on behalf of Customers; providing
information
periodically to Customers showing their positions in shares; arranging for
bank
wires; responding to customer inquiries relating to the services provided by
the
Service Organization and handling correspondence; and acting as shareholder
of
record and nominee; and providing reasonable assistance in connection with
the
distribution of shares to Customers. Services provided with respect to Class
B
shares will generally be more limited than those provided with respect to
Class
C shares. Under the terms of the agreements, Service Organizations are
required
to provide to their Customers a schedule of any fees that they may
charge
Customers in connection with their investments in Class B or Class C
shares.
Class A shares are sold to institutions that have not entered into
servicing
agreements with the Fund in connection with their investments. A salesperson
and
any other person entitled to receive compensation for selling or
servicing
shares of the Fund may receive different compensation for selling or
servicing
one Class of shares over another Class.
EXPENSES
The Fund bears all of its own expenses. The Fund's expenses include
taxes,
interest, fees and salaries of the Trust's trustees and officers who are
not
directors, officers or employees of the Fund's service contractors,
Securities
and Exchange Commission fees, state securities qualification fees, costs
of
preparing and printing prospectuses for regulatory purposes and for
distribution
to shareholders, advisory and administration fees, charges of the
custodian,
transfer agent and dividend disbursing agent, Service Organization fees,
certain
insurance premiums, outside auditing and legal expenses, costs of
shareholder
reports and shareholder meetings and any extraordinary expenses. The Fund
also
pays for brokerage fees and commissions (if any) in connection with the
purchase
and sale of portfolio securities. In order to maintain a competitive
expense
ratio during 1994, LBGAM, and TSSG have agreed voluntarily to reimburse the
Fund
if and to the extent that the Fund's total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees under the 1940 Act
and
extraordinary expenses) exceed .16% of average daily net assets through
December
31, 1994. The investment adviser and administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets thereafter. This voluntary reimbursement will not be changed
unless
shareholders are provided at least 60 days' advance notice. In addition,
these
service providers have agreed to reimburse the Fund to the extent required
by
applicable state law for certain expenses that are described in the Statement
of
Additional Information relating to the Fund. Any fees charged by
Service
Organizations or other institutional investors to their customers in
connection
with investments in Fund shares are not reflected in the Fund's expenses.
8
<PAGE>
DIVIDENDS
Shareholders of the Fund are entitled to dividends and distributions
arising
only from the net investment income and capital gains, if any, earned on
its
investments held by the Fund. The Fund's net investment income is declared
daily
as a dividend to shares held of record at the close of business on the day
of
declaration. Shares begin accruing dividends on the day the purchase order
for
the shares is effected and continue to accrue dividends through the day
before
such shares are redeemed. Dividends are paid monthly by wire transfer
within
five business days after the end of the month or within five business days
after
a redemption of all of a shareholder's shares of a particular class. The
Fund
does not expect to realize net long-term capital gains.
Dividends are determined in the same manner and are paid in the same
amount
for each share of the Fund except that Class B and Class C shares bear all
the
expense of fees paid to Service Organizations. As a result, at any given
time,
the net yield on Class B and Class C shares will be .25% and .35%,
respectively,
lower than the net yield on Class A shares.
Institutional shareholders may elect to have their dividends reinvested
in
additional full and fractional shares of the same class at the net asset
value
of such shares on the payment date. Reinvested dividends receive the same
tax
treatment as dividends paid in cash. Such election, or any revocation
thereof,
must be made in writing to the Fund's Distributor at 260 Franklin Street,
15th
Floor, Boston, Massachusetts 02110-9624, and will become effective after
its
receipt by TSSG with respect to dividends paid.
TSSG, as transfer agent, will send each Fund shareholder or its
authorized
representative an annual statement designating the amount, if any, of
any
dividends and distributions made during each year and their federal
tax
qualification.
TAXES
The Fund qualified in its last taxable year and intends to qualify each
year
as a "regulated investment company" under the Internal Revenue Code of 1986,
as
amended (the "Code"). A regulated investment company is exempt from
federal
income tax on amounts distributed to its shareholders.
Qualification as a regulated investment company under the Code for a
taxable
year requires, among other things, that the Fund distribute to its
shareholders
at least 90% of its investment company taxable income for such year. In
general,
the Fund's investment company taxable income will be its taxable
income
(including interest) subject to certain adjustments and excluding the excess
of
any net long-term capital gain for the taxable year over the net short-
term
capital loss, if any, for such year. The Fund intends to
distribute
substantially all of its investment company taxable income each year.
Such
distributions will be taxable as ordinary income to the Fund's shareholders
who
are not currently exempt from federal income taxes, whether such income
is
received in cash or reinvested in additional shares. It is anticipated that
none
of the Fund's distributions will be eligible for the dividends
received
deduction for corporations. The Fund does not expect to realize long-
term
capital gains and therefore does not expect to distribute any "capital
gain
dividends" as described in the Code.
Dividends declared in October, November or December of any year payable
to
shareholders of record on a specified date in such months will be deemed to
have
been received by the shareholders and paid by the Fund on December 31 of
such
year in the event such dividends are actually paid during January of
the
following year.
MANY STATES, BY STATUTE, JUDICIAL DECISION OR ADMINISTRATIVE ACTION,
HAVE
TAKEN THE POSITION THAT DIVIDENDS OF A REGULATED INVESTMENT COMPANY SUCH AS
THE
FUND THAT ARE ATTRIBUTABLE TO INTEREST ON OBLIGATIONS OF THE U.S. TREASURY
AND
CERTAIN U.S. GOVERNMENT AGENCIES AND INSTRUMENTALITIES ARE THE
FUNCTIONAL
EQUIVALENT OF INTEREST FROM SUCH OBLIGATIONS AND ARE, THEREFORE, EXEMPT
FROM
STATE AND LOCAL INCOME TAXES.
9
<PAGE>
THE FUND WILL PROVIDE INVESTORS ANNUALLY WITH INFORMATION ABOUT THE
PORTION
OF DIVIDENDS FROM THE FUND DERIVED FROM U.S. TREASURY AND U.S. GOVERNMENT
AGENCY
OBLIGATIONS. INVESTORS SHOULD BE AWARE OF THE APPLICATION OF THEIR STATE
AND
LOCAL TAX LAWS TO INVESTMENTS IN THE FUND.
The foregoing is only a brief summary of some of the important federal
tax
considerations generally affecting the Fund and its shareholders. As
indicated
above, IRAs receive special tax treatment. No attempt is made to present
a
detailed explanation of the federal, state or local income tax treatment of
the
Fund or its shareholders and this discussion is not intended as a substitute
for
careful tax planning. Accordingly, potential investors in the Fund
should
consult their tax advisors with specific reference to their own tax situation.
DESCRIPTION OF SHARES AND MISCELLANEOUS
The Trust is a Massachusetts business trust established on November
25,
1992.
The Trust's Declaration of Trust authorizes the Board of Trustees to
issue
an unlimited number of full and fractional shares of beneficial interest in
the
Trust and to classify or reclassify any unissued shares into one or
more
additional classes of shares. The Trust is an open-end management
investment
company, which offers twelve portfolios: Prime Money Market Fund (Class A,
Class
B and Class C), Prime Value Money Market Fund (Class A, Class B, Class C
and
Class D), Government Obligations Money Market Fund (Class A, Class B, Class
C
and Class D), 100% Government Obligations Money Market Fund (Class A, Class
B
and Class C), Treasury Instruments Money Market Fund II (Class A, Class B
and
Class C), 100% Treasury Instruments Money Market Fund (Class A, Class B
and
Class C), Tax-Free Money Market Fund (Class A, Class B and Class C),
Municipal
Money Market Fund (Class A, Class B, Class C and Class D), California
Municipal
Money Market Fund (Class A, Class B and Class C), New York Municipal
Money
Market Fund (Class A, Class B and Class C), Floating Rate U.S. Government
Fund
(Class A and Class B) and Short Duration U.S. Government Fund (Class A and
Class
B). Shares of the New York Municipal Money Market Fund are not currently sold
to
the public. The Declaration of Trust further authorizes the trustees to
classify
or reclassify any class of shares into one or more sub-classes.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT
OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S
OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 800-368-5556.
The Trust does not presently intend to hold annual meetings of
shareholders
except as required by the 1940 Act or other applicable law. The Trust will
call
a meeting of shareholders for the purpose of voting upon the question of
removal
of a member of the Board of Trustees upon written request of shareholders
owning
at least 10% of the outstanding shares of the Trust entitled to vote.
Each Fund share represents an equal proportionate interest in the
assets
belonging to the Fund. Each share, which has a par value of $.001, has
no
preemptive or conversion rights. When issued for payment as described in
this
Prospectus, shares will be fully paid and nonassessable.
Holders of the Fund's shares will vote in the aggregate and not by class
on
all matters, except where otherwise required by law and except that only Class
B
or Class C shares, as the case may be, will be entitled to vote on
matters
submitted to a vote of shareholders pertaining to the Fund's arrangements
with
Service
10
<PAGE>
Organizations with respect to the relevant Class. Further, shareholders of
all
of the Trust's portfolios will vote in the aggregate and not by portfolio
except
as otherwise required by law or when the Board of Trustees determines that
the
matter to be voted upon affects only the interests of the shareholders of
a
particular portfolio. (See the Statement of Additional Information
under
"Miscellaneous" for examples where the 1940 Act requires voting by
portfolio.)
Shareholders of the Trust are entitled to one vote for each full share
held
(irrespective of class or portfolio) and fractional votes for fractional
shares
held. Voting rights are not cumulative; and, accordingly, the holders of
more
than 50% of the aggregate shares of the Trust may elect all of the trustees.
For information concerning the redemption of Fund shares and
possible
restrictions on their transferability, see "Purchase and Redemption of
Shares."
YIELDS
From time to time the "yields" and "effective yields" for Class A, Class
B
and Class C shares may be quoted in advertisements or in reports to
investors.
Yield figures are based on historical earnings and are not intended to
indicate
future performance. The "yield" quoted in advertisements for a particular
class
or sub-class of shares refers to the income generated by an investment in
such
shares over a specified period (such as a seven-day period) identified in
the
advertisement. This income is then "annualized." That is, the amount of
income
generated by the investment during that period is assumed to be generated
each
week over a 52-week period or one-year and is shown as a percentage of
the
investment. The "effective yield" is calculated similarly but, when
annualized,
the income earned by an investment in a particular class or sub-class is
assumed
to be reinvested. The "effective yield" will be slightly higher than the
"yield"
because of the compounding effect of this assumed reinvestment. Yield
quotations
are computed separately for each Class of shares.
The Fund's yields may be compared to those of other mutual funds
with
similar objectives, to stock or other relevant indices, or to rankings
prepared
by independent services or other financial or industry publications that
monitor
the performance of mutual funds. For example, such data are reported in
national
financial publications such as IBC/DONOGHUE'S MONEY FUND REPORT-R-, THE
WALL
STREET JOURNAL and THE NEW YORK TIMES, reports prepared by Lipper
Analytical
Service, Inc. and publications of a local or regional nature.
THE FUND'S YIELD FIGURES FOR A CLASS OF SHARES REPRESENT PAST
PERFORMANCE,
WILL FLUCTUATE AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE
RESULTS.
The yield of any investment is generally a function of portfolio quality
and
maturity, type of investment and operating expenses. Since holders of Class B
or
Class C shares bear the service fees for services provided by
Service
Organizations, the net yield on such shares can be expected at any given time
to
be lower than the net yield on Class A shares. Any fees charged by
Service
Organizations or other institutional investors directly to their customers
in
connection with investments in Fund shares are not reflected in the
Fund's
expenses or yields. The methods used to compute the Fund's yields are
described
in more detail in the Statement of Additional Information. Investors may
call
800-238-2560 (Class A shares code: 005; Class B shares code: 105; Class C
shares
code: 205) to obtain current yield information.
11
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
100% Government Obligations Money Market Fund
Treasury Instruments Money Market Fund
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
California Municipal Money Market Fund
New York Municipal Money Market Fund
---------------------
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
---------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT
OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST
OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT
LAWFULLY BE MADE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Background and Expense Information.......... 2
Investment Objective and Policies........... 3
Purchase and Redemption of Shares........... 5
Management of the Fund...................... 7
Dividends................................... 9
Taxes....................................... 9
Description of Shares and
Miscellaneous............................. 10
Yields...................................... 11
</TABLE>
TREASURY INSTRUMENTS
MONEY MARKET FUND
-------------
PROSPECTUS
May __, 1994
---------------------
LEHMAN BROTHERS
<PAGE>
PROSPECTUS
TREASURY INSTRUMENTS MONEY MARKET FUND II
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-
load,
open-end management investment company. The shares described in this
Prospectus
represent interests in the Treasury Instruments Money Market Fund II
portfolio
(the "Fund"), one of a family of money market portfolios of the Trust.
The Fund's INVESTMENT OBJECTIVE is to provide current income with
liquidity
and security of principal. The Fund invests in a portfolio consisting of
U.S.
Treasury bills, notes and direct obligations of the U.S. Treasury and
repurchase
agreements relating to direct Treasury obligations.
Fund shares may not be purchased by individuals directly, but
institutional
investors may purchase shares for accounts maintained by individuals. The
Fund
currently offers three classes of shares. In addition to Class A
shares,
institutional investors may purchase on behalf of their customers Class B
or
Class C shares which accrue daily dividends in the same manner as Class A
shares
but bear all fees payable by the Fund to institutional investors for
certain
services they provide to the beneficial owners of such shares. See
"Management
of the Fund--Service Organizations."
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
ITS
NET ASSET VALUE OF $1.00 PER SHARE.
LEHMAN BROTHERS, INC. ("Lehman Brothers") sponsors the Fund and acts
as
Distributor of its shares. LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
serves
as the Fund's Investment Adviser.
The address of the Fund is One Exchange Place, Boston, Massachusetts
02109.
The Fund can be contacted as follows: for PURCHASE AND REDEMPTION ORDERS
ONLY
CALL 1-800-851-3134; for yield information call 1-800-238-2560 (Class A
shares
code: 006; Class B shares code: 106; Class C shares code: 206); for
other
information call 1-800-368-5556.
This Prospectus briefly sets forth certain information about the Fund
that
investors should know before investing. Investors are advised to read
this
Prospectus and retain it for future reference. Additional information about
the
Fund, contained in a Statement of Additional Information dated May __, 1994,
as
amended or supplemented from time to time, has been filed with the
Securities
and Exchange Commission and is available to investors without charge by
calling
the Fund's Distributor at 1-800-368-5556. The Statement of
Additional
Information is incorporated in its entirety by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR
ENDORSED BY, ANY BANK, AND SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT
AGENCY. SHARES OF THE FUND INVOLVE CERTAIN INVESTMENT RISKS, INCLDUING
THE
POSSIBLE LOSS OF PRINCIPAL.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
LEHMAN BROTHERS
May , 1994
<PAGE>
BACKGROUND AND EXPENSE INFORMATION
The following Expense Summary lists the costs and expenses that an
investor
in the Fund can expect to incur during the Fund's current fiscal year
ending
January 31, 1995. The Fund offers three separate classes of shares. Shares
of
each class represent equal, PRO RATA interests in the Fund and accrue
daily
dividends in the same manner except that Class B and Class C shares bear
fees
payable by the Fund (at the rate of .25% and .35% per annum, respectively)
to
institutions for services they provide to the beneficial owners of such
shares.
See "Management of the Fund--Service Organizations."
EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS
A CLASS B CLASS C
SHARES
SHARES SHARES
------
- ------- -------
<S> <C>
<C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees..................................................... %*
%* %*
Rule 12b-1 fees................................................... none
.25% .35%
Other Expenses--including Administration Fees
(net of applicable fee waivers).................................. %*
%* %*
--
-- --
Total Fund Operating Expenses (after expense reimbursement)....... .16%
.41% .51%
--
-- --
--
-- --
<FN>
---------
* The Expense Summary above has been restated to reflect the Fund's Investment
Adviser's and Administrator's Voluntary reimbursement arrangements in effect
for the Fund's fiscal year ending January 31, 1995. With respect to Class A,
Class B and Class C shares for the month of January, 1995, the Total Fund
Operating Expenses including reimbursement of expenses are anticipated to be
.18%, .43%, and .53%, respectively.
</TABLE>
In order to maintain a competitive expense ratio during 1994, the
Fund's
Investment Adviser and Administrator have voluntarily agreed to reimburse
the
Fund if and to the extent that total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees and
extraordinary
expenses) exceed .16% of average daily net assets through December 31, 1994.
For
the years 1995-1997, the Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets. The voluntary reimbursement arrangements described above will not
be
changed unless shareholders are provided at least 60 days' advance notice.
The
maximum annual contractual fees payable to the Investment Adviser
and
Administrator total .20% of average daily net assets. Absent reimbursement
of
expenses, the Total Fund Operating Expenses of Class A, Class B and Class
C
would be .28%, .53% and .63%, respectively, of the Fund's average daily
net
assets.
EXAMPLE: An investor would pay the following expenses on a $1,000,
investment,
assuming (1) a 5% annual return and (2) redemption at the end of each
time
period with respect to the following shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- --------
<S> <C> <C> <C> <C>
Class A shares:..... $2 $ 5 $ 9 $20
Class B shares:..... $4 $13 $23 $52
Class C shares:..... $5 $16 $29 $64
</TABLE>
2
<PAGE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES
AND
RATES OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
The purpose of the foregoing table is to assist an investor in
understanding
the various costs and expenses that an investor in the Fund will bear
directly
or indirectly. Certain Service Organizations (as defined below) also may
charge
their clients fees in connection with investments in Fund shares, which fees
are
not reflected in the table. For more complete descriptions of the various
costs
and expenses, see "Management of the Fund" in this Prospectus and the
Statement
of Additional Information.
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year ended January
31,
1994 is derived from the Fund's Financial Statements audited by Ernst &
Young,
independent accountants. This information should be read in conjunction with
the
financial statements and notes thereto that appear in the Statement
of
Additional Information.
TREASURY INSTRUMENTS MONEY MARKET FUND II
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
1/31/94* CLASS 1/31/94* CLASS
A B
-------------- --------------
<S> <C> <C>
Net asset value, beginning of period......... $1.00 $1.00
Net investment income (1).................... 0.0300 0.0198
Dividends from net investment income......... (0.0300) (0.0198)
Net asset value, end of period............... $1.00 $1.00
Total return (2)............................. 3.04% 2.00%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's)......... $156,782 $ 33,862
Ratio of net investment income to average net
assets (3).................................. 3.12% 2.87%
Ratio of operating expenses to average net
assets (3)(4)............................... 0.03% 0.28%
<FN>
---------
* The Treasury Instruments Money Market Fund II Class A and Class B
Shares
commenced operations on February 8, 1993 and May 24, 1993, respectively.
(1) Net investment income before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Investment Adviser and Administrator for Class A and Class B were
$0.0256
and $0.0166, respectively.
(2) Total return represents aggregate total return for the period indicated.
(3) Annualized.
(4) Annualized expense ratio before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Investment Adviser and Administrator for Class A and Class B were
0.49%
and 0.74%, respectively.
</TABLE>
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide current income with
liquidity
and security of principal. The Fund, which operates as a diversified
investment
company, invests solely in direct obligations of the U.S. Treasury, such
as
Treasury bills and notes and repurchase agreements relating to direct
Treasury
obligations.
PRICE AND PORTFOLIO MATURITY. The Fund invests only in securities that
are
purchased with and payable in U.S. dollars and that have (or, pursuant
to
regulations adopted by the Securities and Exchange Commission, are deemed
to
have) remaining maturities of 13 months or less at the date of purchase by
the
Fund. The Fund maintains a dollar-weighted average portfolio maturity of 90
days
or less. The Fund follows these policies to maintain a constant net asset
value
of $1.00 per share, although there is no assurance that it can do so on
a
continuing basis.
Securities issued or guaranteed by the U.S. government have
historically
involved little risk of loss of principal if held to maturity. However, due
to
fluctuations in interest rates, the market value of such securities may
vary
during the period an investor owns shares of the Fund. Certain
government
securities held by the Fund may have remaining maturities exceeding
thirteen
months if such securities provide for adjustments in their interest rates
not
less frequently than every thirteen months.
PORTFOLIO QUALITY AND DIVERSIFICATION. The Fund may purchase
government
securities from financial institutions, such as banks and broker-
dealers,
subject to the seller's agreement to repurchase them at an agreed upon time
and
price ("repurchase agreements"). The Fund will not invest more than 10% of
the
value of its net assets in repurchase agreements which do not provide
for
settlement within seven days. The seller under a repurchase agreement will
be
required to maintain the value of the securities subject to the agreement at
not
less than the repurchase price (including accrued interest). Default by
or
bankruptcy of the seller would, however, expose the Fund to possible
loss
because of adverse market action or delay in connection with the disposition
of
the underlying obligations.
The Fund may borrow funds for temporary purposes by entering into
reverse
repurchase agreements in accordance with the investment restrictions
described
below. Pursuant to such agreements, the Fund would sell portfolio securities
to
financial institutions and agree to repurchase them at an agreed upon date
and
price. The Fund would consider entering into reverse repurchase agreements
to
avoid otherwise selling securities during unfavorable market conditions to
meet
redemptions. Reverse repurchase agreements involve the risk that the
market
value of the portfolio securities sold by the Fund may decline below the
price
of the securities the Fund is obligated to repurchase.
The Fund may purchase securities on a "when-issued" basis. When-
issued
securities are securities purchased for delivery beyond the normal
settlement
date at a stated price and yield. The Fund will generally not pay for
such
securities or start earning interest on them until they are received.
Securities
purchased on a when-issued basis are recorded as an asset and are subject
to
changes in value based upon changes in the general level of interest rates.
The
Fund expects that commitments to purchase when-issued securities will not
exceed
25% of the value of its total assets absent unusual market conditions. The
Fund
does not intend to purchase when-issued securities for speculative purposes
but
only in furtherance of its investment objective.
The Fund may also lend its portfolio securities to financial institutions
in
accordance with the investment restrictions described below. The Fund may
lend
portfolio securities against collateral consisting of cash
or
4
<PAGE>
securities which are consistent with the Fund's permitted investments, which
is
equal at all times to at least 100% of the value of the securities loaned.
There
is no limitation on the amount of securities that may be loaned. Such
loans
would involve risks of delay in receiving additional collateral or in
recovering
the securities loaned or even loss of rights in the collateral should
the
borrower of the securities fail financially. However, loans will be made only
to
borrowers deemed by the Fund's Investment Adviser to be of good standing
and
only when, in the Investment Adviser's judgment, the income to be earned
from
the loans justifies the attendant risks.
There can be no assurance that the Fund will achieve its
investment
objective.
INVESTMENT LIMITATIONS
The Fund's investment objective and policies described above are
not
fundamental and may be changed by the Trust's Board of Trustees without a
vote
of shareholders. If there is a change in the investment objective,
shareholders
should consider whether the Fund remains an appropriate investment in light
of
their then current financial position and needs. The Fund's borrowing
limitation
summarized below may not be changed without the affirmative vote of the
holders
of majority of its outstanding shares. (A complete list of the
investment
limitations that cannot be changed without a vote of shareholders is
contained
in the Statement of Additional Information under "Investment Objective
and
Policies.")
The Fund may not borrow money except from banks for temporary purposes
and
then in an amount not exceeding 10% of the value of the Fund's total assets,
or
mortgage, pledge or hypothecate its assets except in connection with any
such
borrowing and in amounts not in excess of the lesser of the dollar
amounts
borrowed or 10% of the value of the Fund's total assets at the time of
such
borrowing. Additional investments will not be made when borrowings exceed 5%
of
the Fund's assets.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Shares of the Fund are sold at the net asset value per share of the
Fund
next determined after receipt of a purchase order by Lehman Brothers,
the
Distributor of the Fund's shares. Purchase orders for shares are accepted by
the
Fund only on days on which both Lehman Brothers and the Federal Reserve Bank
of
Boston are open for business and must be transmitted to Lehman Brothers,
by
telephone at 1-800-851-3134. Orders received before noon, Eastern time,
for
which payment has been received by Boston Safe Deposit and Trust
Company
("Boston Safe"), the Fund's Custodian, will be executed at noon. Orders
received
between noon and 3:00 P.M., Eastern time, will be executed at 3:00 P.M.,
Eastern
time, if payment has been received by Boston Safe by 3:00 P.M. and will
be
executed at 4:00 P.M. if payment has been received by 4:00 P.M. Orders
received
after 3:00 P.M., and orders for which payment has not been received by
4:00
P.M., Eastern time, will not be accepted and notice thereof will be given to
the
institution placing the order. Payment for Fund shares may be made only
in
Federal funds immediately available to Boston Safe. (Payment for orders
which
are not received or accepted by Lehman Brothers will be returned after
prompt
inquiry to the sending institution.) The Fund may in its discretion reject
any
order for shares.
The minimum aggregate initial investment by an institution in the
investment
portfolios that comprise the Trust is $1 million (with not less than
$25,000
invested in any one investment portfolio offered by the
Trust);
5
<PAGE>
however, broker-dealers and other institutional investors may set a
higher
minimum for their customers. To reach the minimum Trust-wide initial
investment,
purchases of shares may be aggregated over a period of six months. There is
no
minimum subsequent investment.
Conflict of interest restrictions may apply to an institution's receipt
of
compensation paid by the Fund in connection with the investment of
fiduciary
funds in Class B or Class C shares. See also "Management of the Fund--
Service
Organizations." Institutions, including banks regulated by the Comptroller
of
the Currency and investment advisers and other money managers subject to
the
jurisdiction of the Securities and Exchange Commission, the Department of
Labor
or state securities commissions, are urged to consult their legal
advisors
before investing fiduciary funds in Class B or Class C shares.
SUBACCOUNTING SERVICES. Institutions are encouraged to open single
master
accounts. However, certain institutions may wish to use the Transfer
Agent's
subaccounting system to minimize their internal recordkeeping requirements.
The
Transfer Agent charges a fee based on the level of subaccounting
services
rendered. Institutions holding Fund shares in a fiduciary, agency, custodial,
or
similar capacity may charge or pass through subaccounting fees as part of or
in
addition to normal trust or agency account fees. They may also charge fees
for
other services provided which may be related to the ownership of Fund
shares.
This prospectus should, therefore, be read together with any agreement
between
the customer and the institution with regard to the services provided, the
fees
charged for those services, and any restrictions and limitations imposed.
REDEMPTION PROCEDURES
Redemption orders must be transmitted to Lehman Brothers by telephone
at
1-800-851-3134. Payment for redeemed shares for which a redemption order
is
received by Lehman Brothers before 3:00 P.M., Eastern time, on a day that
both
Lehman Brothers and the Federal Reserve Bank of Boston are open for business
is
normally made in federal funds wired to the redeeming shareholder on the
same
business day. Payment for redemption orders which are received between 3:00
P.M.
and 4:00 P.M., Eastern time, is normally wired in federal funds on the
next
business day following redemption.
Shares are redeemed at the net asset value per share next determined
after
Lehman Brothers' receipt of the redemption order. While the Fund intends to
use
its best efforts to maintain its net asset value per share at $1.00,
the
proceeds paid to an investor upon redemption may be more or less than the
amount
invested depending upon a share's net asset value at the time of redemption.
To
allow the Fund's Investment Adviser to manage the Fund effectively,
investors
are strongly urged to initiate all investments or redemptions of Fund shares
as
early in the day as possible and to notify Lehman Brothers at least one day
in
advance of transactions in excess of $5 million.
The Fund reserves the right to wire redemption proceeds within seven
days
after receiving the redemption order if, in the judgment of the
Investment
Adviser, an earlier payment could adversely affect the Fund. The Fund shall
have
the right to redeem involuntarily shares in any account at their net asset
value
if the value of the account is less than $10,000 after 60 days' prior
written
notice to the investor. Any such redemption shall be effected at the net
asset
value per share next determined after the redemption order is entered. If
during
the 60-day period the investor increases the value of its account to $10,000
or
more, no such redemption shall take place. In addition, the Fund may
redeem
shares involuntarily or suspend the right of redemption as
permitted
6
<PAGE>
under the Investment Company Act of 1940, as amended (the "1940 Act") or
under
certain special circumstances described in the Statement of
Additional
Information under "Additional Purchase and Redemption Information."
VALUATION OF SHARES--NET ASSET VALUE
The Fund's net asset value per share for purposes of pricing purchase
and
redemption orders is determined by the Fund's Administrator as of noon,
3:00
P.M. and 4:00 P.M., Eastern time, on each weekday, with the exception of
those
holidays on which either Lehman Brothers or the Federal Reserve Bank of
Boston
is closed. Currently, one or both of these institutions are closed on
customary
national business holidays of New Year's Day, Martin Luther King, Jr.'s
Birthday
(observed), Presidents' Day (Washington's Birthday), Good Friday, Memorial
Day,
Independence Day, Labor Day, Columbus Day (observed), Veterans Day,
Thanksgiving
Day and Christmas Day, and on the preceding Friday or subsequent Monday when
one
of these holidays falls on a Saturday or Sunday, respectively. The net
asset
value per share of Fund shares is calculated by adding the value of
all
securities and other assets of the Fund, subtracting liabilities and
dividing
the result by the total number of the Fund's outstanding shares. In
computing
net asset value, the Fund uses the amortized cost method of valuation
as
described in the Statement of Additional Information under "Additional
Purchase
and Redemption Information." The Fund's net asset value per share for
purposes
of pricing purchase and redemption orders is determined independently of the
net
asset value of the shares of the Trust's other investment portfolios.
OTHER MATTERS
Fund shares are sold and redeemed without charge by the Fund.
Institutional
investors purchasing or holding Fund shares for their customer accounts
may
charge customers fees for cash management and other services provided
in
connection with their accounts. A customer should, therefore, consider the
terms
of its account with an institution before purchasing Fund shares. An
institution
purchasing or redeeming shares on behalf of its customers is responsible
for
transmitting orders to Lehman Brothers in accordance with its
customer
agreements.
DIVIDENDS
** 1 Investors of the Fund are entitled to dividends and
distributions
arising only from the net investment income and capital gains, if any, earned
on
investments held by the Fund. The Fund's net investment income is declared
daily
as a dividend to shares held of record at the close of business on the day
of
declaration. Shares begin accruing dividends on the day the purchase order
for
the shares is executed and continue to accrue dividends through, and
including,
the day before the redemption order for the shares is executed. Dividends
are
paid monthly by wire transfer within five business days after the end of
the
month within five business days after the end of the month or within
five
business days after a redemption of all of an investor's shares of a
particular
class. The Fund does not expect to realize net long-term capital gains.
** 2 Dividends are determined in the same manner and are paid in the
same
amount for each Fund share, except that Class B and Class C shares bear all
the
expense of fees paid to Service Organizations. As a result, at any given
time,
the net yield on Class B and Class C shares will be .25% and .35%,
respectively,
lower than the net yield on Class A shares.
Institutional investors may elect to have their dividends reinvested
in
additional full and fractional shares of the same class of shares with
respect
to which such dividends are declared at the net asset value of such
shares
7
<PAGE>
on the payment date. Reinvested dividends receive the same tax treatment
as
dividends paid in cash. Such election, or any revocation thereof, must be
made
in writing to the Fund's Distributor, at 260 Franklin Street, 15th
Floor,
Boston, Massachusetts, 02110-9624, and will become effective after its
receipt
by the Distributor with respect to dividends paid.
TSSG, as Transfer Agent, will send each investor or its
authorized
representative, if any, an annual statement designating the amount of
any
dividends and capital gains distributions made during each year and
their
federal tax qualification.
TAXES
The Fund qualified in its last year and intends to qualify in future
years
as a "regulated investment company" under the Internal Revenue Code of 1986,
as
amended (the "Code"). A regulated investment company is exempt from
federal
income tax on amounts distributed to its investors.
** 3 Qualification as a regulated investment company under the Code for
a
taxable year requires, among other things, that the Fund distribute to
its
shareholders at least 90% of its investment company taxable income for
such
year. In general, the Fund's investment company taxable income will be
its
taxable income (including dividends and short-term capital gains, if
any)
subject to certain adjustments and excluding the excess of any net long-
term
capital gain for the taxable year over the net short-term capital loss, if
any,
for such year. The Fund intends to distribute substantially all of
its
investment company taxable income each year. Such distributions will be
taxable
as ordinary income to Fund investors who are not currently exempt from
federal
income taxes, whether such income is received in cash or reinvested
in
additional shares. It is anticipated that none of the Fund's distributions
will
be eligible for the dividends received deduction for corporations. The Fund
does
not expect to realize long-term capital gains and, therefore, does not expect
to
distribute any "capital gain dividends" as described in the Code.
** 4 Dividends declared in October, November or December of any year
payable
to investors of record on a specified date in such months will be deemed to
have
been received by the shareholders and paid by the Fund on December 31 of
such
year in the event such dividends are actually paid during January of
the
following year.
** 5 Many states, by statute, judicial decision or administrative
action,
have taken the position that dividends of a regulated investment company such
as
the Fund that are attributable to interest on obligations of the U.S.
Treasury
and certain U.S. government agencies and instrumentalities are the
functional
equivalent of interest from such obligations and are, therefore, exempt
from
state and local income taxes.
** 6 The Fund will provide investors annually with information about
the
portion of dividends from the Fund derived from U.S. Treasury and
U.S.
government agency obligations. Investors should be aware of the application
of
their state and local tax laws to investments in the Fund.
** 7 The foregoing is only a brief summary of some of the important
federal
tax considerations generally affecting the Fund and its investors. No attempt
is
made to present a detailed explanation of the federal, state or local income
tax
treatment of the Fund or its investors and this discussion is not intended as
a
substitute for careful tax planning. Accordingly, potential investors in
the
Fund should consult their tax advisors with specific reference to their own
tax
situation.
8
<PAGE>
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the
Trust's Board of Trustees. The Trustees approve all significant
agreements
between the Trust and the persons or companies that furnish services to
the
Fund, including agreements with its Distributor, Investment
Adviser,
Administrator, Custodian and Transfer Agent. The day-to-day operations of
the
Fund are delegated to the Fund's Investment Adviser and Administrator.
The
Statement of Additional Information relating to the Fund contains
general
background information regarding each Trustee and executive officer of
the
Trust.
DISTRIBUTOR
Lehman Brothers, located at 3 World Financial Center, New York, New
York,
10285, is the Distributor of the Fund's shares. Lehman Brothers, a leading
full
service investment firm, meets the diverse financial needs of
individuals,
institutions and governments around the world. Lehman Brothers has entered
into
a Distribution Agreement with the Trust pursuant to which it has
the
responsibility for distributing shares of the Fund.
INVESTMENT ADVISER--LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located at 3
World
Financial Center, New York, New York 10285, serves as the Fund's
Investment
Adviser. LBGAM is a wholly owned subsidiary of Shearson Lehman Brothers
Holdings
Inc. ("Holdings"). LBGAM, together with other Lehman Brother investment
advisory
affiliates, serves as Investment Adviser to investment companies and
private
accounts and has assets under management in excess of [$15] billion as
of
___________, 1994.
As Investment Adviser to the Fund, LBGAM will, among other
things,
participate in the formulation of the Fund's investment policies,
analyze
economic trends affecting the Fund and monitor and evaluate the
Fund's
investment objective and policies and the Fund's investment performance. For
its
services LBGAM will be paid a monthly fee by the Fund at the annual rate of
.10%
of the value of the Fund's average daily net assets. For the period February
8,
1993 (commencement of operations) to January 31, 1994, LBGAM received
an
advisory fee from the Fund in the amount of .__% of average daily net assets.
ADMINISTRATOR AND TRANSFER AGENT--THE SHAREHOLDER SERVICES GROUP, INC.
The Shareholder Services Group, Inc. ("TSSG"), located at One
Exchange
Place, 53 State Street, Boston, Massachusetts 02109, serves as the
Fund's
Administrator and Transfer Agent, TSSG is a wholly owned subsidiary of
First
Data Corporation. As Administrator, TSSG calculates the net asset value of
the
Fund's shares and generally assists in all aspects of the Fund's
administration
and operation. As compensation for TSSG's services as Administrator, TSSG
is
entitled to receive from the Fund a monthly fee at the annual rate of .10%
of
the value of the Fund's average daily net assets. TSSG is also entitled
to
receive a fee from the Fund for its services as Transfer Agent. TSSG pays
Boston
Safe, the Fund's Custodian, a portion of its monthly administration fee
for
custody services rendered to the Fund.
CUSTODIAN--BOSTON SAFE DEPOSIT AND TRUST COMPANY
Boston Safe, a wholly owned subsidiary of The Boston Company Inc.,
located
at One Boston Place, Boston, Massachusetts 02108, serves as the
Fund's
Custodian.
9
<PAGE>
SERVICE ORGANIZATIONS
Financial institutions, such as banks, savings and loan associations
and
other such institutions ("Service Organizations") and/or institutional
customers
of Service Organizations may purchase Class B or Class C shares. These
shares
are identical in all respects to Class A shares except that they bear the
fees
described below and enjoy certain exclusive voting rights on matters relating
to
these fees. The Fund will enter into an agreement with each Service
Organization
whose customers ("Customers") are the beneficial owners of Class B or Class
C
shares that requires the Service Organization to provide certain services
to
Customers in consideration of the Fund's payment of service fees at the
annual
rate of .25% or .35%, respectively, of the average daily net asset value of
the
respective Class beneficially owned by Customers. Such services, which
are
described more fully in the Statement of Additional Information
under
"Management of the Funds--Service Organizations," may include aggregating
and
processing purchase and redemption requests from Customers and placing
net
purchase and redemption orders with Lehman Brothers; processing
dividend
payments from the Fund on behalf of Customers; providing
information
periodically to Customers showing their positions in shares; arranging for
bank
wires; responding to Customer inquiries relating to the services provided by
the
Service Organization and handling correspondence; acting as shareholder
of
record and nominee; and providing reasonable assistance in connection with
the
distribution of shares to Customers. Services provided with respect to Class
B
shares will generally be more limited than those provided with respect to
Class
C shares. Under the terms of the agreements, Service Organizations are
required
to provide to their Customers a schedule of any fees that they may charge to
the
Customers relating to the investment of the Customers' assets in Class B
or
Class C shares. Class A shares are sold to financial institutions that have
not
entered into servicing agreements with the Fund in connection with
their
investments. A salesperson and any other person entitled to receive
compensation
for selling or servicing shares of the Fund may receive different
compensation
for selling or servicing one Class of shares over another Class.
EXPENSES
The Fund bears all of its own expenses. The Fund's expenses include
taxes,
interest, fees and salaries of the Trust's trustees and officers who are
not
directors, officers or employees of the Fund's service contractors,
Securities
and Exchange Commission fees, state securities qualification fees, costs
of
preparing and printing prospectuses for regulatory purposes and for
distribution
to investors, advisory and administration fees, charges of the
custodian,
transfer agent and dividend disbursing agent, Service Organization fees,
certain
insurance premiums, outside auditing and legal expenses, costs of
shareholder
reports and shareholder meetings and any extraordinary expenses. The Fund
also
pays for brokerage fees and commissions (if any) in connection with the
purchase
and sale of portfolio securities. In order to maintain a competitive
expense
ratio during 1994, LBGAM and TSSG have agreed voluntarily to reimburse the
Fund
if and to the extent that the Fund's total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees under the 1940 Act
and
extraordinary expenses) exceed .16% of average daily net assets through
December
31, 1994. The Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets thereafter. This voluntary reimbursement will not be changed
unless
investors are provided at least 60 days' advance notice. In addition,
these
service providers have agreed to reimburse the Fund to the extent required
by
applicable state law for certain expenses that are described in the Statement
of
Additional Information relating to the Fund. Any fees charged by
Service
Organizations or other institutional investors to their customers in
connection
with investments in Fund shares are not reflected in the Fund's expenses.
10
<PAGE>
YIELDS
From time to time the "yields" and "effective yields" of its Class A,
Class
B and Class C shares may be quoted in advertisements or in reports to
investors.
Yield quotations are computed separately for each Class of shares. The
"yield"
quoted in advertisements for a particular class or sub-class of shares refers
to
the income generated by an investment in the shares of such shares over
a
specified period (such as a seven-day period) identified in the
advertisement.
This income is then "annualized"; that is, the amount of income generated by
the
investment during that week is assumed to be generated each week over a 52-
week
or one-year period and is shown as a percentage of the investment.
The
"effective yield" is calculated similarly but, when annualized, the
income
earned by an investment in a particular class or sub-class is assumed to
be
reinvested. The "effective yield" will be slightly higher than the
"yield"
because of the compounding effect of this assumed reinvestment.
** 8 The Fund's yields may be compared to those of other mutual funds
with
similar objectives, to stock or other relevant indices, or to rankings
prepared
by independent services or other financial or industry publications that
monitor
the performance of mutual funds. For example, such data are reported in
national
financial publications such as IBC/DONOGHUE'S MONEY FUND REPORT-R-, THE
WALL
STREET JOURNAL and THE NEW YORK TIMES, reports prepared by Lipper
Analytical
Service, Inc. and publications of a local or regional nature.
** 9 THE FUND'S YIELD FIGURES FOR A CLASS OF SHARES REPRESENT
PAST
PERFORMANCE, WILL FLUCTUATE AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE
OF
FUTURE RESULTS. The yield of any investment is generally a function of
portfolio
quality and maturity, type of investment and operating expenses. Since
holders
of Class B or Class C shares bear all service fees for such services, the
net
yield on such shares can be expected at any given time to be lower than the
net
yield on Class A shares. Any fees charged by Service Organizations or
other
institutional investors directly to their customers in connection
with
investments in Fund shares are not reflected in the Fund's expenses or
yields.
The methods used to compute the Fund's yields are described in more detail
in
the Statement of Additional Information. Investors may call 1-800-238-
2560
(Class A shares code: 006; Class B shares code: 106; Class C shares code:
206)
to obtain current yield information.
The yields for Class A and Class B shares for the Fund for the seven-
day
period ended January 31, 1994 were __% and __%, respectively.
DESCRIPTION OF SHARES
* 1 moved from here; text not shown
* 2 moved from here; text not shown
* 3 moved from here; text not shown
* 4 moved from here; text not shown
* 5 moved from here; text not shown
* 6 moved from here; text not shown
* 7 moved from here; text not shown
The Trust is a Massachusetts business trust established on November
25,
1992.
11
<PAGE>
The Trust's Declaration of Trust authorizes the Board of Trustees to
issue
an unlimited number of full and fractional shares of beneficial interest in
the
Trust and to classify or reclassify any unissued shares into one or
more
additional classes of shares. The Trust is an open-end management
investment
company, which offers twelve portfolios: Prime Money Market Fund (Class A,
Class
B and Class C), Prime Value Money Market Fund (Class A, Class B, Class C
and
Class D), Government Obligations Money Market Fund (Class A, Class B, Class
C
and Class D), 100% Government Obligations Money Market Fund (Class A, Class
B
and Class C), Treasury Instruments Money Market Fund II (Class A, Class B
and
Class C), 100% Treasury Instruments Money Market Fund (Class A, Class B
and
Class C), Tax-Free Money Market Fund (Class A, Class B and Class C),
Municipal
Money Market Fund (Class A, Class B, Class C and Class D), California
Municipal
Money Market Fund (Class A, Class B and Class C), New York Municipal
Money
Market Fund (Class A, Class B and Class C), Floating Rate U.S. Government
Fund
(Class A and Class B) and Short Duration U.S. Government Fund (Class A and
Class
B). Shares of the New York Municipal Money Market Fund are not currently sold
to
the public. Pursuant to such authority, the Board of Trustees has authorized
the
issuance of four classes of shares for each of 11 portfolios. The Declaration
of
Trust further authorizes the trustees to classify or reclassify any class
of
shares into one or more sub-classes.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT
OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S
OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
The Trust does not presently intend to hold annual meetings of
shareholders
except as required by the 1940 Act or other applicable law. The Trust will
call
a meeting of shareholders for the purpose of voting upon the question of
removal
of a member of the Board of Trustees upon written request of shareholders
owning
at least 10% of the outstanding shares of the Trust entitled to vote.
Each Fund share represents an equal proportionate interest in the
assets
belonging to the Fund. Each share, which has a par value of $.001, has
no
preemptive or conversion rights. When issued for payment as described in
this
Prospectus, shares will be fully paid and nonassessable.
Holders of the Fund's shares will vote in the aggregate and not by class
on
all matters, except where otherwise required by law and except that only Class
B
or Class C shares, as the case may be, will be entitled to vote on
matters
submitted to a vote of shareholders pertaining to the Fund's arrangements
with
Service Organizations with respect to the relevant Class. Further,
shareholders
of the Fund and of the Trust's portfolios will vote in the aggregate and not
by
portfolio except as otherwise required by law or when the Board of
Trustees
determines that the matter to be voted upon affects only the interests of
the
shareholders of a particular portfolio. (See the Statement of
Additional
Information under "Additional Description Concerning Fund Shares" for
examples
where the 1940 Act requires voting by portfolio.) Shareholders of the Trust
are
entitled to one vote for each full share held (irrespective of class
or
portfolio) and fractional votes for fractional shares held. Voting rights
are
not cumulative; and, accordingly, the holders of more than 50% of the
aggregate
shares of the Trust may elect all of the trustees.
12
<PAGE>
For information concerning the redemption of Fund shares and
possible
restrictions on their transferability, see "Purchase and Redemption of
Shares."
* 8 moved from here; text not shown
* 9 moved from here; text not shown
13
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
100% Government Obligations Money Market Fund
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
California Municipal Money Market Fund
New York Municipal Money Market Fund
------------------------
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY
REPRESENTATIONS NOT CON-TAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT
OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT
LAWFULLY BE MADE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Background and Expense Information.......... 2
Financial Highlights........................ 3
Investment Objective and Policies........... 4
Purchase and Redemption of Shares........... 5
Dividends................................... 7
Taxes....................................... 8
Management of the Fund...................... 9
Yields...................................... 11
Description of Shares....................... 11
</TABLE>
TREASURY INSTRUMENTS
MONEY MARKET FUND II
-------------------
PROSPECTUS
May __, 1994
---------------------
LEHMAN BROTHERS
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN
RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
<PAGE>
+
PROSPECTUS
PRIME VALUE MONEY MARKET FUND
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-
load,
open-end, management investment company. The shares described in this
Prospectus
represent interests in the Prime Value Money Market Fund portfolio (the
"Fund"),
one of a family of money market portfolios of the Trust.
The Fund's INVESTMENT OBJECTIVE is to provide current income and
stability
of principal. The Fund invests in a portfolio consisting of a broad range
of
short-term instruments, including U.S. government and U.S. bank and
commercial
obligations and repurchase agreements relating to such obligations. Under
normal
market conditions, at least 25% of the Fund's total assets will be invested
in
obligations of issuers in the banking industry and repurchase
agreements
relating to such obligations.
Fund shares may not be purchased by individuals directly, but
institutional
investors may purchase shares for accounts maintained by individuals. The
Fund
currently offers three classes of shares. In addition to Class A
shares,
institutional investors may purchase on behalf of their customers Class B
or
Class C shares which accrue daily dividends in the same manner as Class A
shares
but bear all fees payable by the Fund to institutional investors for
certain
services they provide to the beneficial owners of such shares. See
"Management
of the Fund--Service Organizations."
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
ITS
NET ASSET VALUE OF $1.00 PER SHARE.
LEHMAN BROTHERS, INC. ("LEHMAN BROTHERS") sponsors the Fund and acts
as
Distributor of its shares. LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
serves
as the Fund's Investment Adviser.
The address of the Fund is One Exchange Place, Boston, Massachusetts
02109.
The Fund can be contacted as follows: for purchase and redemption orders
only
call 1-800-851-3134; for yield information call 1-800-238-2560 (Class A
shares
code: 001; Class B shares code: 101; Class C shares code: 201; for
other
information call 1-800-368-5556.
This Prospectus briefly sets forth certain information about the Fund
that
investors should know before investing. Investors are advised to read
this
Prospectus and retain it for future reference. Additional information about
the
Fund, contained in a Statement of Additional Information dated May __, 1994,
as
amended or supplemented from time to time, has been filed with the
Securities
and Exchange Commission and is available to investors without charge by
calling
the Fund's Distributor at 1-800-368-5556. The Statement of
Additional
Information is incorporated in its entirety by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR
ENDORSED BY, ANY BANK, AND SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT
AGENCY. SHARES OF THE FUND INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING
THE
POSSIBLE LOSS OF PRINCIPAL.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
LEHMAN BROTHERS
------------------------
+ FOR EDGAR FILING, LANGUAGE THAT WILL BE ADDED IS PRECEDED BY A "/*/"
AND
FOLLOWED BY A "/**/". LANGUAGE THAT WILL BE ELIMINATED IS PRECEDED BY A
"/#/"
AND FOLLOWED BY A "/##/".
May __, 1994
<PAGE>
BACKGROUND AND EXPENSE INFORMATION
The following Expense Summary lists the costs and expenses that an
investor
in the Fund can expect to incur during the Fund's current fiscal year
ending
January 31, 1995. The Fund offers three separate classes of shares. Shares
of
each class represent equal, pro rata interests in the Fund and accrue
daily
dividends in the same manner except that Class B and Class C shares bear
fees
payable by the Fund (at the rate of .25% and .35% per annum, respectively)
to
institutions for services they provide to the beneficial owners of such
shares.
See "Management of the Fund--Service Organizations."
EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees....................... % % %
Rule 12b-1 fees..................... none .25% .35%
Other Expenses including
Administration Fees................ % % %
------- ------- -------
Total Fund Operating Expenses (after
expense reimbursement)............. .16% .41% .51%
------- ------- -------
------- ------- -------
</TABLE>
---------
*_ The Expense Summary above has been restated to reflect the Fund's
Investment
Adviser's and Administrator's voluntary reimbursement arrangements in
effect
for the Fund's fiscal year ending January 31, 1995. With respect to class
A,
Class B and Class C shares for the month of January, 1995, the Total
Fund
Operating Expenses including reimbursement of expenses are anticipated to
be
.18%, .43% and .53%, respectively.
In order to maintain a competitive expense ratio during 1994, the
Fund's
Investment Adviser and Administrator have voluntarily agreed to reimburse
the
Fund if and to the extent that total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees and
extraordinary
expenses) exceed .16% of average daily net assets through December 31, 1994.
For
the years 1995-1997, the Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets. The voluntary reimbursement arrangements described above will not
be
changed unless shareholders are provided at least 60 days' advance notice.
The
maximum annual contractual fees payable to the Investment Adviser
and
Administrator total .20% of average daily net assets. Absent reimbursement
of
expenses, the Total Fund Operating Expenses of Class A, Class B and Class
C
would be .28%, .53% and .63%, respectively, of the Fund's average daily
net
assets.
EXAMPLE: An investor would pay the following expenses on a $1,000
investment,
assuming (1) a 5% annual return and (2) redemption at the end of each
time
period with respect to the following shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
5 YEARS 10 YEARS
-------------- -------------- --
------------ --------------
<S> <C> <C>
<C> <C>
Class A shares:......................... $2 $ 5
$ 9 $20
Class B shares:......................... $4 $13
$23 $52
Class C shares:......................... $5 $16
$29 $64
</TABLE>
2
<PAGE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES
AND
RATES OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
The purpose of the foregoing table is to assist an investor in
understanding
the various costs and expenses that an investor in the Fund will bear
directly
or indirectly. Certain Service Organizations (as defined below) also may
charge
their clients fees in connection with investments in Fund shares, which fees
are
not reflected in the table. For more complete descriptions of the various
costs
and expenses, see "Management of the Fund" in this Prospectus and the
Statement
of Additional Information.
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year ended January
31,
1994 is derived from the Fund's Financial Statement audited by Ernst &
Young,
independent accountants. This information should be read in conjunction with
the
financial statements and notes thereto that appear in the Statement
of
Additional Information.
PRIME VALUE MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
PERIOD ENDED
1/31/94* 1/31/94*
1/31/94*
CLASS A CLASS B
CLASS D
--------------- ------------ ----
--------
<S> <C> <C> <C>
Net asset value, beginning of period......... $1.00 $1.00
$1.00
Net investment income(1)..................... 0.0315 0.0125
0.0021
Dividends from net investment income......... (0.0315) (0.0125)
(0.0021)
Net asset value, end of period............... $1.00 $1.00
$1.00
Total return(2).............................. 3.21% 1.26%
0.26%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's)......... $3,981,184 $17,504
$10
Ratio of net investment income to average net
assets(3)................................... 3.23% 2.98%
3.10%
Ratio of operating expenses to average net
assets(3)(4)................................ 0.07% 0.32%
0.20%
<FN>
---------
* The Prime Value Money Market Fund Class A, Class B and Class D
Shares
commenced operations on February 8, 1993, September 1, 1993 and January
6,
1994, respectively.
(1) Net investment income before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Investment Adviser and Administrator for Class A, Class B and Class D
were
$0.0287, $0.0113 and $0.0010, respectively.
(2) Total return represents aggregate total return for the period indicated.
(3) Annualized.
(4) Annualized expense ratio before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Investment Adviser and Administrator for Class A, Class B and Class D
were
0.36%, 0.61% and 0.49%, respectively.
</TABLE>
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to provide current income and
stability
of principal. In pursuing its investment objective, the Fund, which operates
as
a diversified investment portfolio, invests in a broad range of short-
term
instruments, including U.S. government and U.S. and foreign bank and
commercial
obligations and repurchase agreements relating to such obligations.
PRICE AND PORTFOLIO MATURITY. The Fund invests only in securities that
are
purchased with and payable in U.S. dollars and that have (or, pursuant
to
regulations adopted by the Securities and Exchange Commission, will be deemed
to
have) remaining maturities of thirteen months or less at the date of purchase
by
the Fund. The Fund maintains a dollar-weighted average portfolio maturity of
90
days or less. The Fund follows these policies to maintain a constant net
asset
value of $1.00 per share, although there is no assurance that it can do so on
a
continuing basis.
PORTFOLIO QUALITY AND DIVERSIFICATION. The Fund will limit its
portfolio
investments to securities that the Trust's Board of Trustees determines
present
minimal credit risks and which are "Eligible Securities" at the time
of
acquisition by the Fund. The term Eligible Securities includes securities
rated
by the "Requisite NRSROs" in one of the two highest short-term
rating
categories, securities of issuers that have received such ratings with
respect
to other short-term debt securities and comparable unrated
securities.
"Requisite NRSROs" means (a) any two nationally recognized statistical
rating
organizations ("NRSROs") that have issued a rating with respect to a security
or
class of debt obligations of an issuer, or (b) one NRSRO, if only one NRSRO
has
issued such a rating at the time that the Fund acquires the security.
Currently,
there are six NRSROs: Standard & Poor's Corporation, Moody's Investors
Service,
Inc., Fitch Investors Services, Inc., Duff and Phelps, Inc., IBCA Limited
and
its affiliate, IBCA, Inc. and Thomson Bankwatch. A discussion of the
ratings
categories of the NRSROs is contained in the Appendix to the Statement
of
Additional Information.
The Fund generally may not invest more than 5% of it total assets in
the
securities of any one issuer, except for U.S. government securities.
In
addition, the Fund may not invest more than 5% of its total assets in
Eligible
Securities that have not received the highest rating from the Requisite
NRSROs
and comparable unrated securities ("Second Tier Securities") and may not
invest
more than 1% of its total asset in the Second Tier Securities of any one
issuer.
The Fund may invest more than 5% (but no more than 25%) of the then-
current
value of the Fund's total assets in the securities of a single issuer for
a
period of up to three business days, provided that (a) the securities either
are
rated by the Requisite NRSROs in the highest short-term rating category or
are
securities of issuers that have received such rating with respect to
other
short-term debt securities or are comparable unrated securities, and (b)
the
Fund does not make more than one such investment at any one time.
The following descriptions illustrate the kinds of instruments in which
the
Fund invests:
The Fund may purchase obligations of issuers in the banking industry,
such
as commercial paper, notes, certificates of deposit, bankers' acceptances
and
time deposits and U.S. dollar-denominated instruments issued or supported by
the
credit of U.S. or foreign banks or savings institutions having total assets
at
the time of purchase in excess of $1 billion. The Fund may also
make
interest-bearing savings deposits in commercial and savings banks in amounts
not
in excess of 5% of its assets.
4
<PAGE>
The Fund may invest in commercial paper and other short-term
obligations.
The Fund may not invest in commercial paper or obligations of foreign issuers.
The Fund may invest substantially in securities of foreign
issuers,
including obligations of foreign banks or foreign branches of U.S. banks
and
debt securities of foreign issuers, where the Investment Adviser deem
the
instrument to present minimal credit risks. Investments in foreign banks
or
foreign issuers present certain risks, including those resulting
from
fluctuations in currency exchange rates, revaluation of currencies,
future
political and economic developments and the possible imposition of
currency
exchange blockages or other foreign governmental laws or restrictions
and
reduced availability of public information. Foreign issuers are not
generally
subject to uniform accounting, auditing and financial reporting standards or
to
other regulatory practices and requirements applicable to domestic issuers.
The Fund may purchase variable or floating rate notes, which are
unsecured
instruments that provide for adjustments in the interest rate on certain
reset
dates or whenever a specified interest rate index changes, respectively.
Such
notes may not be actively traded in a secondary market but, in some cases,
the
Fund may be able to resell such notes in the dealer market. Variable
and
floating rate notes typically are rated by credit rating agencies, and
their
issuers must satisfy the same quality criteria as set forth above. The
Fund
invests in variable or floating rate notes only when the Investment
Adviser
deems the investment to involve minimal credit risk.
The Fund may purchase instruments from financial institutions, such as
banks
and broker-dealers, subject to the seller's agreement to repurchase them at
an
agreed upon time and price ("repurchase agreements"). The seller under
a
repurchase agreement will be required to maintain the value of the
securities
subject to the agreement at not less than the repurchase price. Default by
the
seller would, however, expose the Fund to possible loss because of
adverse
market action or delay in connection with the disposition of the
underlying
obligations.
The Fund may also purchase securities on a "when-issued" basis. When-
issued
securities are securities purchased for delivery beyond the normal
settlement
date at a stated price and yield. The Fund will generally not pay for
such
securities or start earning interest on them until they are received.
Securities
purchased on a when-issued basis are recorded as an asset and are subject
to
changes in value based upon changes in the general level of interest rates.
The
Fund expects that commitments to purchase when-issued securities will not
exceed
25% of the value of its total assets absent unusual market conditions. The
Fund
does not intend to purchase when-issued securities for speculative purposes
but
only in furtherance of its investment objective.
The Fund may purchase obligations issued or guaranteed by the
U.S.
government or its agencies and instrumentalities. Obligations of
certain
agencies and instrumentalities of the U.S. government are backed by the
full
faith and credit of the United States. Others are backed by the right of
the
issuer to borrow from the U.S. Treasury or are backed only by the credit of
the
agency or instrumentality issuing the obligation.
In addition, the Fund may, when deemed appropriate in light of the
Fund's
investment objective, invest in high quality, short-term obligations issued
by
the state and local governmental issuers which carry yields that are
competitive
with those of other types of money market instruments of comparable quality.
The Fund will not knowingly invest more than 10% of the value of its
total
assets in illiquid securities, including time deposits and repurchase
agreements
having maturities longer than seven days. Securities that have readily
available
market quotations are not deemed illiquid for purposes of this
limitation
(irrespective of
5
<PAGE>
any legal or contractual restrictions on resale). The Fund may invest
in
commercial obligations issued in reliance on the so-called "private
placement"
exemption from registration afforded by Section 4(2) of the Securities Act
of
1933, as amended ("Section 4(2) paper"). The Fund may also purchase
securities
that are not registered under the Securities Act of 1933, as amended, but
which
can be sold to qualified institutional buyers in accordance with Rule 144A
under
that Act ("Rule 144A securities"). Section 4(2) paper is restricted as
to
disposition under the federal securities laws, and generally is sold
to
institutional investors such as the Fund who agree that they are purchasing
the
paper for investment and not with a view to public distribution. Any resale
by
the purchaser must be in an exempt transaction. Section 4(2) paper normally
is
resold to other institutional investors like the Fund through or with
the
assistance of the issuer or investment dealers who make a market in the
Section
4(2) paper, thus providing liquidity. Rule 144A securities generally must
be
sold to other qualified institutional buyers. If a particular investment
in
Section 4(2) paper or Rule 144A securities is not determined to be liquid,
that
investment will be included within the 10% limitation on investment in
illiquid
securities.
There can be no assurance that the Fund will achieve its
investment
objective.
INVESTMENT LIMITATIONS
The Fund's investment objective and the policies described above are
not
fundamental and may be changed by the Trust's Board of Trustees without a
vote
of shareholders. If there is a change in the investment objective,
investors
should consider whether the Fund remains an appropriate investment in light
of
their then current financial position and needs. The Fund's
investment
limitations summarized below may not be changed without the affirmative vote
of
the holders of a majority of its outstanding shares. (A complete list of
the
investment limitations that cannot be changed without a vote of shareholders
is
contained in the Statement of Additional Information under "Investment
Objective
and Policies.")
The Fund may not:
1. Borrow money, except from banks for temporary purposes and then
in
amounts not in excess of 10% of the value of the Fund's assets at the
time
of such borrowing; or pledge any assets except in connection with any
such
borrowing and in amounts not in excess of the lesser of the dollar
amounts
borrowed or 10% of the value of the Fund's assets at the time of
such
borrowing. Additional investments will not be made when borrowings exceed
5%
of the Fund's assets.
2. Purchase any securities which would cause, at the time of
purchase,
less than 25% of the value of its total assets to be invested in
obligations
of issuers in the banking industry or in obligations, such as
repurchase
agreements, secured by such bank obligations (unless the Fund is in
a
temporary defensive position) or which would cause, at the time of
purchase,
75% or more of the value of its total assets to be invested in
the
obligations of issuers in any other industry, provided that there is
no
limitation with respect to investments in U.S. government obligations.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Shares of the Fund are sold at the net asset value per share of the
Fund
next determined after receipt of a purchase order by Lehman Brothers,
the
Distributor of the Fund's shares. Purchase orders for shares
are
6
<PAGE>
accepted only on days on which both Lehman Brothers and the Federal Reserve
Bank
of Boston are open for business and must be transmitted to Lehman Brothers,
by
telephone at 1-800-851-3134. Orders received prior to noon, Eastern time,
for
which payment has been received by Boston Safe Deposit and Trust
Company
("Boston Safe"), the Fund's Custodian, will be executed at noon. Orders
received
between noon and 3:00 P.M., Eastern time, will be executed at 3:00 P.M.,
Eastern
time, if payment has been received by Boston Safe by 3:00 P.M. and will
be
executed at 4:00 P.M., if payment has been received by 4:00 P.M. Orders
received
after 3:00 P.M., and orders for which payment has not been received by
4:00
P.M., Eastern time, will not be accepted, and notice thereof will be given
to
the institution placing the order. Payment for Fund Shares may be made only
in
federal funds immediately available to Boston Safe. (Payment for orders
which
are not received or accepted by Lehman Brothers will be returned after
prompt
inquiry to the sending institution.) The Fund may in its discretion reject
any
order for shares.
The minimum aggregate initial investment by an institution in the
investment
portfolios that comprise the Trust is $1 million (with not less than
$25,000
invested in any one investment portfolio offered by the Trust);
however,
broker-dealers and other institutional investors may set a higher minimum
for
their customers. To reach the minimum Trust-wide initial investment,
purchases
of shares may be aggregated over a period of six months. There is no
minimum
subsequent investment.
Conflict of interest restrictions may apply to an institution's receipt
of
compensation paid by the Fund in connection with the investment of
fiduciary
funds in Class B or Class C shares. See also "Management of the Fund--
Service
Organizations." Institutions, including banks regulated by the Comptroller
of
the Currency and investment advisers and other money managers subject to
the
jurisdiction of the Securities and Exchange Commission, the Department of
Labor
or state securities commissions, are urged to consult their legal
advisors
before investing fiduciary funds in Class B or Class C shares.
SUBACCOUNTING SERVICES. Institutions are encouraged to open single
master
accounts. However, certain institutions may wish to use the Transfer
Agent's
subaccounting system to minimize their internal recordkeeping requirements.
The
Transfer Agent charges a fee based on the level of subaccounting
services
rendered. Institutions holding Fund shares in a fiduciary, agency, custodial
or
similar capacity may charge or pass through subaccounting fees as part of or
in
addition to normal trust or agency account fees. They may also charge fees
for
other services provided which may be related to the ownership of Fund
shares.
This Prospectus should, therefore, be read together with any agreement
between
the customer and the institution with regard to the services provided, the
fees
charged for those services and any restrictions and limitations imposed.
REDEMPTION PROCEDURES
Redemption orders must be transmitted to Lehman Brothers by telephone
at
1-800-851-3134. Payment for redeemed shares for which a redemption order
is
received by Lehman Brothers before 3:00 P.M., Eastern time, on a day that
both
Lehman Brothers and the Federal Reserve Bank of Boston are open for business
is
normally made in federal funds wired to the redeeming shareholder on the
same
business day. Payment for redemption orders which are received between 3:00
P.M.
and 4:00 P.M., Eastern time, is normally wired in federal funds on the
next
business day following redemption.
Shares are redeemed at the net asset value per share next determined
after
Lehman Brothers' receipt of the redemption order. While the Fund intends to
use
its best efforts to maintain its net asset value per share at $1.00,
the
proceeds paid to an investor upon redemption may be more or less than the
amount
invested depending
7
<PAGE>
upon a share's net asset value at the time of redemption. To allow the
Fund's
Investment Adviser to manage the Fund effectively, investors are strongly
urged
to initiate all investments or redemptions of Fund shares as early in the day
as
possible to notify Lehman Brothers at least one day in advance of
transactions
in excess of $5 million.
The Fund reserves the right to wire redemption proceeds within seven
days
after receiving the redemption order if, in the judgment of the
Investment
Adviser, an earlier payment could adversely affect the Fund. The Fund shall
have
the right to redeem involuntarily shares in any account at their net asset
value
if the value of the account is less than $10,000 after 60 days' prior
written
notice to the investor. Any such redemption shall be effected at the net
asset
value per share next determined after the redemption order is entered. If
during
the 60-day period the investor increases the value of its account to $10,000
or
more, no such redemption shall take place. In addition, the Fund may
redeem
shares involuntarily or suspend the right of redemption as permitted under
the
Investment Company Act of 1940, as amended (the "1940 Act"), or under
certain
special circumstances described in the Statement of Additional Information
under
"Additional Purchase and Redemption Information."
VALUATION OF SHARES--NET ASSET VALUE
The Fund's net asset value per share for purposes of pricing purchase
and
redemption orders is determined by the Fund's Administrator as of noon,
3:00
P.M. and 4:00 P.M., Eastern time, on each weekday, with the exception of
those
holidays on which either Lehman Brothers or the Federal Reserve Bank of
Boston
is closed. Currently, one or both of these institutions are closed on
the
customary national business holidays of New Year's Day, Martin Luther
King,
Jr's. Birthday (observed), Presidents' Day (Washington's Birthday), Good
Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day (observed),
Veterans
Day, Thanksgiving Day and Christmas Day, and on the preceding Friday
or
subsequent Monday when one of these holidays falls on a Saturday or
Sunday,
respectively. The net asset value per share of Fund shares is calculated
by
adding the value of all securities and other assets of the Fund,
subtracting
liabilities, and dividing the result by the total number of the
Fund's
outstanding shares (irrespective of class or sub-class). In computing net
asset
value, the Fund uses the amortized cost method of valuation as described in
the
Statement of Additional Information under "Additional Purchase and
Redemption
Information." The Fund's net asset value per share for purposes of
pricing
purchase and redemption orders is determined independently of the net
asset
values of the shares of the Trust's other investment portfolios.
OTHER MATTERS
Fund shares are sold and redeemed without charge by the Fund.
Institutional
investors purchasing or holding Fund shares for their customer accounts
may
charge customers fees for cash management and other services provided
in
connection with their accounts. A customer should, therefore, consider the
terms
of its account with an institution before purchasing Fund shares. An
institution
purchasing or redeeming Fund shares on behalf of its customers is
responsible
for transmitting orders to Lehman Brothers in accordance with its
customer
agreements.
DIVIDENDS
**1 Investors of the Fund are entitled to dividends and
distributions
arising only from the net investment income and capital gains, if any, earned
on
investments held by the Fund. The Fund's net investment income is declared
daily
as a dividend to shares held of record at the close of business on the day
of
declaration. Shares
8
<PAGE>
begin accruing dividends on the day the purchase order for the shares
is
executed and continue to accrue dividends through, and including, the day
before
the redemption order for the shares is executed. Dividends are paid monthly
by
wire transfer within five business days after the end of the month or
within
five business days after a redemption of all of an investor's shares of
a
particular class. The Fund does not expect to realize net long-term
capital
gains.
**2 Dividends are determined in the same manner and are paid in the
same
amount for each Fund share, except that Class B and Class C shares bear all
the
expense of fees paid to Service Organizations. As a result, at any given
time,
the net yield on Class B and Class C shares will be .25% and .35%,
respectively,
lower than the net yield on Class A shares.
Institutional investors may elect to have their dividends reinvested
in
additional full and fractional shares of the same class of shares with
respect
to which such dividends are declared at the net asset value of such shares
on
the payment date. Reinvested dividends receive the same tax treatment
as
dividends paid in cash. Such election, or any revocation thereof, must be
made
in writing to the Fund's Distributor, 260 Franklin Street, 15th Floor,
Boston,
Massachusetts 02110-9624, and will become effective after its receipt by
the
Distributor, with respect to dividends paid.
**3 TSSG, as Transfer Agent, will send each investor or its
authorized
representative, if any an annual statement designating the amount of
any
dividends and capital gains distributions made during each year and
their
federal tax qualification.
TAXES
The Fund qualified in its last taxable year and intends to qualify in
future
years as a "regulated investment company" under the Internal Revenue Code
of
1986, as amended (the "Code"). A regulated investment company is exempt
from
federal income tax on amounts distributed to its investors.
**4 Qualification as a regulated investment company under the Code for
a
taxable year requires, among other things, that the Fund distribute to
its
investors at least 90% of its investment company taxable income for such
year.
In general, the Fund's investment company taxable income will be its
taxable
income (including dividends and short-term capital gains, if any) subject
to
certain adjustments and excluding the excess of any net long-term capital
gain
for the taxable year over the net short-term capital loss, if any, for
such
year. The Fund intends to distribute substantially all of its investment
company
taxable income each year. Such distributions will be taxable as ordinary
income
to Fund investors who are not currently exempt from federal income
taxes,
whether such income is received in cash or reinvested in additional shares.
It
is anticipated that none of the Fund's distributions will be eligible for
the
dividends received deduction for corporations. The Fund does not expect
to
realize long-term capital gains and, therefore, does not contemplate payment
of
any "capital gain dividends" as described in the Code.
**5 Dividends declared in October, November or December of any year
payable
to investors of record on a specified date in such months will be deemed to
have
been received by the investors and paid by the Fund on December 31 of such
year
in the event such dividends are actually paid during January of the
following
year.
**6 Investors will be advised at least annually as to the federal income
tax
status of distributions made to them each year.
9
<PAGE>
**7 The foregoing discussion is only a brief summary of some of
the
important federal tax considerations generally affecting the Fund and
its
shareholders. No attempt is made to present a detailed explanation of
the
federal, state or local income tax treatment of the Fund or its investors,
and
this discussion is not intended as a substitute for careful tax
planning.
Accordingly, potential investors in the Fund should consult their tax
advisors
with specific reference to their own tax situation.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the
Trust's Board of Trustees. The Trustees approve all significant
agreements
between the Trust and the persons or companies that furnish services to
the
Fund, including agreements with its Distributor, Investment
Adviser,
Administrator, Custodian and Transfer Agent. The day-to-day operations of
the
Fund are delegated to the Fund's Investment Adviser and Administrator.
The
Statement of Additional Information relating to the Fund contains
general
background information regarding each Trustee and executive officer of
the
Trust.
DISTRIBUTOR
Lehman Brothers, located at 3 World Financial Center, New York, New
York
10285, is the Distributor of the Fund's shares. Lehman Brothers, a leading
full
service investment firm, meets the diverse financial needs of
individuals,
institutions and governments around the world. Lehman Brothers has entered
into
a Distribution Agreement with the Trust pursuant to which it has
the
responsibility for distributing shares of the Fund.
INVESTMENT ADVISER--LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located at 3
World
Financial Center, New York, New York 10285, serves as the Fund's
Investment
Adviser. LBGAM is a wholly owned subsidiary of Shearson Lehman Brothers
Holdings
Inc. ("Holdings"). LBGAM, together with other Lehman Brother investment
advisory
affiliates, serves as Investment Adviser to investment companies and
private
accounts and has assets under management in excess of [$15] billion as
of
___________, 1994.
As Investment Adviser to the Fund, LBGAM will among other
things,
participate in the formulation of the Fund's investment policies,
analyze
economic trends affecting the Fund and monitor and evaluate the
Fund's
investment objective and policies and the Fund's investment performance. For
its
services LBGAM is entitled to receive a monthly fee from the Fund at the
annual
rate of .10% of the value of the Fund's average daily net assets. For the
period
February 8, 1993 (commencement of operations) to January 31, 1994,
LBGAM
received an advisory fee from the Fund in the amount of ._% of average daily
net
assets.
ADMINISTRATOR AND TRANSFER AGENT--THE SHAREHOLDER SERVICES GROUP, INC.
The Shareholder Services Group, Inc. ("TSSG"), located at One
Exchange
Place, 53 State Street, Boston, Massachusetts 02109, serves as the
Fund's
Administrator and Transfer Agent. TSSG is a wholly owned subsidiary of
First
Data Corporation. As Administrator, TSSG calculates the net asset value of
the
Fund's shares and generally assists in all aspects of the Fund's
administration
and operation. As compensation for TSSG's services as Administrator, TSSG
is
entitled to receive from the Fund a monthly fee at the annual rate of .10%
of
the value of the Fund's average daily net assets. TSSG is also entitled
to
receive a fee from the Fund for its services as Transfer Agent. TSSG pays
Boston
Safe, the Fund's Custodian, a portion of its monthly administration fee
for
custody services rendered to the Fund.
10
<PAGE>
CUSTODIAN--BOSTON SAFE DEPOSIT AND TRUST COMPANY
Boston Safe, a wholly owned subsidiary of The Boston Company, Inc.,
located
at One Boston Place, Boston, Massachusetts 02108, serves as the
Fund's
Custodian.
SERVICE ORGANIZATIONS
Financial institutions, such as banks, savings and loan associations
and
other such institutions ("Service Organizations") and/or institutional
customers
of Service Organizations may purchase Class B or Class C shares. These
shares
are identical in all respects to Class A shares except that they bear the
fees
described below and enjoy certain exclusive voting rights on matters relating
to
these fees. The Fund will enter into an agreement with each Service
Organization
whose customers ("Customers") are the beneficial owners of Class B or Class
C
shares that requires the Service Organization to provide certain services
to
Customers in consideration of the Fund's payment of service fees at the
annual
rate of .25% or .35%, respectively, of the average daily net asset value of
the
respective Class beneficially owned by Customers. Such services, which
are
described more fully in the Statement of Additional Information
under
"Management of the Fund's--Service Organizations," may include aggregating
and
processing purchase and redemption requests from Customers and placing
net
purchase and redemption orders with Lehman Brothers; processing
dividend
payments from the Fund on behalf of Customers; providing
information
periodically to Customers showing their positions in shares; arranging for
bank
wires; responding to Customer inquiries relating to the services provided by
the
Service Organization and handling correspondence; acting as shareholder
of
record and nominee; and providing reasonable assistance in connection with
the
distribution of shares to Customers. Services provided with respect to Class
B
shares will generally be more limited than those provided with respect to
Class
C shares. Under the terms of the agreements, Service Organizations are
required
to provide to their Customers a schedule of any fees that they may
charge
Customers in connection with their investments in Class B or Class C
shares.
Class A shares are sold to financial institutions that have not entered
into
servicing agreements with the Fund in connection with their investments.
A
salesperson and any other person entitled to receive compensation for selling
or
servicing shares of the Fund may receive different compensation for selling
or
servicing one Class of shares over another Class.
EXPENSES
The Fund bears all its own expenses. The Fund's expenses include
taxes,
interest, fees and salaries of the Trust's trustees and officers who are
not
directors, officers or employees of the Fund's service contractors,
Securities
and Exchange Commission fees, state securities qualification fees, costs
of
preparing and printing prospectuses for regulatory purposes and for
distribution
to investors, advisory and administration fees, charges of the
custodian,
transfer agent and dividend disbursing agent, Service Organization fees,
certain
insurance premiums, outside auditing and legal expenses, costs of
shareholder
reports and shareholder meetings and any extraordinary expenses. The Fund
also
pays for brokerage fees and commissions (if any) in connection with the
purchase
and sale of portfolio securities. In order to maintain a competitive
expense
ratio during 1994, LBGAM and TSSG have agreed voluntarily to reimburse the
Fund
if and to the extent that the Fund's total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees under the 1940 Act
and
extraordinary expenses) exceed .16% of average daily net assets through
December
31, 1994. The Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets thereafter. This voluntary reimbursement will not be changed
unless
investors are provided at least 60 days' advance notice. In addition,
these
service providers have agreed to reimburse the Fund to the extent required
by
applicable state
11
<PAGE>
law for certain expenses that are described in the Statement of
Additional
Information relating to the Fund. Any fees charged by Service Organizations
or
other institutional investors to their customers in connection with
investments
in Fund shares are not reflected in the Fund's expenses.
*1 moved from here; text not shown
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YIELDS
From time to time, the "yields" and "effective yields" for Class A, Class
B
and Class C shares may be quoted in advertisements or in reports
to
shareholders. Yield quotations are computed separately for each Class of
shares.
The "yield" quoted in advertisements for a particular class or sub-class
of
shares refers to the income generated by an investment in such shares over
a
specified period (such as a seven-day period) identified in the
advertisement.
This income is then "annualized;" that is, the amount of income generated by
the
investment during that period is assumed to be generated each such period over
a
52-week or one-year period and is shown as a percentage of the investment.
The
"effective yield" is calculated similarly but, when annualized, the
income
earned by an investment in a particular class or sub-class is assumed to
be
reinvested. The "effective yield" will be slightly higher than the
"yield"
because of the compounding effect of this assumed reinvestment.
The Fund's yields may be compared to those of other mutual funds
with
similar objectives, to stock or other relevant indices, or to rankings
prepared
by independent services or other financial or industry publications that
monitor
the performance of mutual funds. For example, such data are reported in
national
financial publications such as IBC/DONOGHUE'S MONEY FUND REPORT, THE WALL
STREET
JOURNAL and THE NEW YORK TIMES, reports prepared by LIPPER ANALYTICAL
SERVICE,
INC. and publications of a local or regional nature.
The Fund's yield figures for a Class of shares represent past
performance,
will fluctuate and should not be considered as representative of future
results.
The yield of any investment is generally a function of portfolio quality
and
maturity, type of investment and operating expenses. Since holders of Class B
or
Class C shares bear the service fees for services provided by
Service
Organizations, the net yield on such shares can be expected at any given time
to
be lower than the net yield on Class A shares. Any fees charged by
Service
Organizations or other institutional investors directly to their customers
in
connection with investments in Fund shares are not reflected in the
Fund's
expenses or yields; and, such fees, if charged, would reduce the actual
return
received by customers on their investments. The methods used to compute
the
Fund's yields are described in more detail in the Statement of
Additional
Information. Investors may call 1-800-238-2560 (Class A shares code: 001;
Class
B shares code: 101; Class C shares code: 201) to obtain current
yield
information.
12
<PAGE>
DESCRIPTION OF SHARES AND MISCELLANEOUS
The Trust is a Massachusetts business trust established on November
25,
1992.
The Trust's Declaration of Trust authorizes the Board of Trustees to
issue
an unlimited number of full and fractional shares of beneficial interest in
the
Trust and to classify or reclassify any unissued shares into one or
more
additional classes of shares. The Trust is an open-end management
investment
company, which offers twelve portfolios: Prime Money Market Fund (Class A,
Class
B and Class C), Prime Value Money Market Fund (Class A, Class B, Class C
and
Class D), Government Obligations Money Market Fund (Class A, Class B, Class
C
and Class D), 100% Government Obligations Money Market Fund (Class A, Class
B
and Class C), Treasury Instruments Money Market Fund II (Class A, Class B
and
Class C), 100% Treasury Instruments Money Market Fund (Class A, Class B
and
Class C), Tax-Free Money Market Fund (Class A, Class B, Class C),
Municipal
Money Market Fund (Class A, Class B, Class C and Class D), California
Municipal
Money Market Fund (Class A, Class B and Class C), New York Municipal
Money
Market Fund (Class A, Class B and Class C), Floating Rate U.S. Government
Fund
(Class A and Class B) and Short Duration U.S. Government Fund (Class A and
Class
B). Shares of the New York Municipal Money Market Fund are not currently sold
to
the public. The Declaration of Trust further authorizes the Trustees to
classify
or reclassify any class of shares into one or more sub-classes.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT
OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S
OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
The Trust does not presently intend to hold annual meetings of
shareholders
except as required by the 1940 Act or other applicable law. The Trust will
call
a meeting of shareholders for the purpose of voting upon the question of
removal
of a member of the Board of Trustees upon written request of shareholders
owning
at least 10% of the outstanding shares of the Trust entitled to vote.
Each Fund share represents an equal, proportionate interest in the
assets
belonging to the Fund. Each share, which has a par value of $.001, has
no
preemptive or conversion rights. When issued for payment as described in
this
Prospectus, Fund shares will be fully paid and non-assessable.
Holders of the Fund's shares will vote in the aggregate and not by class
on
all matters, except where otherwise required by law and except that only Class
B
or Class C shares, as the case may be, will be entitled to vote on
matters
submitted to a vote of shareholders pertaining to the Fund's arrangements
with
Service Organizations with respect to the relevant Class. Further,
shareholders
of the Fund and of the Trust's other portfolios will vote in the aggregate
and
not by portfolio except as otherwise required by law or when the Board
of
Trustees determines that the matter to be voted upon affects only the
interests
of the shareholders of a particular portfolio. (See the Statement of
Additional
Information under "Additional Description Concerning Fund Shares" for
examples
where the 1940 Act requires voting by portfolio.) Shareholders of the Trust
are
entitled to one vote for each full share held (irrespective of class
or
portfolio) and fractional votes for fractional shares held. Voting rights
are
not cumulative; and, accordingly, the holders of more than 50% of the
aggregate
shares of the Trust may elect all of the trustees.
For information concerning the redemption of Fund shares and
possible
restrictions on their transferability, see "Purchase and Redemption of
Shares."
13
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
100% Government Obligations Money Market Fund
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
California Municipal Money Market Fund
New York Municipal Money Market Fund
------------------------
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY
REPRESENTATIONS NOT CON-TAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT
OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT
LAWFULLY BE MADE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Background and Expense Information.......... 2
Financial Highlights........................ 3
Investment Objective and Policies........... 4
Purchase and Redemption of Shares........... 6
Dividends................................... 8
Taxes....................................... 9
Management of the Fund...................... 10
Yields...................................... 12
Description of Shares and Miscellaneous..... 13
</TABLE>
PRIME VALUE MONEY
MARKET FUND
-------------------
PROSPECTUS
May __, 1994
---------------------
LEHMAN BROTHERS
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN
RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
<PAGE>
PROSPECTUS
MUNICIPAL MONEY MARKET FUND
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-
load,
open-end, management investment company. The shares described in this
Prospectus
represent interests in the Municipal Money Market Fund portfolio (the
"Fund"),
one of a family of money market portfolios of the Trust.
The Fund's INVESTMENT OBJECTIVE is to provide investors with as high a
level
of current income exempt from federal income tax as is consistent with
relative
stability of principal. The Fund invests substantially all of its assets
in
short-term tax-exempt obligations issued by state and local governments
and
tax-exempt derivative securities. All or a portion of the Fund's dividends
may
be a specific preference item for purposes of the federal individual
and
corporate alternative minimum taxes.
Fund shares may not be purchased by individuals directly, but
institutional
investors may purchase shares for accounts maintained by individuals. The
Fund
currently offers three classes of shares. In addition to Class A
shares,
institutional investors may purchase on behalf of their customers Class B
or
Class C shares which accrue daily dividends in the same manner as Class A
shares
but bear all fees payable by the Fund to institutional investors for
certain
services they provide to the beneficial owners of such shares. See
"Management
of the Fund--Service Organizations."
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO MAINTAIN ITS
NET
ASSET VALUE OF $1.00 PER SHARE.
LEHMAN BROTHERS, INC. ("LEHMAN BROTHERS") sponsors the Fund and acts
as
Distributor of its shares. LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
serves
as the Fund's Investment Adviser.
The address of the Fund is One Exchange Place, Boston, Massachusetts
02109.
The Fund can be contacted as follows: for purchase and redemption orders
only
call 1-800-851-3134; for yield information call 1-800-238-2560 (Class A
shares
code: 009; Class B shares code: 109; Class C shares code: 209); for
other
information call 1-800-368-5556.
This Prospectus briefly sets forth certain information about the Fund
that
investors should know before investing. Investors are advised to read
this
Prospectus and retain it for future reference. Additional information about
the
Fund, contained in a Statement of Additional Information dated May , 1994,
as
amended or supplemented from time to time, has been filed with the
Securities
and Exchange Commission and is available to investors without charge by
calling
the Fund's Distributor at 1-800-368-5556. The Statement of
Additional
Information is incorporated in its entirety by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR
ENDORSED BY, ANY BANK, AND SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT
AGENCY. SHARES OF THE FUND INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING
THE
POSSIBLE LOSS OF PRINCIPAL.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
LEHMAN BROTHERS
May , 1994
<PAGE>
BACKGROUND AND EXPENSE INFORMATION
The following Expense Summary lists the costs and expenses that an
investor
in the Fund can expect to incur during the Fund's current fiscal year
ending
January 31, 1995. The Fund offers three separate classes of shares. Shares
of
each class represent equal, pro rata interests in the Fund and accrue
daily
dividends in the same manner except that Class B and Class C shares bear
fees
payable by the Fund (at the rate of .25% and .35% per annum, respectively)
to
institutions for services they provide to the beneficial owners of such
shares.
See "Management of the Fund--Service Organizations."
EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------------ ------------ ------------
<S>
<C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory
Fees..................................................................
0.10%* 0.10%* 0.10%*
Rule 12b-1
fees................................................................ none
.25% .35%
Other Expenses--including Administration Fees (net of applicable
waivers)...... 0.06%* 0.06%* 0.06%*
--- --- ---
Total Fund Operating Expenses (after fee
waivers)*............................. .16% .41% 51%
--- --- ---
--- --- ---
<FN>
------------------------
* The Expense Summary above has been restated to reflect the Fund's
Investment
Adviser's and Administrator's voluntary reimbursement arrangements in
effect
for the Fund's fiscal year ending January 31, 1995. With respect to Class
A,
Class B and Class C shares for the month of January, 1995, the Total
Fund
Operating Expenses included reimbursement of expenses are anticipated to
be
.18%, .43% and .53%, respectively.
</TABLE>
In order to maintain a competitive expense ratio during 1994, the
Fund's
Investment Adviser and Administrator have voluntarily agreed to reimburse
the
Fund if and to the extent that total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees and
extraordinary
expenses) exceed .16% of average daily net assets through December 31, 1994.
For
the years 1995-1997, the Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets. The voluntary reimbursement arrangements described above will not
be
changed unless shareholders are provided at least 60 days' advance notice.
The
maximum annual contractual fees payable to the Investment Adviser
and
Administrator total .20% of average daily net assets. Absent reimbursement
of
expenses, the Total Fund Operating Expenses of Class A, Class B and Class
C
would be .24%, .49% and .59%, respectively, of the Fund's average daily
net
assets.
---------
EXAMPLE
An investor would pay the following expenses on a $1,000 investment,
assuming
(1) a 5% annual return and (2) redemption at the end of each time period
with
respect to the following shares:
<TABLE>
<CAPTION>
1 YEAR
3 YEARS 5 YEARS 10 YEARS
---------
-- ----------- ----------- -----------
<S> <C>
<C> <C> <C>
Class A shares.....................................................
$ 5 $ 9 $ 20
Class B shares.....................................................
$ 13 $ 23 $ 52
Class C shares.....................................................
$ 16 $ 29 $ 64
</TABLE>
2
<PAGE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES
AND
RATES OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
The purpose of the foregoing table is to assist an investor in
understanding
the various costs and expenses that an investor in the Fund will bear
directly
or indirectly. Certain Service Organizations (as defined below) also may
charge
their clients fees in connection with investments in Fund shares, which fees
are
not reflected in the table. For more complete descriptions of the various
costs
and expenses, see "Management of the Fund" in this Prospectus and the
Statement
of Additional Information.
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year ended January
31,
1994 is derived from the Fund's Financial Statements audited by Ernst &
Young,
independent accountants. This information should be read in conjunction with
the
financial statements and notes thereto that appear in the Statement
of
Additional Information.
MUNICIPAL MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
1/31/94*
----------
<S>
<C>
Net asset value, beginning of
period.............................................. $ 1.00
Net investment
income(1)..........................................................
0.0243
Dividends from net investment
income.............................................. (0.0243)
Net asset value, end of
period.................................................... $ 1.00
Total
return(2)...................................................................
2.46%
Ratios to average net assets/supplemental data:
Net assets, end of period (in
000's).............................................. $ 350,975
Ratio of net investment income to average net
assets(3)........................... 2.53%
Ratio of operating expenses to average net
assets(4).............................. 0.13%
<FN>
------------------------
* The Municipal Money Market Fund Class A Shares commenced operations
on
February 8, 1993.
(1) Net investment income before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Investment Adviser and Administrator was $0.0201.
(2) Total return represents aggregate total return for the period indicated.
(3) Annualized.
(4) Annualized expense ratio before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Investment Adviser and Administrator for the fiscal year ended January
31,
1994 was 0.51% and for the period ended July 31, 1994 was 1.27%.
</TABLE>
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to provide investors with as high a
level
of current income exempt from federal income tax as is consistent with
relative
stability of principal. All or a portion of the Fund's dividends may be
a
specific preference item for purposes of the federal individual and
corporate
alternative minimum taxes.
In pursuing its investment objective, the Fund, which operates as
a
diversified investment company, invests substantially all of its assets in
a
diversified portfolio of short-term tax-exempt obligations issued by or
on
behalf of states, territories and possessions of the United States, the
District
of Columbia, and their respective authorities, agencies, instrumentalities
and
political subdivisions and tax-exempt derivative securities such as
tender
option bonds, participations, beneficial interests in trusts and
partnership
interests (collectively "Municipal Obligations"). The Fund will not
knowingly
purchase securities the interest on which is subject to federal income
tax.
(See, however, "Taxes" below concerning treatment of exempt-interest
dividends
paid by the Fund for purposes of the federal alternative minimum tax
applicable
to particular categories of investors.)
Opinions relating to the validity of Municipal Obligations and to
the
exemption of interest thereon from federal income tax are rendered by
bond
counsel to the respective issuers at the time of issuance, and opinions
relating
to the validity of and the tax-exempt status of payments received by the
Fund
from tax-exempt derivative securities are rendered by counsel to the
respective
sponsors of such securities. The Fund and its Investment Adviser will rely
on
such opinions and will not review independently the underlying
proceedings
relating to the issuance of Municipal Obligations, the creation of
any
tax-exempt derivative securities or the bases for such opinions.
The Fund will purchase only Municipal Obligations which are
"Eligible
Securities" (as defined by the Securities and Exchange Commission) and
which
present minimal credit risks as determined by the Investment Adviser pursuant
to
guidelines approved by the Trust's Board of Trustees. Eligible
Securities
consist of (i) securities that either (a) have short-term debt ratings at
the
time of purchase within the two highest rating categories assigned by at
least
two unaffiliated nationally recognized statistical rating
organizations
("NRSROs") (or one NRSRO if the security was rated by only one NRSRO), or
(b)
are issued by issuers with such ratings, and (ii) certain securities that
are
unrated (including securities of issuers that have long-term but not short-
term
ratings) but are of comparable quality as determined by the Investment
Adviser
pursuant to guidelines approved by the Trust's Board of Trustees. The
Appendix
to the Statement of Additional Information includes a description of
applicable
NRSRO ratings.
Except during temporary defensive periods, the Fund will
invest
substantially all, but in no event less than 80%, of its total assets
in
Municipal Obligations with remaining maturities of thirteen months or less
as
determined in accordance with the rules of the Securities and
Exchange
Commission. The Fund maintains a dollar-weighted average portfolio maturity
of
90 days or less. The Fund may hold uninvested cash reserves pending
investment,
during temporary defensive periods including when suitable tax-
exempt
obligations are unavailable. There is no percentage limitation on the amount
of
assets which may be held uninvested. Uninvested cash reserves will not
earn
income.
4
<PAGE>
INVESTMENT LIMITATIONS
There can be no assurance that the Fund will achieve its
investment
objective. The investment limitations enumerated below and the Fund's policy
of
investing at least 80% of its total assets in Municipal Obligations
are
fundamental and may not be changed by the Trust's Board of Trustees without
the
affirmative vote of the holders of a majority of the Fund's outstanding
shares.
The Fund's investment objective and other investment policies described
above
may be changed by the Board of Trustees at any time. If there is a change in
the
investment objective, investors should consider whether the Fund remains
an
appropriate investment in light of their then current financial position
and
needs. (A complete list of the investment limitations that cannot be
changed
without a vote of shareholders is contained in the Statement of
Additional
Information under "Investment Objective and Policies.")
The Fund may not:
1. Borrow money except from banks for temporary purposes and then
in
amounts not exceeding 10% of the value of the Fund's assets; or
mortgage,
pledge or hypothecate any assets except in connection with any
such
borrowing and in amounts not in excess of the lesser of the dollar
amounts
borrowed or 10% of the value of the Fund's total assets at the time of
such
borrowing. Additional investments will not be made when borrowings exceed
5%
of the Fund's assets.
2. Purchase any securities which would cause 25% or more of the
value
of its total assets at the time of purchase to be invested in the
securities
of issuers conducting their principal business activities in the
same
industry, provided that there is no limitation with respect to
investments
in U.S. government securities.
3. Purchase the securities of any issuer if as a result more than 5%
of
the value of the Fund's assets would be invested in the securities of
such
issuer except that up to 25% of the value of the Fund's assets may
be
invested without regard to this 5% limitation, provided that there is
no
limitation with respect to investments in U.S. government securities.
TYPES OF MUNICIPAL OBLIGATIONS
The two principal classifications of Municipal Obligations which may be
held
by the Fund are "general obligation" securities and "revenue"
securities.
General obligation securities are secured by the issuer's pledge of its
full
faith, credit and taxing power for the payment of principal and
interest.
Revenue securities are payable only from the revenues derived from a
particular
facility or class of facilities or, in some cases, from the proceeds of
a
special excise tax or other specific revenue source such as the user of
the
facility being financed. Revenue securities include private activity bonds
which
are not payable from the unrestricted revenues of the issuer. Consequently,
the
credit quality of private activity bonds is usually directly related to
the
credit standing of the corporate user of the facility involved.
The Tax Reform Act of 1986 substantially revised provisions of prior
law
affecting the issuance and use of proceeds of certain tax-exempt obligations.
A
new definition of private activity bonds was applied to many types of
bonds,
including those which were industrial development bonds under prior
law.
Interest on private activity bonds is tax-exempt only if the bonds fall
within
certain defined categories of qualified private activity bonds and meet
the
requirements specified in those respective categories. The Act generally did
not
change the tax treatment of bonds issued to finance governmental operations.
The
changes generally apply to bonds issued after
5
<PAGE>
August 15, 1986, with certain transitional rule exemptions. As used in
this
Prospectus, the term "private activity bonds" also includes
industrial
development revenue bonds issued pursuant to the Internal Revenue Code of
1986,
as amended.
The Fund's portfolio may also include "moral obligation" bonds, which
are
normally issued by special purpose public authorities. If the issuer of
moral
obligation bonds is unable to meet its debt service obligations from
current
revenues, it may draw on a reserve fund, the restoration of which is a
moral
commitment but not a legal obligation of the state or municipality which
created
the issuer.
OTHER INVESTMENT PRACTICES
Municipal Obligations purchased by the Fund may include variable rate
demand
notes. Such notes may not be rated by credit rating agencies, but unrated
notes
purchased by the Fund will be determined by the Fund's Investment Adviser to
be
of comparable quality at the time of purchase to rated instruments
purchasable
by the Fund. Where necessary to ensure that a note is an Eligible Security,
the
Fund will require that the issuer's obligation to pay the principal of the
note
be backed by an conditional bank letter or line of credit, guarantee
or
commitment to lend. While there may be no active secondary market with
respect
to a particular variable rate demand note purchased by the Fund, the Fund
may,
upon the notice specified in the note, demand payment of the principal of
the
note at any time or during specified periods not exceeding thirteen
months,
depending upon the instrument involved, and may resell the note at any time to
a
third party. The absence of such an active secondary market, however, could,
in
some instances, make it difficult for the Fund to dispose of a variable
rate
demand note if the issuer were to default on its payment obligation or
during
periods that the Fund is not entitled to exercise its demand rights, and
the
Fund could, for this or other reasons, suffer a loss to the extent of
the
default. While, in general, the Fund will invest only in securities that
mature
within thirteen months of purchase, the Fund may invest in variable rate
demand
notes which have nominal maturities in excess of thirteen months, if
such
instruments carry demand features that comply with conditions established by
the
Securities and Exchange Commission.
The Fund may also purchase Municipal Obligations on a "when-issued"
basis.
When-issued securities are securities purchased for delivery beyond the
normal
settlement date at a stated price and yield. The Fund will generally not pay
for
such securities or start earning interest on them until they are
received.
Securities purchased on a when-issued basis are recorded as an asset and
are
subject to changes in value based upon changes in the general level of
interest
rates. The Fund expects that commitments to purchase when-issued securities
will
not exceed 25% of the value of its total assets absent unusual
market
conditions. The Fund does not intend to purchase when-issued securities
for
speculative purposes but only in furtherance of its investment objective.
In addition, the Fund may acquire "stand-by commitments" with respect
to
Municipal Obligations held in its portfolio. Under a stand-by commitment,
a
dealer would agree to purchase at the Fund's option specified
Municipal
Obligations at a specified price. The Fund will acquire stand-by
commitments
solely to facilitate portfolio liquidity and does not intend to exercise
its
rights thereunder for trading purposes.
Although the Fund may invest more than 25% of its net assets in
(i)
Municipal Obligations whose issuers are in the same state and (ii)
Municipal
Obligations the interest on which is paid solely from revenues of
similar
projects, it does not presently intend to do so on a regular basis. To
the
extent the Fund's assets are concentrated in Municipal Obligations that
are
payable from the revenues of similar projects, are issued by issuers located
in
6
<PAGE>
the same state or are private activity bonds, the Fund will be subject to
the
peculiar risks presented by the laws and economic conditions relating to
such
states, projects and bonds to a greater extent than it would be if its
assets
were not so concentrated.
The Fund may purchase tender option bonds. A tender option bond is
a
municipal obligation (generally held pursuant to a custodial arrangement)
having
a relatively long maturity and bearing interest at a fixed rate
substantially
higher than prevailing short-term tax-exempt rates, that has been coupled
with
the agreement of a third party, such as a bank, broker-dealer or other
financial
institution, pursuant to which such institution grants the security holders
the
option, at periodic intervals, to tender their securities to the institution
and
receive the face value thereof. As consideration for providing the option,
the
financial institution receives periodic fees equal to the difference between
the
municipal obligation's fixed coupon rate and the rate, as determined by
a
remarketing or similar agent at or near the commencement of such period,
that
would cause the securities, coupled with the tender option, to trade at or
near
par on the date of such determination. Thus, after payment of this fee,
the
security holder effectively holds a demand obligation that bears interest at
the
prevailing short-term tax exempt rate. The Fund's Investment Adviser
will
consider on an ongoing basis the creditworthiness of the issuer of
the
underlying municipal obligation, of any Custodian and of the third
party
provider of the tender option. In certain instances and for certain
tender
option bonds, the option may be terminable in the event of a default in
payment
of principal or interest on the underlying municipal obligations and for
other
reasons. Additionally, the above description of tender option bonds is
meant
only to provide an example of one possible structure of such obligations,
and
the Fund may purchase tender option bonds with different types of
ownership,
payment, credit, and/or liquidity arrangement.
The Fund may acquire custodial receipts or certificates underwritten
by
securities dealers or banks that evidence ownership of future interest
payments,
principal payments or both, on certain municipal obligations. The underwriter
of
these certificates or receipts typically purchases municipal obligations
and
deposits the obligations in an irrevocable trust or custodial account with
a
Custodian bank, which then issues receipts or certificates that
evidence
ownership of the periodic unmatured coupon payments and the final
principal
payment on the obligations. Although under the terms of a custodial receipt,
the
Fund would be typically authorized to assert its rights directly against
the
issuer of the underlying obligation, the Fund could be required to
assert
through the Custodian bank those rights as may exist against the
underlying
issuer. Thus, in the event the underlying issuer fails to pay principal
and/or
interest when due, the Fund may be subject to delays, expenses and risks
that
are greater than those that would have been involved if the Fund had purchased
a
direct obligation of the issuer. In addition, in the event that the trust
or
custodial account in which the underlying security has been deposited
is
determined to be an association taxable as a corporation instead of
a
non-taxable entity, the yield on the underlying security would be reduced
in
recognition of any taxes paid.
The Fund may purchase from financial institutions tax-exempt
participation
interests in Municipal Obligations. A participation interest gives the Fund
an
undivided interest in the Municipal Obligation in the proportion that the
Fund's
participation interest bears to the total amount of the Municipal
Obligation.
These instruments may have floating or variable rates of interest. If
the
participation interest is unrated, it will be backed by an irrevocable letter
of
credit or guarantee of a bank that the Trust's Board of Trustees has
determined
meets certain quality standards or the payment obligation otherwise will
be
collateralized by obligations of the U.S. government and its agencies
and
instrumentalities. The Fund will have the right, with respect to
certain
participation
7
<PAGE>
interests, to demand payment, on a specified number of days' notice, for all
or
any part of the Fund's interest in the Municipal Obligation, plus
accrued
interest. The Fund will invest no more than 5% of its total assets
in
participation interests.
The Fund will not knowingly invest more than 10% of the value of its
total
net assets in illiquid securities, including securities that are illiquid
by
virtue of the absence of a readily available market or legal or
contractual
restrictions on resale. Securities that have legal or contractual
restrictions
on resale but have a readily available market are not deemed illiquid
for
purposes of this limitation. The Fund's Investment Adviser will monitor
the
liquidity of such restricted securities under the supervision of the Board
of
Trustees. See "Investment Objective and Policies--Additional Information
and
Investment Practices--Illiquid Securities" in the Statement of
Additional
Information.
The value of the Fund's portfolio securities can be expected to
vary
inversely with changes in prevailing interest rates.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Shares of the Fund are sold at the net asset value per share of the
Fund
next determined after receipt of a purchase order by Lehman Brothers
the
Distributor of the Fund's shares. Purchase orders for shares are accepted by
the
Fund only on days on which both Lehman Brothers and the Federal Reserve Bank
of
Boston are open for business and must be transmitted to Lehman Brothers,
by
telephone at 1-800-851-3134. Orders received prior to noon, Eastern time,
for
which payment has been received by Boston Safe Deposit and Trust
Company
("Boston Safe"), the Fund's Custodian, will be executed at noon. Orders
received
prior to noon for which payment is received between noon and 4:00 P.M.,
Eastern
time, will be executed at 4:00 P.M. Orders received after noon, and orders
for
which payment has not been received by 4:00 P.M., Eastern time, will not
be
accepted and notice thereof will be given to the institution placing the
order.
Payment for Fund shares may be made only in federal funds immediately
available
to Boston Safe. (Payment for orders which are not received or accepted by
Lehman
Brothers will be returned after prompt inquiry to the sending institution.)
The
Fund may in its discretion reject any order for shares. A salesperson and
any
other person entitled to receive compensation for selling or servicing shares
of
the Fund may receive different compensation for selling or servicing one
Class
of shares over another Class.
The minimum initial investment by an institution: $1 million (with not
less
than $25,000 invested in any one investment portfolio offered by the
Trust);
however, broker-dealers and other institutional investors may set a
higher
minimum for their customers. To reach the minimum Trust-wide initial
investment,
purchases of shares may be aggregated over a period of six months. There is
no
minimum subsequent investment.
Conflict of interest restrictions may apply to an institution's receipt
of
compensation paid by the Fund on fiduciary funds that are invested in Class B
or
Class C shares. See also "Management of the Fund--Service
Organizations."
Institutions, including banks regulated by the Comptroller of the Currency
and
investment advisers and other money managers subject to the jurisdiction of
the
Securities and Exchange Commission, the Department of Labor or state
securities
commissions, should consult their legal advisors before investing
fiduciary
funds in Class B or Class C shares.
8
<PAGE>
SUBACCOUNTING SERVICES. Institutions are encouraged to open single
master
accounts. However, certain institutions may wish to use the Transfer
Agent's
subaccounting system to minimize their internal recordkeeping requirements.
The
Transfer Agent charges a fee based on the level of subaccounting
services
rendered. Institutions holding Fund shares in a fiduciary, agency, custodial
or
similar capacity may charge or pass through subaccounting fees as part of or
in
addition to normal trust or agency account fees. They may also charge fees
for
other services provided which may be related to the ownership of Fund
shares.
This Prospectus should, therefore, be read together with any agreement
between
the customer and the institution with regard to the services provided, the
fees
charged for those services and any restrictions and limitations imposed.
REDEMPTION PROCEDURES
Redemption orders must be transmitted to Lehman Brothers by telephone
at
1-800-851-3134. Payment for redeemed shares for which a redemption order
is
received by Lehman Brothers before noon, Eastern time, on a day that both
Lehman
Brothers and the Federal Reserve Bank of Boston are open for business
is
normally made in federal funds wired to the redeeming shareholder on the
same
business day. Payment for redeemed shares for which a redemption order
is
received by Lehman Brothers after noon, Eastern time, on such a business day
is
normally made in federal funds wired to the redeeming shareholder on the
next
business day following redemption.
Shares are redeemed at the net asset value per share next determined
after
Lehman Brothers' receipt of the redemption order. While the Fund intends to
use
its best efforts to maintain its net asset value per share at $1.00,
the
proceeds paid to an investor upon redemption may be more or less than the
amount
invested depending upon a share's net asset value at the time of redemption.
To
allow the Fund's Investment Adviser to manage the Fund effectively,
investors
are strongly urged to initiate all investments or redemptions of Fund shares
as
early in the day as possible and to notify Lehman Brothers at least one day
in
advance of transactions in excess of $5 million.
The Fund reserves the right to wire redemption proceeds within seven
days
after receiving the redemption order if, in the judgment of the
Investment
Adviser, an earlier payment could adversely affect the Fund. The Fund shall
have
the right to redeem shares involuntarily in any account at its net asset
value
if the value of the account is less than $10,000 after 60 days' prior
written
notice to the investor. Any such redemption shall be effected at the net
asset
value per share next determined after the redemption order is entered. If
during
the 60-day period the investor increases the value of its account to $10,000
or
more, no such redemption shall take place. In addition, the Fund may
redeem
shares involuntarily or suspend the right of redemption as permitted under
the
Investment Company Act of 1940, as amended (the "1940 Act"), or under
certain
special circumstances described in the Statement of Additional Information
under
"Additional Purchase and Redemption Information."
VALUATION OF SHARES--NET ASSET VALUE
The Fund's net asset value per share for purposes of pricing purchase
and
redemption orders is determined by the Fund's Administrator as of noon and
4:00
P.M., Eastern time, on each weekday, with the exception of those holidays
on
which either Lehman Brothers or the Federal Reserve Bank of Boston is
closed.
Currently, one or both of these institutions are closed on the
customary
national business holidays of New Year's Day, Martin Luther King, Jr.'s
Birthday
(observed), Presidents' Day (Washington's Birthday), Good Friday, Memorial
Day,
Independence Day, Labor Day, Columbus Day (observed), Veterans Day,
Thanksgiving
Day and Christmas Day,
9
<PAGE>
and on the preceeding Friday or subsequent Monday when one of these
holidays
falls on a Saturday or Sunday, respectively. The net asset value per share
of
the Fund is calculated by adding the value of all securities and other assets
of
the Fund, subtracting liabilities and dividing the result by the total number
of
the Fund's outstanding shares. In computing net asset value, the Fund uses
the
amortized cost method of valuation as described in the Statement of
Additional
Information under "Additional Purchase and Redemption Information." The
Fund's
net asset value per share for purposes of pricing purchase and redemption
orders
is determined independently of the net asset values of the shares in the
Trust's
other investment portfolios.
OTHER MATTERS
Fund shares are sold and redeemed without charge by the Fund.
Institutional
investors purchasing or holding Fund shares for their customers' accounts
may
charge customers fees for cash management and other services provided
in
connection with their accounts. A customer should, therefore, consider the
terms
of its account with an institution before purchasing Fund shares. An
institution
purchasing or redeeming shares on behalf of its customers is responsible
for
transmitting orders to Lehman Brothers in accordance with its
customer
agreements.
DIVIDENDS
**1 Investors of the Fund are entitled to dividends and
distributions
arising only from the net investment income and capital gains, if any, earned
on
its investments held by the Fund. The Fund's net investment income is
declared
daily as a dividend to shareholders of record at the close of business on
the
day of declaration. Dividends are determined in the same manner and are paid
in
the same amount for each share of the Fund irrespective of class, except
that
Class B or Class C shares bear all the expense of fees paid to
Service
Organizations. Shares begin accruing dividends on the day the purchase order
for
the shares is effected and continue to accrue dividends through the day
such
shares are redeemed. Dividends are paid monthly by wire transfer, within
five
business days after the end of the month or within five business days after
a
redemption of all of a shareholder's shares of a particular class. The Fund
does
not expect to realize net long-term capital gains.
Institutional investors may elect to have their dividends reinvested
in
additional full and fractional shares of the same class at the net asset
value
of such shares on the payment date. Reinvested dividends receive the same
tax
treatment as dividends paid in cash. Such election, or any revocation
thereof,
must be made in writing to the Fund's Distributor, 260 Franklin Street,
15th
Floor, Boston, Massachusetts 02110-9624, and will become effective after
its
receipt by the Distributor with respect to dividends paid.
The Shareholder Services Group, Inc. ("TSSG"), as Transfer Agent, will
send
each investor or its authorized representative, if any, an annual
statement
designating the amount of any dividends and capital gains distributions
made
during each year and their federal tax qualification.
TAXES
**2 The Fund qualified in its last taxable year and intends to qualify
in
future years as a "regulated investment company" under the Internal Revenue
Code
of 1986, as amended (the "Code"). A regulated investment company is exempt
from
federal income tax on amounts distributed to its shareholders.
10
<PAGE>
**3 Qualification as a regulated investment company under the Code for
a
taxable year requires, among other things, that the Fund distribute to
its
investors at least 90% of its exempt-interest income net of certain
deductions
and 90% of its investment company taxable income for such year.
Dividends
derived from exempt-interest income may be treated by the Fund's investors
as
items of interest excludable from their gross income under Section 103(a) of
the
Code, unless under the circumstances applicable to the particular investor
the
exclusion would be disallowed. (See the Statement of Additional
Information
under "Additional Information Concerning Taxes.")
**4 The Fund may hold without limit certain private activity bonds
issued
after August 7, 1986. Investors must include, as an item of tax preference,
the
portion of dividends paid by the Fund that is attributable to interest on
such
bonds in their federal alternative minimum taxable income for purposes
of
determining liability (if any) for the 24% alternative minimum tax applicable
to
individuals and the 20% alternative minimum tax and the environmental
tax
applicable to corporations. Corporate investors must also take
all
exempt-interest dividends into account in determining certain adjustments
for
federal alternative minimum and environmental tax purposes. The
environmental
tax applicable to corporations is imposed at the rate of .12% on the excess
of
the corporation's modified federal alternative minimum taxable income
over
$2,000,000. Investors receiving Social Security benefits should note that
all
exempt-interest dividends will be taken into account in determining
the
taxability of such benefits.
**5 To the extent, if any, dividends paid to shareholders are derived
from
taxable income or from long-term or short-term capital gains, such
dividends
will not be exempt from federal income tax, whether such dividends are paid
in
the form of cash or additional shares, and may also be subject to state
and
local taxes. Under state or local law, the Fund's distributions of
net
investment income may be taxable to investors as dividend income even though
a
substantial portion of such distributions may be derived from interest
on
tax-exempt obligations which, if realized directly, would be exempt from
such
income taxes.
**6 Dividends declared in October, November or December of any year
payable
to shareholders of record on a specified date in such months will be deemed
to
have been received by the shareholders and paid by the Fund on December 31
of
such year in the event such dividends are actually paid during January of
the
following year.
**7 Investors will be advised at least annually as to the federal income
tax
consequences of distributions made each year.
**8 The foregoing is only a brief summary of some of the important
federal
tax considerations generally affecting the Fund and its investors. No attempt
is
made to present a detailed explanation of the federal, state or local income
tax
treatment of the Fund or its investors, and this discussion is not intended as
a
substitute for careful tax planning. Accordingly, potential investors in
the
Fund should consult their tax advisors with specific reference to their own
tax
situation.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the
Trust's Board of Trustees. The Trustees approve all significant
agreements
between the Trust and the persons or companies that furnish services to
the
Fund, including agreements with its Distributor, Investment
Adviser,
Administrator, Custodian
11
<PAGE>
and Transfer Agent. The day-to-day operations of the Fund are delegated to
the
Fund's Investment Adviser and Administrator. The Statement of
Additional
Information relating to the Fund contains general background
information
regarding each Trustee and executive officer of the Trust.
DISTRIBUTOR
Lehman Brothers, located at 3 World Financial Center, New York, New
York
10285, is the Distributor of the Fund's shares. Lehman Brothers, a leading
full
service investment firm, meets the diverse financial needs of
individuals,
institutions and governments around the world. Lehman Brothers has entered
into
a Distribution Agreement with the Trust pursuant to which it has
the
responsibility for distributing shares of the Fund.
INVESTMENT ADVISER--LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located at 3
World
Financial Center, New York, New York 10285, serves as the Fund's
Investment
Adviser. Lehman Global Asset Management is a wholly owned subsidiary of
Lehman
Brothers Holdings Inc. ("Holdings"). LBGAM, together with other Lehman
Brothers
investment advisory affiliates, serves as Investment Advisor to
investment
companies private accounts and has assets under management in excess of
[$15]
billion as of , 1994.
As Investment Adviser to the Fund, LBGAM will among other
things,
participate in the formulation of the Fund's investment policies,
analyze
economic trends affecting the Fund and monitor and evaluate the
Fund's
investment objective and policies and the Fund's investment performance. For
its
services LBGAM is entitled to receive a monthly fee from the Fund at the
annual
rate of .10% of the value of the Fund's average daily net assets. For the
period
February 8, 1993 (commencement of operations) to January 31, 1994,
LBGAM
received an advisory fee from the Fund in the amount of % of average
daily
net assets.
ADMINISTRATOR AND TRANSFER AGENT--THE SHAREHOLDER SERVICES GROUP, INC.
The Shareholder Services Group, Inc. ("TSSG"), located at One
Exchange
Place, 53 State Street, Boston, Massachusetts 02109, serves as the
Fund's
Administrator and Transfer Agent. TSSG is a wholly owned subsidiary of
First
Data Corporation. As Administrator, TSSG calculates the net asset value of
the
Fund's shares and generally assists in all aspects of the Fund's
administration
and operation. As compensation for TSSG's services as Administrator, TSSG
is
entitled to receive from the Fund a monthly fee at the annual rate of .10%
of
the value of the Fund's average daily net assets. TSSG is also entitled
to
receive a fee from the Fund for its services as Transfer Agent. TSSG pays
Boston
Safe, the Fund's Custodian, a portion of its monthly administration fee
for
custody services rendered to the Fund.
CUSTODIAN--BOSTON SAFE DEPOSIT AND TRUST COMPANY
Boston Safe, a wholly owned subsidiary of The Boston Company, Inc.,
located
at One Boston Place, Boston, Massachusetts 02108, serves as the
Fund's
Custodian.
SERVICE ORGANIZATIONS
Financial institutions such as banks, savings and loan associations
and
other such institutions ("Service Organizations") and/or institutional
customers
of Service Organizations may purchase Class B or Class C shares. These
shares
are identical in all respects to Class A shares except that they bear the
fees
described below and enjoy certain exclusive voting rights on matters relating
to
these fees. The Fund will enter into an agreement with each Service
Organization
whose customers ("Customers") are the beneficial owners of Class B or Class
C
shares that requires the Service Organization to provide certain services
to
Customers in consideration of the
12
<PAGE>
Fund's payment of service fees at the annual rate of .25% or .35%,
respectively,
of the average daily net asset value of the respective Class beneficially
owned
by the Customers. Such services, which are described more fully in the
Statement
of Additional Information under "Management of the Fund's is
Service
Organizations," may include aggregating and processing purchase and
redemption
requests from Customers and placing net purchase and redemption orders
with
Lehman Brothers; processing dividend payments from the Fund on behalf
of
Customers; providing information periodically to Customers showing
their
positions in shares; arranging for bank wires; responding to Customer
inquiries
relating to the services provided by the Service Organization and
handling
correspondence; acting as shareholder of record and nominee; and
providing
reasonable assistance in connection with the distribution of shares
to
Customers. Services provided with respect to Class B shares will generally
be
more limited than those provided with respect to Class C Shares. Under the
terms
of the agreements, Service Organizations are required to provide to
their
Customers a schedule of any fees that they may charge Customers in
connection
with their investments in Class B or Class C shares. Class A shares are sold
to
financial institutions that have not entered into servicing agreements with
the
Fund in connection with their investments.
EXPENSES
The Fund bears all of its own expenses. The Fund's expenses include
taxes,
interest, fees and salaries of the Trust's trustees and officers who are
not
directors, officers or employees of the Fund's service contractors,
Securities
and Exchange Commission fees, state securities qualification fees, costs
of
preparing and printing prospectuses for regulatory purposes and for
distribution
to investors, advisory and administration fees, charges of the
custodian,
transfer agent and dividend disbursing agent, Service Organization fees,
certain
insurance premiums, outside auditing and legal expenses, costs of
shareholder
reports and shareholder meetings and any extraordinary expenses. The Fund
also
pays for brokerage fees and commissions (if any) in connection with the
purchase
and sale of portfolio securities. In order to maintain a competitive
expense
ratio during 1994; LBGAM and TSSG have agreed voluntarily to reimburse the
Fund
if and to the extent that the Fund's total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees under the 1940 Act
and
extraordinary expenses) exceed .16% of average daily net assets through
December
31, 1994. The Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets thereafter. This voluntary reimbursement will not be changed
unless
investors are provided at least 60 days' advance notice. In addition,
these
service providers have agreed to reimburse the Fund to the extent required
by
applicable state law for certain expenses that are described in the Statement
of
Additional Information relating to the Fund. Any fees charged by
Service
Organizations or other institutional investors to their customers in
connection
with investments in Fund shares are not reflected in the Fund's expenses.
*1 moved from here; text not shown
YIELDS
From time to time, the "yields," and "effective yields" for Class A, Class
B
or Class C shares may be quoted in advertisements or in reports to
investors.
Yield quotations are computed separately for each Class of shares. The
"yield"
quoted in advertisements for each a particular class or sub-class of
shares
refers to the income generated by an investment in such shares over a
specified
period (such as a seven-day period specified in the advertisement). This
income
is then "annualized"; that is, the amount of income generated by the
investment
13
<PAGE>
during that week is assumed to be generated each week over a 52-week or one
year
period and is shown as a percentage of the investment. The "effective yield"
is
calculated similarly but, when annualized, the income earned by an investment
in
a particular Class of Fund shares is assumed to be reinvested. The
"effective
yield" will be slightly higher than the "yield" because of the
compounding
effect of this assumed reinvestment. The "tax-equivalent yield" demonstrates
the
level of taxable yield necessary to produce an after-tax yield equivalent to
the
Fund's tax-free yield for each Class of shares. It is calculated by
increasing
the yield (calculated as above) by the amount necessary to reflect the
payment
of federal taxes at a stated rate. The "tax-equivalent yield" will always
be
higher than the "yield."
The Fund's yields may be compared to those of other mutual funds
with
similar objectives, to bond or other relevant indices, or to rankings
prepared
by independent services or other financial or industry publications that
monitor
the performance of mutual funds. For example, such data are reported in
national
financial publications such as IBC/DONOGHUE'S MONEY FUND REPORT-R-,
IBBOTSON
ASSOCIATES OF CHICAGO, THE WALL STREET JOURNAL and THE NEW YORK TIMES,
reports
prepared by LIPPER ANALYTICAL SERVICES, INC. and publications of a local
or
regional nature.
THE FUND'S YIELD FIGURES FOR A CLASS OF SHARES REPRESENT PAST
PERFORMANCE,
WILL FLUCTUATE AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE
RESULTS.
The yield of any investment is generally a function of portfolio quality
and
maturity, type of investment and operating expenses. Since holders of Class
B
and Class C shares bear the service fees for services provided by
Service
Organizations, the net yield on such shares can be expected at any given time
to
be lower than the net yield on Class A shares. Any fees charged by
Service
Organizations or other institutional investors directly to their customers
in
connection with investments in Fund shares are not reflected in the
Fund's
expenses or yields. The methods used to compute the Fund's yields are
described
in more detail in the Statement of Additional Information. Investors may
call
1-800-238-2560 (Class A shares code: 009; Class B shares code: 109; Class
C
shares code: 209) to obtain current yield information.
The yield for Class A, Class B and Class C shares for the Fund for
the
seven-day period ended January 31, 1994 were %, % and % respectively.
DESCRIPTION OF SHARES
*2 moved from here; text not shown
*3 moved from here; text not shown
*4 moved from here; text not shown
*5 moved from here; text not shown
*6 moved from here; text not shown
*7 moved from here; text not shown
*8 moved from here; text not shown
The Trust was organized as a Massachusetts business trust on November
25,
1992.
The Trust's Declaration of Trust authorizes the Board of Trustees to
issue
an unlimited number of full and fractional shares of beneficial interest in
the
Trust and to classify or reclassify any unissued shares into one
or
14
<PAGE>
more classes of shares. The Trust is an open-end management investment
company,
which offers twelve portfolios; Prime Money Market Fund (Class A, Class B
and
Class C), Prime Value Money Market Fund (Class A, Class B, Class C and Class
D),
Government Obligations Money Market Fund (Class A, Class B, Class C and
Class
D), 100% Government Obligations Money Market Fund (Class A, Class B and
Class
C), Treasury Instruments Money Market Fund II (Class A, Class B and Class
C),
100% Treasury Instruments Money Market Fund (Class A, Class B and Class
C),
Tax-Free Money Market Fund (Class A, Class B and Class C), Municipal
Money
Market Fund (Class A, Class B, Class C and Class D), California Municipal
Money
Market Fund (Class A, Class B and Class C), New York Municipal Money Market
Fund
(Class A, Class B and Class C), Floating Rate U.S. Government Fund (Class A
and
Class B) and Short Duration U.S. Government Fund (Class A and Class B).
Shares
of the New York Municipal Money Market Fund are not currently sold to
the
public. The Declaration of Trust further authorizes the trustees to classify
or
reclassify any class of shares into one or more sub-classes.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT
OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S
OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
The Trust does not intend to hold annual meetings of shareholders except
as
required by the 1940 Act or other applicable law. The Trust will call a
meeting
of shareholders for the purpose of voting upon the question of removal of
a
member of the Board of Trustees upon written request of shareholders owning
at
least 10% of the outstanding shares of the Trust entitled to vote.
Each Fund share represents an equal proportionate interest in the
assets
belonging to the Fund. Each share, which has a par value of $.001, has
no
preemptive or conversion rights. When issued for payment as described in
this
Prospectus, shares will be fully paid and non-assessable.
Holders of the Fund's shares will vote in the aggregate and not by class
on
all matters, except where otherwise required by law and except that only Class
B
or Class C shares, as the case may be, will be entitled to vote on
matters
submitted to a vote of shareholders pertaining to the Fund's arrangements
with
Service Organizations with respect to the relevant Class. Further,
shareholders
of all of the Trust's portfolios will vote in the aggregate and not by
portfolio
except as otherwise required by law or when the Board of Trustees
determines
that the matter to be voted upon affects only the interests of the
shareholders
of a particular portfolio. (See the Statement of Additional Information
under
"Additional Description Concerning Fund Shares" for examples where the 1940
Act
requires voting by portfolio.) Shareholders of the Trust are entitled to
one
vote for each full share held (irrespective of class or portfolio)
and
fractional votes for fractional shares held. Voting rights are not
cumulative,
and, accordingly, the holders of more than 50% of the aggregate shares of
the
Trust may elect all of the trustees.
For information concerning the redemption of Fund shares and
possible
restrictions on their transferability, see "Purchase and Redemption of
Shares."
15
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
100% Government Obligations Money Market Fund
Treasury Instruments Money Market Fund
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
California Municipal Money Market Fund
New York Municipal Money Market Fund
------------------------
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT
OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT
LAWFULLY BE MADE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Background and Expense Information........ 2
Financial Highlights...................... 3
Investment Objective and Policies......... 4
Purchase and Redemption of Shares......... 8
Dividends................................. 10
Taxes..................................... 10
Management of the Fund.................... 11
Yields.................................... 13
Description of Shares..................... 14
</TABLE>
MUNICIPAL
MONEY MARKET FUND
-------------------
PROSPECTUS
May , 1994
---------------------
LEHMAN BROTHERS
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN
RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
<PAGE>
PROSPECTUS
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-
load,
open-end management investment company. The shares described in this
Prospectus
represent interests in the Government Obligations Money Market Fund
portfolio
(the "Fund"), one of a family of money market portfolios of the Trust.
The Fund's INVESTMENT OBJECTIVE is current income with liquidity
and
security of principal. The Fund invests in a portfolio consisting of
U.S.
Treasury bills, notes and other obligations issued or guaranteed by the
U.S.
government, its agencies or instrumentalities and repurchase agreements
relating
to such obligations.
Fund shares may not be purchased by individuals directly, but
institutional
investors may purchase shares for accounts maintained by individuals. The
Fund
currently offers three classes of shares. In addition to Class A
shares,
institutional investors may purchase on behalf of their customers Class B
or
Class C shares which accrue daily dividends in the same manner as Class A
shares
but bear all fees payable by the Fund to institutional investors for
certain
services they provide to the beneficial owners of such shares. See
"Management
of the Fund--Service Organizations."
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
ITS
NET ASSET VALUE OF $1.00 PER SHARE.
LEHMAN BROTHERS, INC. ("LEHMAN BROTHERS") sponsors the Fund and acts
as
Distributor of its shares. LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
serves
as the Fund's Investment Adviser.
The address of the Fund is One Exchange Place, Boston, Massachusetts
02019.
The Fund can be contacted as follows: for purchase and redemption orders
only
call 1-800-851-3134; for yield information call 1-800-238-2560 (Class A
shares
code: 003; Class B shares code: 103; Class C shares code: 203); for
other
information call 1-800-368-5556.
This Prospectus briefly sets forth certain information about the Fund
that
investors should know before investing. Investors are advised to read
this
Prospectus and retain it for future reference. Additional information about
the
Fund, contained in a Statement of Additional Information dated May __, 1994,
as
amended or supplemented from time to time, has been filed with the
Securities
and Exchange Commission and is available to investors without charge by
calling
the Fund's Distributor at 1-800-368-5556. The Statement of
Additional
Information is incorporated in its entirety by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR
ENDORSED BY, ANY BANK, AND SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT
AGENCY. SHARES OF THE FUND INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING
THE
POSSIBLE LOSS OF PRINCIPAL.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
LEHMAN BROTHERS
May __, 1994
<PAGE>
BACKGROUND AND EXPENSE INFORMATION
The following Expense Summary lists the costs and expenses that an
investor
in the Fund can expect to incur during the Fund's current fiscal year
ending
January 31, 1995. The Fund offers three separate classes of shares. Shares
of
each class represent equal, pro rata interests in the Fund and accrue
daily
dividends in the same manner except that Class B and Class C shares bear
fees
payable by the Fund (at the rate of .25% and .35% per annum, respectively)
to
institutions for services they provide to the beneficial owners of such
shares.
See "Management of the Fund--Service Organizations."
EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees (net of applicable fee
waivers)........................... 0.09%* 0.09%* 0.09%*
Rule 12b-1 fees..................... none .25% .35%
Other Expenses--including
Administration Fees................ 0.06%* 0.06%* 0.06%*
------- ------- -------
Total Fund Operating Expenses (after
fee waivers*)...................... .16% .41% .51%
------- ------- -------
------- ------- -------
<FN>
---------
* The Expense Summary above has been restated to reflect the Fund's
Investment
Adviser's and Administrator's voluntary reimbursement arrangements in
effect
for the Fund's fiscal year ending January 31, 1995. With respect to Class
A,
Class B and Class C shares for the month of January, 1995, the Total
Fund
Operating Expenses including reimbursement of expenses are anticipated to
be
.18%, .43%, and .53%, respectively.
</TABLE>
In order to maintain a competitive expense ratio during 1994, the
Fund's
Investment Adviser and Administrator have voluntarily agreed to reimburse
the
Fund if and to the extent that total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees and
extraordinary
expenses) exceed .16% of average daily net assets through December 31, 1994.
For
the years 1995-1997, the Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets. The voluntary reimbursement arrangements described above will not
be
changed unless shareholders are provided at least 60 days' advance notice.
The
maximum annual contractual fees payable to the Investment Adviser
and
Administrator total .20% of average daily net assets. Absent reimbursement
of
expenses, the Total Fund Operating Expenses of Class A, Class B and Class
C
would be .25%, .50% and .60%, respectively, of the Fund's average daily
net
assets.
---------
EXAMPLE: An investor would pay the following expenses on a $1,000
investment,
assuming (1) a 5% annual return and (2) redemption at the end of each
time
period with respect to the following shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A shares:............... $ 2 $ 5 $ 9 $ 20
Class B shares:............... $ 4 $ 13 $ 23 $ 52
Class C shares:............... $ 5 $ 16 $ 29 $ 64
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES
AND
RATES OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
The purpose of the foregoing table is to assist an investor in
understanding
the various costs and expenses that an investor in the Fund will bear
directly
or indirectly. Certain Service Organizations (as defined below) also may
charge
their clients fees in connection with investments in Fund shares, which fees
are
not reflected in the table. For more complete descriptions of the various
costs
and expenses, see "Management of the Fund" in this Prospectus and the
Statement
of Additional Information.
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year ended January
31,
1994 is derived from the Fund's Financial Statements audited by Ernst &
Young,
independent accountants. This information should be read in conjunction with
the
financial statements and notes thereto that appear in the Statement
of
Additional Information.
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD
ENDED PERIOD ENDED
1/31/94*
1/31/94*
CLASS A
CLASS B
<S> <C>
<C>
Net asset value, beginning of period...............................
$1.00 $1.00
Net investment income(1)...........................................
0.0309 0.0091
Dividends from net investment income...............................
(0.0309) (0.0091)
Net asset value, end of period.....................................
$1.00 $1.00
Total return(2)....................................................
3.14% 0.90%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)...............................
$350,666 --(3)
Ratio of net investment income to average net assets...............
3.18% 2.93%
Ratio of operating expenses to average net assets(5)...............
0.03% 0.28%
<FN>
---------
* The Government Obligations Money Market Fund Class A and Class B
Shares
commenced operations on February 8, 1993, August 16, 1993, respectively.
(1) Net investment income before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Investment Adviser and Administrator for Class A and Class B were
$0.0261,
$0.0075, respectively.
(2) Total return represents aggregate total return for the period indicated.
(3) Total net assets for Class B was $100 at January 31, 1994.
(4) Annualized.
(5) Annualized expense ratio before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Investment Adviser and Administrator for Class A and Class B were 0.53%
and 0.78%, respectively.
</TABLE>
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is current income with liquidity
and
security of principal. The Fund, which operates as a diversified
investment
company, invests in obligations issued or guaranteed by the U.S. government,
its
agencies or instrumentalities (in addition to direct Treasury obligations)
and
repurchase agreements relating to such obligations. The Fund invests only
in
securities which are purchased with and payable in U.S. dollars (i.e.,
U.S.
dollar denominated securities) and which have (or, pursuant to
regulations
adopted by the Securities and Exchange Commission, are deemed to have)
remaining
maturities of 12 months or less at the date of purchase by the Fund. The
Fund
maintains a dollar-weighted average portfolio maturity of 90 days or less.
The "instrumentalities" or "agencies" of the U.S. government the
obligations
of which may be purchased by the Fund include: the Central Bank
for
Cooperatives, Export-Import Bank of the United States, Farmers
Home
Administration, Federal Farm Credit Banks, Federal Financing Bank, Federal
Home
Loan Banks, Federal Home Loan Mortgage Corporation, Federal
Housing
Administration, Federal Intermediate Credit Banks, Federal Land Banks,
Federal
National Mortgage Association, Financing Corporation, General
Services
Administration, Government National Mortgage Association,
Maritime
Administration, Private Export Funding Corp., Resolution Trust
Corporation,
Small Business Administration, Student Loan Marketing Association,
Tennessee
Valley Authority, U.S. Postal Service and Washington, D.C. Armory Board.
Some
obligations issued or guaranteed by agencies or instrumentalities of the
U.S.
Government are backed by the full faith and credit of the United States;
others
are backed by the right of the issuer to borrow from the U.S. Treasury or
are
backed only by the credit of the agency or instrumentality issuing
the
obligation.
Securities issued or guaranteed by the U.S. government, its agencies
and
instrumentalities have historically involved little risk of loss of principal
if
held to maturity. However, due to fluctuations in interest rates, the
market
value of such securities may vary during the period a shareholder owns shares
of
the Fund. Certain government securities held by the Fund may have
remaining
maturities exceeding 12 months if such securities provide for adjustments
in
their interest rates not less frequently than every 12 months.
The Fund may invest in zero coupon U.S. Treasury securities, which
are
Treasury notes and bonds that have been stripped of their unmatured
interest
coupons, the coupons themselves and receipts or certificates
representing
interests in such stripped debt obligations and coupons. A zero coupon
security
pays no interest to its holder during its life and is sold at a discount to
its
face value at maturity. The amount of the discount fluctuates with the
market
price of the security. The market prices of zero coupon securities generally
are
more volatile than the market prices of securities that pay
interest
periodically and are likely to respond to a greater degree to changes
in
interest rates than non-zero coupon securities having similar maturities
and
credit qualities. Although zero coupon securities do not make interest
payments,
for tax purposes a portion of the difference between a zero coupon
security's
maturity value and its purchase price is taxable income of the Fund each
year
and distributed to Fund shareholders. Distributions to shareholders with
respect
to taxable income on zero coupon securities will reduce cash available for
the
purchase of income producing securities.
The Fund may purchase government securities from financial
institutions,
such as banks and broker-dealers, subject to the seller's agreement
to
repurchase them at an agreed upon time and price ("repurchase agreements").
The
securities subject to a repurchase agreement may bear maturities exceeding
12
months, provided the repurchase agreement itself matures in one year or
less.
The Fund will not invest more than 10% of the value of its net assets
in
repurchase agreements which do not provide for settlement within seven days.
The
4
<PAGE>
seller under a repurchase agreement will be required to maintain the value
of
the securities subject to the agreement at not less than the repurchase
price
(including accrued interest). Default by or bankruptcy of the seller
would,
however, expose the Fund to possible loss because of adverse market action
or
delay in connection with the disposition of the underlying obligations.
The Fund may borrow funds for temporary purposes by entering into
reverse
repurchase agreements in accordance with the investment restrictions
described
below. Pursuant to such agreements, the Fund would sell portfolio securities
to
financial institutions and agree to repurchase them at an agreed upon date
and
price. The Fund would consider entering into reverse repurchase agreements
to
avoid otherwise selling securities during unfavorable market conditions to
meet
redemptions. Reverse repurchase agreements involve the risk that the
market
value of the portfolio securities sold by the Fund may decline below the
price
of the securities the Fund is obligated to repurchase.
The Fund may purchase securities on a "when-issued" basis. When-
issued
securities are securities purchased for delivery beyond the normal
settlement
date at a stated price and yield. The Fund will generally not pay for
such
securities or start earning interest on them until they are received.
Securities
purchased on a when-issued basis are recorded as an asset and are subject
to
changes in value based upon changes in the general level of interest rates.
The
Fund expects that commitments to purchase when-issued securities will not
exceed
25% of the value of its total assets absent unusual market conditions. The
Fund
does not intend to purchase when-issued securities for speculative purposes
but
only in furtherance of its investment objective.
The Fund may also lend its portfolio securities to financial institutions
in
accordance with the investment restrictions described below. The Fund may
lend
portfolio securities against collateral consisting of cash or securities
which
are consistent with the Fund's permitted investments, which is equal at
all
times to at least 100% of the value of the securities loaned. There is
no
limitation on the amount of securities that may be loaned. Such loans
would
involve risks of delay in receiving additional collateral or in recovering
the
securities loaned or even loss of rights in the collateral should the
borrower
of the securities fail financially. However, loans will be made only
to
borrowers deemed by the Fund's Investment Adviser to be of good standing
and
only when, in the adviser's judgment, the income to be earned from the
loans
justifies the attendant risks.
There can be no assurance that the Fund will achieve its
investment
objective.
INVESTMENT LIMITATIONS
The Fund's investment objective and policies described above are
not
fundamental and may be changed by the Trust's Board of Trustees without a
vote
of shareholders. If there is a change in the investment objective,
investors
should consider whether the Fund remains an appropriate investment in light
of
their then current financial position and needs. The Fund's borrowing
limitation
summarized below may not be changed without the affirmative vote of the
holders
of a majority of its outstanding shares. (A complete list of the
investment
limitations that cannot be changed without a vote of shareholders is
contained
in the Statement of Additional Information under "Investment Objective
and
Policies.")
The Fund may not borrow money except from banks for temporary purposes
and
then in an amount not exceeding 10% of the value of the Fund's total assets,
or
mortgage, pledge or hypothecate its assets except in
5
<PAGE>
connection with any such borrowing and in amounts not in excess of the lesser
of
the dollar amounts borrowed or 10% of the value of the Fund's total assets
at
the time of such borrowing. Additional investments will not be made
when
borrowings exceed 5% of the Fund's assets.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Shares of the Fund are sold at the net asset value per share of the
Fund
next determined after receipt of a purchase order by Lehman Brothers,
the
Distributor of the Fund's shares. Purchase orders for shares are accepted by
the
Fund only on days on which both Lehman Brothers and the Federal Reserve Bank
of
Boston are open for business and must be transmitted to Lehman Brothers,
by
telephone at 800-851-3134. Orders received prior to noon, Eastern time,
for
which payment has been received by Boston Safe Deposit and Trust
Company
("Boston Safe"), the Fund's Custodian, will be executed at noon. Orders
received
between noon and 3:00 P.M., Eastern time, will be executed at 3:00 P.M.,
Eastern
time, if payment has been received by Boston Safe by 3:00 P.M. and will
be
executed at 4:00 P.M. if payment has been received by 4:00 P.M. Orders
received
after 3:00 P.M., and orders for which payment has not been received by
4:00
P.M., Eastern time, will not be accepted and notice thereof will be given to
the
institution placing the order. Payments for Fund shares may be made only
in
federal funds available to Boston Safe. (Payment for orders which are
not
received or accepted by Lehman Brothers will be returned after prompt inquiry
to
the sending institution.) The Fund may in its discretion reject any order
for
shares.
The minimum aggregate initial investment by an institution in the
investment
portfolios that comprise the Trust is $1 million (with not less than
$25,000
invested in any one investment portfolio offered by the Trust);
however,
broker-dealers and other institutional investors may set a higher minimum
for
their customers. To reach the minimum Trust-wide initial investment,
purchases
of shares may be aggregated over a period of six months. There is no
minimum
subsequent investment.
Conflict of interest restrictions may apply to an institution's receipt
of
compensation paid by the Fund on fiduciary funds that are invested in Class B
or
Class C shares. See also "Management of the Fund--Service
Organizations."
Institutions, including banks regulated by the Comptroller of the Currency
and
investment advisers and other money managers subject to the jurisdiction of
the
Securities and Exchange Commission, the Department of Labor or state
securities
commissions, should consult their legal advisors before investing
fiduciary
funds in Class B or Class C shares.
SUBACCOUNTING SERVICES. Institutions are encouraged to open single
master
accounts. However, certain institutions may wish to use the Transfer
Agent's
subaccounting system to minimize their internal recordkeeping requirements.
The
Transfer Agent charges a fee based on the level of subaccounting
services
rendered. Institutions holding Fund shares in a fiduciary, agency, custodial
or
similar capacity may charge or pass through subaccounting fees as part of or
in
addition to normal trust or agency account fees. They may also charge fees
for
other services provided which may be related to the ownership of Fund
shares.
This Prospectus should, therefore, be read together with any agreement
between
the customer and the institution with regard to the services provided, the
fees
charged for those services and any restrictions and limitations imposed.
6
<PAGE>
REDEMPTION PROCEDURES
Redemption orders must be transmitted to Lehman Brothers by telephone
at
1-800-851-3134. Payment for redeemed shares for which a redemption order
is
received by Lehman Brothers before 3:00 P.M., Eastern time, on a day that
both
Lehman Brothers and the Federal Reserve Bank of Boston are open for business
is
normally made in federal funds wired to the redeeming shareholder on the
same
business day. Payment for other redemption orders which are received
between
3:00 P.M. and 4:00 P.M., Eastern time, is normally wired in federal funds on
the
next business day following redemption.
Shares are redeemed at the net asset value per share next determined
after
Lehman Brothers' receipt of the redemption order. While the Fund intends to
use
its best efforts to maintain its net asset value per share at $1.00,
the
proceeds paid to an investor upon redemption may be more or less than the
amount
invested depending upon a share's net asset value at the time of redemption.
To
allow the Fund's Investment Adviser to manage the Fund effectively,
investors
are strongly urged to initiate all investments or redemptions of Fund shares
as
early in the day as possible and to notify Lehman Brothers at least one day
in
advance of transactions in excess of $5 million.
The Fund reserves the right to wire redemption proceeds within seven
days
after receiving the redemption order if, in the judgment of the
Investment
Adviser, an earlier payment could adversely affect the Fund. The Fund shall
have
the right to redeem involuntarily shares in any account at their net asset
value
if the value of the account is less than $10,000 after 60 days' prior
written
notice to the investor. Any such redemption shall be effected at the net
asset
value per share next determined after the redemption order is entered. If
during
the 60-day period the shareholder increases the value of its account to
$10,000
or more, no such redemption shall take place. In addition, the Fund may
redeem
shares involuntarily or suspend the right of redemption as permitted under
the
Investment Company Act of 1940, as amended (the "1940 Act"), or under
certain
special circumstances described in the Statement of Additional Information
under
"Additional Purchase and Redemption Information."
VALUATION OF SHARES--NET ASSET VALUE
The Fund's net asset value per share for purposes of pricing purchase
and
redemption orders is determined by the Fund's Administrator as of noon,
3:00
P.M. and 4:00 P.M., Eastern time, on each weekday, with the exception of
those
holidays on which either Lehman Brothers or the Federal Reserve Bank of
Boston
is closed. Currently, one or both of these institutions are closed on
the
customary national business holidays of New Year's Day, Martin Luther
King,
Jr.'s Birthday (observed), Presidents' Day (Washington's Birthday), Good
Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day (observed),
Veterans
Day, Thanksgiving Day and Christmas Day, and on the preceding Friday
or
subsequent Monday when one of these holidays falls on a Saturday or
Sunday,
respectively. The net asset value per share of the Fund is calculated by
adding
the value of all securities and other assets belonging to the Fund,
subtracting
liabilities and dividing the result by the total number of the
Fund's
outstanding shares (irrespective of class or sub-class). In computing net
asset
value, the Fund uses the amortized cost method of valuation as described in
the
Statement of Additional Information under "Additional Purchase and
Redemption
Information." The Fund's net asset value per share for purposes of
pricing
purchase and redemption orders is determined independently of the net
asset
values of the shares of the Trust's other investment portfolios.
7
<PAGE>
OTHER MATTERS
Fund shares are sold and redeemed without charge by the Fund.
Institutional
investors purchasing or holding Fund shares for their customer accounts
may
charge customers fees for cash management and other services provided
in
connection with their accounts. A customer should, therefore, consider the
terms
of its account with an institution before purchasing Fund shares. An
institution
purchasing or redeeming shares on behalf of its customers is responsible
for
transmitting orders to Lehman Brothers in accordance with its
customer
agreements.
DIVIDENDS
** 1 Investors of the Fund are entitled to dividends and
distributions
arising only from the net investment income and capital gains, if any, earned
on
its investments. The Fund's net investment income is declared daily as
a
dividend to its shareholders of record at the close of business on the day
of
declaration. Shares begin accruing dividends on the day the purchase order
for
the shares is effected and continue to accrue dividends through the day
before
such shares are redeemed. Dividends are paid monthly by wire transfer
within
five business days after the end of the month or within five business days
after
a redemption of all of a shareholder's shares of a particular class. The
Fund
does not expect to realize net long-term capital gains.
** 2 Dividends are determined in the same manner and are paid in the
same
amount for each Fund share except that Class B and Class C shares bear all
the
expense of fees paid to Service Organizations. As a result, at any given
time,
the net yield on Class B and Class C shares will be .25% and .35%,
respectively,
lower than the net yield on Class A shares.
Institutional investors may elect to have their dividends reinvested
in
additional full and fractional shares of the same class with respect to
which
such dividends are declared at the net asset value of such shares on the
payment
date. Reinvested dividends receive the same tax treatment as dividends paid
in
cash. Such election, or any revocation thereof, must be made in writing to
the
Fund's Distributor, 260 Franklin Street, 15th Floor, Boston,
Massachusetts
02110-9624, and will become effective after its receipt by the Distributor
with
respect to dividends paid.
The Shareholder Services Group, Inc. ("TSSG"), as Transfer Agent, will
send
each investor or its authorized representative, if any, an annual
statement
designating the amount of any dividends and capital gains distributions
made
during each year and their federal tax qualification.
TAXES
The Fund qualified in its last taxable year and intends to qualify in
future
years as a "regulated investment company" under the Internal Revenue Code
of
1986, as amended (the "Code"). A regulated investment company is exempt
from
federal income tax on amounts distributed to its investors.
** 3 Qualification as a regulated investment company under the Code for
a
taxable year requires, among other things, that the Fund distribute to
its
investors at least 90% of its investment company taxable income for such
year.
In general, the Fund's investment company taxable income will be its
taxable
income (including interest) subject to certain adjustments and excluding
the
excess of any net long-term capital gain for the
taxable
8
<PAGE>
year over the net short-term capital loss, if any, for such year. The
Fund
intends to distribute substantially all of its investment company taxable
income
each year. Such distributions will be taxable as ordinary income to the
Fund's
investors who are not currently exempt from federal income taxes, whether
such
income is received in cash or reinvested in additional shares. It is
anticipated
that none of the Fund's distributions will be eligible for the
dividends
received deduction for corporations. The Fund does not expect to
realize
long-term capital gains and therefore does not expect to distribute any
"capital
gain dividends" as described in the Code.
** 4 Dividends declared in October, November or December of any year
payable
to investors of record on a specified date in such months will be deemed to
have
been received by the investors and paid by the Fund on December 31 of such
year
in the event such dividends are actually paid during January of the
following
year.
** 5 Many states, by statute, judicial decision or administrative
action,
have taken the position that dividends of a regulated investment company such
as
the Fund that are attributable to interest on obligations of the U.S.
Treasury
and certain U.S. government agencies and instrumentalities are the
functional
equivalent of interest from such obligations and are, therefore, exempt
from
state and local income taxes.
** 6 The Fund will provide investors annually with information about
the
portion of dividends from the Fund derived from U.S. Treasury and
U.S.
government agency obligations. Investors should be aware of the application
of
their state and local tax laws to investments in the Fund.
** 7 The foregoing discussion is only a brief summary of some of
the
important federal tax considerations generally affecting the Fund and
its
investors. No attempt is made to present a detailed explanation of the
federal,
state or local income tax treatment of the Fund or its investors and
this
discussion is not intended as a substitute for careful tax
planning.
Accordingly, potential investors in the Fund should consult their tax
advisors
with specific reference to their own tax situation.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the
Trust's Board of Trustees. The Trustees approve all significant
agreements
between the Trust and the persons or companies that furnish services to
the
Fund, including agreements with its Distributor, Investment
Adviser,
Administrator, Custodian and Transfer Agent. The day-to-day operations of
the
Fund are delegated to the Fund's Investment Adviser and Administrator.
The
Statement of Additional Information relating to the Fund contains
general
background information regarding each Trustee and executive officer of
the
Trust.
DISTRIBUTOR
Lehman Brothers, located at 3 World Financial Center, New York, New
York
10285, is the Distributor of the Fund's shares. Lehman Brothers, a leading
full
service investment firm, meets the diverse financial needs of
individuals,
institutions and governments around the world. Lehman Brothers has entered
into
a Distribution Agreement with the Trust pursuant to which it has
the
responsibility for distributing shares of the Fund.
INVESTMENT ADVISER--LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located at 3
World
Financial Center, New York, New York 10285, serves as the Fund's
Investment
Adviser. LBGAM is a wholly owned subsidiary of
9
<PAGE>
Lehman Brothers Holdings Inc. ("Holdings"). LBGAM, together with other
Lehman
Brothers investment advisory affiliates, serves as Investment Adviser
to
investment companies and private accounts and has assets under management
in
excess of [$15] billion as of ___________, 1994.
As Investment Adviser to the Fund, LBGAM will among other
things,
participate in the formulation of the Fund's investment policies,
analyze
economic trends affecting the Fund, and monitor and evaluate the
Fund's
investment objective and policies and the Fund's investment performance. For
its
services LBGAM is entitled to receive a monthly fee from the Fund at the
annual
rate of .10% of the value of the Fund's average daily net assets. For the
period
February 8, 1993 (commencement of operations) to January 31, 1994,
LBGAM
received an advisory fee from the Fund in the amount of ._% of average daily
net
assets.
ADMINISTRATOR AND TRANSFER AGENT--THE SHAREHOLDER SERVICES GROUP, INC.
The Shareholder Services Group, Inc. ("TSSG"), located at One
Exchange
Place, 53 State Street, Boston, Massachusetts 02109, serves as the
Fund's
Administrator and Transfer Agent. TSSG is a wholly owned subsidiary of
First
Data Corporation. As Administrator, TSSG calculates the net asset value of
the
Fund's shares and generally assists in all aspects of the Fund's
administration
and operation. As compensation for TSSG's services as Administrator, TSSG
is
entitled to receive from the Fund a monthly fee at the annual rate of .10%
of
the value of the Fund's average daily net assets. TSSG is also entitled
to
receive a fee from the Fund for its services as Transfer Agent. TSSG pays
Boston
Safe, the Fund's Custodian, a portion of its monthly administration fee
for
custody services rendered to the Fund.
CUSTODIAN--BOSTON SAFE DEPOSIT AND TRUST COMPANY
Boston Safe, a wholly owned subsidiary of The Boston Company, Inc.,
located
at One Boston Place, Boston, Massachusetts 02108, serves as the
Fund's
Custodian.
SERVICE ORGANIZATIONS
Financial institutions, such as banks, savings and loan associations
and
other such institutions ("Service Organizations") and/or institutional
customers
of Service Organizations may purchase Class B or Class C shares. These
shares
are identical in all respects to Class A shares except that they bear the
fees
described below and enjoy certain exclusive voting rights on matters relating
to
these fees. The Fund will enter into an agreement with each Service
Organization
whose customers ("Customers") are the beneficial owners of Class B or Class
C
shares that requires the Service Organization to provide certain services
to
Customers in consideration of the Fund's payment of service fees at the
annual
rate of .25% or .35%, respectively, of the average daily net asset value of
the
respective Class beneficially owned by the Customers. Such services, which
are
described more fully in the Statement of Additional Information
under
"Management of the Funds--Service Organizations," may include aggregating
and
processing purchase and redemption requests from Customers and placing
net
purchase and redemption orders with Lehman Brothers; processing
dividend
payments from the Fund on behalf of Customers; providing
information
periodically to Customers showing their positions in shares; arranging for
bank
wires; responding to Customer inquiries relating to the services provided by
the
Service Organization and handling correspondence; acting as shareholder
of
record and nominee; and providing reasonable assistance in connection with
the
distribution of shares to Customers. Services provided with respect to Class
B
shares will generally be more limited than those provided with respect to
Class
C shares. Under the terms of the agreements, Service Organizations are
required
to provide to their Customers a schedule of any fees that they may charge to
the
Customers in connection with their investment in Class B or Class C
shares.
Class A shares
10
<PAGE>
are sold to financial institutions that have not entered into
servicing
agreements with the Fund in connection with their investments. A salesperson
and
any other person entitled to receive compensation for selling or
servicing
shares of the Fund may receive different compensation for selling or
servicing
one Class of shares over another Class.
EXPENSES
The Fund bears all of its own expenses. The Fund's expenses include
taxes,
interest, fees and salaries of the Trust's trustees and officers who are
not
directors, officers or employees of the Fund's service contractors,
Securities
and Exchange Commission fees, state securities qualification fees, costs
of
preparing and printing prospectuses for regulatory purposes and for
distribution
to investors, advisory and administration fees, charges of the
custodian,
transfer agent and dividend disbursing agent, Service Organization fees,
certain
insurance premiums, outside auditing and legal expenses, costs of
shareholder
reports and shareholder meetings and any extraordinary expenses. The Fund
also
pays for brokerage fees and commissions (if any) in connection with the
purchase
and sale of portfolio securities. In order to maintain a competitive
expense
ratio during 1994, LBGAM and TSSG have agreed voluntarily to reimburse the
Fund
if and to the extent that the Fund's total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees under the 1940 Act
and
extraordinary expenses) exceed .16% of average daily net assets through
December
31, 1994. The Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets thereafter. This voluntary reimbursement will not be changed
unless
investors are provided at least 60 days' advance notice. In addition,
these
service providers have agreed to reimburse the Fund to the extent required
by
applicable state law for certain expenses that are described in the Statement
of
Additional Information relating to the Fund. Any fees charged by
Service
Organizations or other institutional investors to their customers in
connection
with investments in Fund shares are not reflected in the Fund's expenses.
YIELDS
From time to time the "yields" and "effective yields" for class A, Class
B
and Class C shares may be quoted in advertisements or in reports to
investors.
The "yield" quoted in advertisements for a particular class or sub-class
refers
to the income generated by an investment in such shares over a specified
period
(such as a seven-day period identified in the advertisement). This income
is
then "annualized"; that is, the amount of income generated by the
investment
during that period is assumed to be generated each such period over a 52-week
or
one-year period and is shown as a percentage of the investment. The
"effective
yield" is calculated similarly but, when annualized, the income earned by
an
investment in a class or sub-class is assumed to be reinvested. The
"effective
yield" will be slightly higher than the "yield" because of the
compounding
effect of this assumed reinvestment.
** 8 The Fund's yields may be compared to those of other mutual funds
with
similar objectives, to stock or other relevant indices, or to rankings
prepared
by independent services or other financial or industry publications that
monitor
the performance of mutual funds. For example, such data are reported in
national
financial publications such as IBC/DONOGHUE'S MONEY FUND REPORT-R-, THE
WALL
STREET JOURNAL and THE NEW YORK TIMES, reports prepared by LIPPER
ANALYTICAL
SERVICE, INC. and publications of local or regional nature.
11
<PAGE>
** 9 THE FUND'S YIELD FIGURES FOR A CLASS OF SHARES REPRESENTS
PAST
PERFORMANCE, WILL FLUCTUATE AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE
OF
FUTURE RESULTS. The yield of any investment is generally a function of
portfolio
quality and maturity, type of investment and operating expenses. Since
holders
of Class B or Class C shares bear all service fees for services provided
by
Service Organizations, the net yield on such shares can be expected at any
given
time to be lower than the net yield on Class A shares. Any fees charged
by
Service Organizations or other institutional investors directly to
their
customers in connection with investments in Fund shares are not reflected in
the
Fund's expenses or yields. The methods used to compute the Fund's yields
are
described in more detail in the Statement of Additional Information.
Investors
may call 1-800-238-2560 (Class A shares code: 003; Class B shares code:
103;
Class C shares code: 203) to obtain current yield information.
The yields for Class A, Class B and Class C shares for the Fund for
the
seven-day period ended January 31, 1994 were _%, _% and _%, respectively.
DESCRIPTION OF SHARES
* 1 moved from here; text not shown
* 2 moved from here; text not shown
* 3 moved from here; text not shown
* 4 moved from here; text not shown
* 5 moved from here; text not shown
* 6 moved from here; text not shown
* 7 moved from here; text not shown
The Trust is a Massachusetts business trust established on November
25,
1992.
The Trust's Declaration of Trust authorizes the Board of Trustees to
issue
an unlimited number of full and fractional shares of beneficial interest in
the
Trust and to classify or reclassify any unissued shares into one or
more
additional classes of shares. The Trust is an open-end management
investment
company, which offers twelve portfolios: Prime Money Market Fund (Class A,
Class
B and Class C), Prime Value Money Market Fund (Class A, Class B, Class C
and
Class D), Government Obligations Money Market Fund (Class A, Class B, Class
C
and Class D), 100% Government Obligations Money Market Fund (Class A, Class
B
and Class C), Treasury Instruments Money Market Fund II (Class A, Class B
and
Class C), 100% Treasury Instruments Money Market Fund (Class A, Class B
and
Class C), Tax-Free Money Market Fund (Class A, Class B and Class C),
Municipal
Money Market Fund (Class A, Class B, Class C and Class D), California
Municipal
Money Market Fund (Class A, Class B and Class C), New York Municipal
Money
Market Fund (Class A, Class B and Class C), Floating Rate U.S. Government
Fund
(Class A and Class B) and Short Duration U.S. Government Fund (Class A and
Class
B). Shares of the New York Municipal Money Market Fund are not currently sold
to
the public. The Declaration of Trust further authorizes the Trustees to
classify
or reclassify any class of shares into one or more sub-classes.
12
<PAGE>
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT
OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S
OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
The Trust does not presently intend to hold annual meetings of
shareholders
except as required by the 1940 Act or other applicable law. The Trust will
call
a meeting of shareholders for the purpose of voting upon the question of
removal
of a member of the Board of Trustees upon written request of shareholders
owning
at least 10% of the outstanding shares of the Trust entitled to vote.
Each Fund share represents an equal proportionate interest in the
assets
belonging to the Fund. Each share, which has a par value of $.001, has
no
preemptive or conversion rights. When issued for payment as described in
this
Prospectus, shares will be fully paid and non-assessable.
Holders of the Fund's shares will vote in the aggregate and not by class
on
all matters, except where otherwise required by law and except that only Class
B
or Class C shares, as the case may be, will be entitled to vote on
matters
submitted to a vote of shareholders pertaining to the Fund's arrangements
with
Service Organizations with respect to the relevant Class. Further,
shareholders
of all of the Trust's portfolios will vote in the aggregate and not by
portfolio
except as otherwise required by law or when the Board of Trustees
determines
that the matter to be voted upon affects only the interests of the
shareholders
of a particular portfolio. (See the Statement of Additional Information
under
"Miscellaneous" for examples where the 1940 Act requires voting by
portfolio.)
Shareholders of the Trust are entitled to one vote for each full share
held
(irrespective of class or portfolio) and fractional votes for fractional
shares
held. Voting rights are not cumulative; and, accordingly, the holders of
more
than 50% of the aggregate shares of the Trust may elect all of the trustees.
For information concerning the redemption of Fund shares and
possible
restrictions on their transferability, see "Purchase and Redemption of
Shares."
* 8 moved from here; text not shown
* 9 moved from here; text not shown
13
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
100% Government Obligations Money Market Fund
Treasury Instruments Money Market Fund
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
California Municipal Money Market Fund
New York Municipal Money Market Fund
------------------------
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT
OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT
LAWFULLY BE MADE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Background and Expense Information........ 2
Financial Highlights...................... 3
Investment Objective and Policies......... 4
Purchase and Redemption of Shares......... 6
Dividends................................. 8
Taxes..................................... 8
Management of the Fund.................... 9
Yields.................................... 11
Description of Shares..................... 12
</TABLE>
GOVERNMENT
OBLIGATIONS
MONEY MARKET FUND
-------------------
PROSPECTUS
May __, 1994
---------------------
LEHMAN BROTHERS
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN
RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
<PAGE>
PROSPECTUS
CALIFORNIA MUNICIPAL MONEY MARKET FUND
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-
load,
open-end, management investment company. The shares described in this
Prospectus
represent interests in the California Municipal Money Market Fund portfolio
(the
"Fund"), one of a family of money market portfolios of the Trust.
The Fund's INVESTMENT OBJECTIVE is to provide California investors with
as
high a level of current income exempt from federal income tax and, to the
extent
possible, from California state personal income tax as is consistent
with
relative stability of principal. All or a portion of the Fund's dividends may
be
a specific preference item for purposes of the federal individual and
corporate
alternative minimum taxes.
Fund shares may not be purchased by individuals directly but
institutional
investors may purchase shares for accounts maintained by individuals. The
Fund
currently offers three classes of shares. In addition to Class A
shares,
institutional investors may purchase on behalf of their customers Class B
shares
and Class C shares, which accrue daily dividends in the same manner as Class
A
shares but bear all fees payable by the Fund to institutional investors
for
certain services they provide to beneficial owners of such shares.
See
"Management of the Fund--Service Organizations."
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
ITS
NET ASSET VALUE OF $1.00 PER SHARE.
LEHMAN BROTHERS, INC. ("Lehman Brothers") sponsors the Fund and acts
as
Distributor of its shares. LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
serves
as the Fund's Investment Adviser.
The address of the Fund is One Exchange Place, Boston, Massachusetts
02109.
The Fund can be contacted as follows: for purchase and redemption orders
only
call 1-800-851-3134; for yield information call 1-800-238-2560 (Class A
shares
code: 010; Class B shares code: 110; Class C shares code: 210); for
other
information call 1-800-368-5556.
This Prospectus briefly sets forth certain information about the Fund
that
investors should know before investing. Investors are advised to read
this
Prospectus and retain it for future reference. Additional information about
the
Fund, contained in a Statement of Additional Information dated May , 1994,
as
amended or supplemented from time to time, has been filed with the
Securities
and Exchange Commission and is available to investors without charge by
calling
the Fund's Distributor at 1-800-368-5556. The Statement of
Additional
Information is incorporated in its entirety by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR
ENDORSED BY, ANY BANK, AND SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT
AGENCY. SHARES OF THE FUND INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING
THE
POSSIBLE LOSS OF PRINCIPAL.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
LEHMAN BROTHERS
May , 1994
<PAGE>
BACKGROUND AND EXPENSE INFORMATION
The following Expense Summary lists the costs and expenses that an
investor
in the Fund can expect to incur during the Fund's current fiscal year
ending
January 31, 1995. The Fund offers three separate classes of shares. Shares
of
each class represent equal, pro rata interests in the Fund and accrue
daily
dividends in the same manner except that Class B and Class C shares bear
fees
payable by the Fund (at the rate of .25% and .35% per annum, respectively)
to
institutions for services they provide to the beneficial owners of such
shares.
See "Management of the Fund--Service Organizations."
EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------------ ------------ ------------
<S>
<C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees (net of applicable fee
waivers).................................. 0.00%* 0.00%*
0.00%*
Rule 12b-1
fees................................................................
none .25% .35%
Other Expenses--including Administration Fees (net of applicable fee
waivers)......................................................................
.16%* .16%* .16%*
--- --- ---
Total Fund Operating Expenses (after expense
reimbursement)*................... .16% .41% .51%
--- --- ---
--- --- ---
<FN>
------------------------
* The Expense Summary above has been restated to reflect the Fund's
Investment
Adviser's and Administrator's voluntary reimbursement arrangements in
effect
for the Fund's fiscal year ending January 31, 1995. With respect to Class
A,
Class B and Class C shares for the month of January, 1995, the Total
Fund
Operating Expenses including reimbursement of expenses are anticipated to
be
.18%, .43% and .53%, respectively.
</TABLE>
In order to maintain a competitive expense ratio during 1994, the
Fund's
Investment Adviser and Administrator have voluntarily agreed to reimburse
the
Fund if and to the extent that total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees and
extraordinary
expenses) exceed .16% of average daily net assets through December 31, 1994.
For
the years 1995-1997, the Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets. The voluntary reimbursement arrangements described above will not
be
changed unless shareholders are provided at least 60 days' advance notice.
The
maximum annual contractual fees payable to the Investment Adviser
and
Administrator total .20% of average daily net assets. Absent reimbursement
of
expenses, the Total Fund Operating Expenses of Class A, Class B and Class
C
would be .37%, .62% and .72%, respectively, of the Fund's average daily
net
assets.
---------
EXAMPLE:
An investor would pay the following expenses on a $1,000 investment,
assuming
(1) a 5% annual return and (2) redemption at the end of each time period
with
respect to the following shares:
<TABLE>
<CAPTION>
1 YEAR 3
YEARS 5 YEARS 10 YEARS
----------- ------
----- ----------- -----------
<S> <C> <C>
<C> <C>
Class A shares:.......................................... $ 2 $
5 $ 9 $ 20
Class B shares:.......................................... $ 4 $
13 $ 23 $ 52
Class C shares:.......................................... $ 5 $
16 $ 29 $ 64
</TABLE>
2
<PAGE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL
EXPENSES
AND RATES OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
The purpose of the foregoing table is to assist an investor in
understanding
the various costs and expenses that an investor in the Fund will bear
directly
or indirectly. Certain Service Organizations (as defined below) also may
charge
their clients fees in connection with investments in Fund shares, which fees
are
not reflected in the table. For more complete descriptions of the various
costs
and expenses, see "Management of the Fund" in this Prospectus and the
Statement
of Additional Information.
FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year ended January
31,
1994 is derived from the Fund's Financial Statements audited by Ernst &
Young,
independent accountants. This information should be read in conjunction with
the
financial statements and notes thereto that appear in the Statement
of
Additional Information.
CALIFORNIA MUNICIPAL MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
1/31/94* 1/31/94*
CLASS A CLASS B
------------ ------------
<S>
<C> <C>
Net asset value, beginning of
period.................................................. $ 1.00 $
1.00
Net investment
income(1)..............................................................
0.0225 0.0003
Dividends from net investment
income.................................................. (0.0225 )
(0.0003 )
Net asset value, end of
period........................................................ $ 1.00
$ 1.00
Total
return(2).....................................................................
.. 2.29% --(3)
Ratios to average net assets/supplemental data:
Net assets, end of period (in
000's)................................................ $9,575
--(4)
Ratio of net investment income to average net
assets(5)............................. 2.31% 2.06%
Ratio of operating expenses to average net
assets(5)(6)............................. 0.09% 0.34%
<FN>
------------------------
* The California Municipal Money Market Fund Class A and Class B
shares
commenced operations on February 8, 1993 and January 6,
1994,
respectively.
(1) Net investment income before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent, and expenses reimbursed
by
the Investment Adviser and Administrator for Class A and Class B
were
$0.0058 and $0.0001, respectively.
(2) Total return represents aggregate total return for the period indicated.
(3) Full amount of shares offered to the public on January 6, 1994 and
were
redeemed on January 11, 1994, therefore total return deemed not ot
be
meaningful.
(4) Total net assets for Class B was $100 at January 31, 1994.
(5) Annualized.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
(6) Annualized expense ratio before waiver of fees by the Investment
Adviser,
Administrator, Custodian and Transfer Agent and expenses reimbursed by
the
Investment Adviser and Administrator for Class A and Class B for
the
fiscal year ended January 31, 1994 were 1.80% and 2.05%, respectively
and
for Class A for the period ended July 31, 1993 were 2.47%.
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to provide investors with as high a
level
of current income exempt from federal income tax and, to the extent
possible,
from California state personal income tax as is consistent with
relative
stability of principal. All or a portion of the Fund's dividends may be
a
specific tax preference item for purposes of the federal individual
and
corporate alternative minimum taxes.
In pursuing its investment objective, the Fund, which operates as
a
non-diversified investment company, invests substantially all of its assets
in
debt obligations issued by or on behalf of the State of California and
other
states, territories and possessions of the United States, the District
of
Columbia and their respective authorities, agencies, instrumentalities
and
political sub-divisions, and tax-exempt derivative securities such as
tender
option bonds, participations, beneficial interests in trusts and
partnership
interests (collectively "Municipal Obligations"). Dividends paid by the
Fund
that are derived from interest on obligations that are exempt from
taxation
under the Constitution or statutes of California ("California
Municipal
Obligations") are exempt from regular federal income tax and California
state
personal income tax. California Municipal Obligations include
municipal
securities issued by the State of California and its political sub-
divisions.
Dividends derived from interest on Municipal Obligations other than
California
Municipal Obligations are exempt from federal income tax but may be subject
to
California state personal income tax. The Fund expects that, except
during
temporary defensive periods, the Fund's assets will be invested primarily
in
California Municipal Obligations, although the amount of the Fund's
assets
invested in such securities will vary from time to time. At least 50% of
the
Fund's assets must be invested in such obligations and Federal Obligations
(as
defined under "Taxes" below) at the close of each quarter of its taxable year
so
as to permit the Fund to pay dividends that are exempt from California
state
personal income tax. Dividends, regardless of their source, may be subject
to
local taxes.
PRICE AND PORTFOLIO MATURITY. The Fund will not knowingly
purchase
securities the interest on which is subject to regular federal income tax.
(See,
however, "Taxes" below concerning treatment of exempt-interest dividends paid
by
the Fund for purposes of the federal alternative minimum tax applicable
to
particular classes of investors.) Except during temporary defensive periods,
the
Fund will invest substantially all, but in no event less than 80%, of its
total
assets in Municipal Obligations with remaining maturities of thirteen months
or
less as determined in accordance with the rules of the Securities and
Exchange
Commission. The Fund maintains a dollar-weighted average portfolio maturity
of
90 days or less. The Fund follows these policies to maintain a constant
net
asset value of $1.00 per share, although there is no assurance it can do so on
a
continuing basis. The Fund may hold uninvested cash reserves pending
investment
during temporary defensive periods, including when suitable tax-
exempt
obligations are unavailable. Uninvested cash reserves will not earn income.
PORTFOLIO QUALITY AND DIVERSIFICATION. The Fund will purchase
only
Municipal Obligations which are "Eligible Securities" (as defined by
the
Securities and Exchange Commission) and which present minimal credit risks
as
determined by the Investment Adviser pursuant to guidelines approved by
the
Trust's Board of Trustees.
4
<PAGE>
Eligible Securities consist of (i) instruments that are rated at the time
of
purchase in one of the top two rating categories by at least two
unaffiliated
nationally recognized statistical rating organizations ("NRSROs"),
(ii)
instruments rated in one of the top two rating categories by one such NRSRO
(if
only one such organization rates the instrument), (iii) instruments issued
by
issuers with short-term debt having such ratings, and (iv) unrated
instruments
determined by the Investment Adviser, pursuant to procedures approved by
the
Board of Trustees, to be of comparable quality. The Appendix to the Statement
of
Additional Information includes a description of applicable NRSRO ratings.
INVESTMENT LIMITATIONS
There can be no assurance that the Fund will achieve its
investment
objective. The Fund's investment objective and the policies described herein
may
be changed by the Trust's Board of Trustees without the affirmative vote of
the
holders of a majority of the Fund's outstanding shares, except that the
Fund's
policy of investing at least 80% of its assets in Municipal Obligations and
the
following investment limitations are fundamental and may not be changed
without
such a vote of shareholders. (A complete list of the investment limitations
that
cannot be changed without a vote of shareholders is contained in the
Statement
of Additional Information under "Investment Objective and Policies.")
The Fund may not:
1. Borrow money except from banks for temporary purposes and then
in
amounts not exceeding 10% of the value of the Fund's assets; or
mortgage,
pledge or hypothecate its assets except in connection with any
such
borrowing and in amounts not in excess of the lesser of the dollar
amounts
borrowed or 10% of the value of the Fund's total assets at the time of
such
borrowing. Additional investments will not be made when borrowings exceed
5%
of the Fund's assets.
2. Purchase any securities which would cause 25% or more of the
value
of its total assets at the time of purchase to be invested in the
securities
of issuers conducting their principal business activities in the
same
industry; provided that this limitation shall not apply to
Municipal
Obligations or governmental guarantees of Municipal Obligations;
and
provided further that, for the purpose of this limitation only,
industrial
development bonds that are considered to be issued by non-governmental
users
(see the third investment limitation below) shall not be deemed to
be
Municipal Obligations; and provided, further, that there is no
limitation
with respect to investments in U.S. government securities.
3. Purchase the securities of any issuer if as a result more than 5%
of
the value of the Fund's assets would be invested in the securities of
such
issuer, except that (a) up to 50% of the value of the Fund's assets may
be
invested without regard to this 5% limitation; provided that no more
than
25% of the value of the Fund's assets are invested in the securities of
any
one issuer and (b) this 5% limitation does not apply to U.S.
government
securities. For purposes of this limitation, a security is considered to
be
issued by the governmental entity (or entities) whose assets and
revenues
back the security, or, with respect to a private activity bond that
is
backed only by the assets and revenues of a non-governmental user, by
such
non-governmental user. In certain circumstances, the guarantor of
a
guaranteed security may also be considered to be an issuer in
connection
with such guarantee, except that a guarantee of a security shall not
be
deemed to be a security issued by the guarantor when the value of
all
securities issued and guaranteed by the guarantor and owned by the Fund
does
not exceed 10% of the value of the Fund's total assets.
5
<PAGE>
Opinions relating to the validity of Municipal Obligations and to
the
exemption of interest thereon from federal income tax (and, with respect
to
California Municipal Obligations, to the exemption of interest thereon
from
California state personal income tax) are rendered by bond counsel to
the
respective issuers at the time of issuance, and opinions relating to
the
validity of and the tax-exempt status of payments received by the Fund
from
tax-exempt derivatives are rendered by counsel to the respective sponsors
of
such derivatives. The Fund and its Investment Adviser will rely on such
opinions
and will not review independently the underlying proceedings relating to
the
issuance of Municipal Obligations, the creation of any tax-exempt derivatives
or
the bases for such opinions.
TYPES OF MUNICIPAL OBLIGATIONS
The two principal classifications of Municipal Obligations which may be
held
by the Fund are "general obligation" securities and "revenue"
securities.
General obligation securities are secured by the issuer's pledge of its
full
faith, credit and taxing power for the payment of principal and
interest.
Revenue securities are payable only from the revenues derived from a
particular
facility or class of facilities or, in some cases, from the proceeds of
a
special excise tax or other specific revenue source such as the user of
the
facility being financed. Revenue securities may include private activity
bonds.
Such bonds may be issued by or on behalf of public authorities to
finance
various privately operated facilities, and are not payable from the
unrestricted
revenues of the issuer. As a result, the credit quality of private
activity
bonds is frequently related directly to the credit standing of
private
corporations or other entities.
The Tax Reform Act of 1986 substantially revised provisions of prior
law
affecting the issuance and use of proceeds of certain tax-exempt obligations.
A
new definition of private activity bonds was applied to many types of
bonds,
including those which were industrial development bonds under prior
law.
Interest on private activity bonds is tax-exempt only if the bonds fall
within
certain defined categories of qualified private activity bonds and meet
the
requirements specified in those respective categories. The Act generally did
not
change the tax treatment of bonds issued to finance governmental operations.
The
changes generally apply to bonds issued after August 15, 1986, with
certain
transitional rule exemptions. As used in this Prospectus, the term
"private
activity bonds" also includes industrial development revenue bonds
issued
pursuant to the Internal Revenue Code of 1986, as amended.
The Fund's portfolio may also include "moral obligation" securities,
which
are normally issued by special purpose public authorities. If the issuer
of
moral obligation securities is unable to meet its debt service obligations
from
current revenues, it may draw on a reserve fund, the restoration of which is
a
moral commitment but not a legal obligation of the state or municipality
that
created the issuer.
OTHER INVESTMENT PRACTICES
Municipal Obligations purchased by the Fund may include variable rate
demand
notes. Such notes may not be rated by credit rating agencies, but unrated
notes
purchased by the Fund will be determined by the Fund's Investment Adviser to
be
of comparable quality at the time of purchase to rated instruments
purchasable
by the Fund. Where necessary to ensure that a note is an Eligible Security,
the
Fund will require that the issuer's obligation to pay the principal of the
note
be backed by an conditional bank letter or line of credit, guarantee
or
commitment to lend. While there may be no active secondary market with
respect
to a particular variable rate demand note purchased by the Fund, the Fund
may,
upon the notice specified in the note, demand payment of the principal of
the
note at any time or during specified periods not exceeding thirteen
months,
depending upon
6
<PAGE>
the instrument involved, and may resell the note at any time to a third
party.
The absence of such an active secondary market, however, could, in
some
instances, make it difficult for the Fund to dispose of a variable rate
demand
note if the issuer were to default on its payment obligation or during
periods
that the Fund is not entitled to exercise its demand rights, and the Fund
could,
for this or other reasons, suffer a loss to the extent of the default. While,
in
general, the Fund will invest only in securities that mature within
thirteen
months of purchase, the Fund may invest in variable rate demand notes which
have
nominal maturities in excess of thirteen months, if such instruments
carry
demand features that comply with conditions established by the Securities
and
Exchange Commission.
The Fund may also purchase Municipal Obligations on a "when-issued"
basis.
When-issued securities are securities purchased for delivery beyond the
normal
settlement date at a stated price and yield. The Fund will generally not pay
for
such securities or start earning interest on them until they are
received.
Securities purchased on a when-issued basis are recorded as an asset and
are
subject to changes in value based upon changes in the general level of
interest
rates. The Fund expects that commitments to purchase when-issued securities
will
not exceed 25% of the value of its total assets absent unusual
market
conditions. The Fund does not intend to purchase when-issued securities
for
speculative purposes but only in furtherance of its investment objective.
In addition, the Fund may acquire "stand-by commitments" with respect
to
Municipal Obligations held in its portfolio. Under a stand-by commitment,
a
dealer agrees to purchase at the Fund's option specified Municipal
Obligations
at a specified price. The Fund will acquire stand-by commitments solely
to
facilitate portfolio liquidity and does not intend to exercise its
rights
thereunder for trading purposes.
The Fund may purchase tender option bonds. A tender option bond is
a
municipal obligation (generally held pursuant to a custodial arrangement)
having
a relatively long maturity and bearing interest at a fixed rate
substantially
higher than prevailing short-term tax-exempt rates, that has been coupled
with
the agreement of a third party, such as a bank, broker-dealer or other
financial
institution, pursuant to which such institution grants the security holders
the
option, at periodic intervals, to tender their securities to the institution
and
receive the face value thereof. As consideration for providing the option,
the
financial institution receives periodic fees equal to the difference between
the
municipal obligation's fixed coupon rate and the rate, as determined by
a
remarketing or similar agent at or near the commencement of such period,
that
would cause the securities, coupled with the tender option, to trade at or
near
par on the date of such determination. Thus, after payment of this fee,
the
security holder effectively holds a demand obligation that bears interest at
the
prevailing short-term tax exempt rate. The Fund's Investment Adviser
will
consider on an ongoing basis the creditworthiness of the issuer of
the
underlying municipal obligation, of any Custodian and of the third
party
provider of the tender option. In certain instances and for certain
tender
option bonds, the option may be terminable in the event of a default in
payment
of principal or interest on the underlying municipal obligations and for
other
reasons. Additionally, the above description of tender option bonds is
meant
only to provide an example of one possible structure of such obligations,
and
the Fund may purchase tender option bonds with different types of
ownership,
payment, credit and/or liquidity arrangement.
The Fund may acquire custodial receipts or certificates underwritten
by
securities dealers or banks that evidence ownership of future interest
payments,
principal payments or both, on certain municipal obligations. The underwriter
of
these certificates or receipts typically purchases municipal obligations
and
deposits the obligations in an irrevocable trust or custodial account with
a
custodian bank, which then issues receipts or
7
<PAGE>
certificates that evidence ownership of the periodic unmatured coupon
payments
and the final principal payment on the obligations. Although under the terms
of
a custodial receipt, the Fund would be typically authorized to assert its
rights
directly against the issuer of the underlying obligation, the Fund could
be
required to assert through the custodian bank those rights as may exist
against
the underlying issuer. Thus, in the event the underlying issuer fails to
pay
principal and/or interest when due, the Fund may be subject to delays,
expenses
and risks that are greater than those that would have been involved if the
Fund
had purchased a direct obligation of the issuer. In addition, in the event
that
the trust or custodial account in which the underlying security has
been
deposited is determined to be an association taxable as a corporation instead
of
a non-taxable entity, the yield on the underlying security would be reduced
in
recognition of any taxes paid.
The Fund may purchase from financial institutions tax-exempt
participation
interests in Municipal Obligations. A participation interest gives the Fund
an
undivided interest in the Municipal Obligation in the proportion that the
Fund's
participation interest bears to the total amount of the Municipal
Obligation.
These instruments may have floating or variable rates of interest. If
the
participation interest is unrated, it will be backed by an irrevocable letter
of
credit or guarantee of a bank that the Trust's Board of Trustees has
determined
meets certain quality standards or the payment obligation otherwise will
be
collateralized by obligations of the U.S. Government and its agencies
and
instrumentalities. The Fund will have the right, with respect to
certain
participation interests, to demand payment, on a specified number of
days'
notice, for all or any part of the Fund's interest in the Municipal
Obligation,
plus accrued interest. The Fund will invest no more than 5% of its total
assets
in participation interests.
The Fund will not knowingly invest more than 10% of the value of its
total
net assets in illiquid securities, including securities that are illiquid
by
virtue of the absence of a readily available market or legal or
contractual
restrictions on resale. Securities that have legal or contractual
restrictions
on resale but have a readily available market are not deemed illiquid
for
purposes of this limitation. The Fund's Investment Adviser will monitor
the
liquidity of such restricted securities under the supervision of the Board
of
Trustees. See "Investment Objective and Policies--Additional Information
and
Investment Practices--Illiquid Securities" in the Statement of
Additional
Information.
RISK FACTORS
The Fund intends to follow the diversification standards set forth in
the
Investment Company Act of 1940, as amended (the "1940 Act"), except to
the
extent, in the judgment of the Investment Adviser, that non-diversification
is
appropriate in order to maximize the percentage of the Fund's assets that
are
California Municipal Obligations. The investment return on a non-
diversified
portfolio typically is dependent upon the performance of a smaller number
of
issuers relative to the number of issuers held in a diversified portfolio.
In
the event of changes in the financial condition or in the market's assessment
of
certain issuers, the Fund's maintenance of large positions in the obligations
of
a small number of issuers may affect the value of the Fund's portfolio to
a
greater extent than that of a diversified portfolio.
Although the Fund does not presently intend to do so on a regular basis,
it
may invest more than 25% of its assets in Municipal Obligations the interest
on
which is paid solely from revenues on similar projects if such investment
is
deemed necessary or appropriate by the Fund's Investment Adviser. To the
extent
that the Fund's assets are concentrated in Municipal Obligations payable
from
revenues on similar projects, are issued by
8
<PAGE>
issuers located in California or are private activity bonds, the Fund will
be
subject to the particular risks presented by such state, projects and bonds to
a
greater extent than it would be if the Fund's assets were not so concentrated.
The Fund's ability to achieve its investment objective is dependent
upon
various factors, including the ability of the issuers of California
Municipal
Obligations to meet their continuing payment obligations with respect to
the
municipal obligations in a timely manner. Currently, the State of California
and
many other issuers of California Municipal Obligations are
experiencing
financial and budgetary problems which could affect their ability to meet
their
financial obligations in a timely manner. Any resulting reductions in
the
creditworthiness of issuers of California Municipal Obligations could
adversely
affect the market values and marketability of California Municipal
Obligations,
and, consequently, the net asset value of the Fund's portfolio.
On July 15, 1992 and July 6, 1992, respectively, Standard &
Poor's
Corporation and Moody's Investors Service, Inc., citing the State
of
California's deteriorating financial position, lowered their ratings of
the
State's general obligation bonds from AA and Aa2, respectively, to A+ and
Aa,
respectively.
Certain California constitutional amendments, legislative
measures,
executive orders, administrative regulations and voter initiatives could
result
in certain adverse consequences affecting California Municipal
Obligations.
Significant financial and other considerations relating to the
Fund's
investments in California Municipal Obligations are summarized in the
Statement
of Additional Information.
The value of the Fund's portfolio securities can be expected to
vary
inversely with changes in prevailing interest rates.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Shares of the Fund are sold at the net asset value per share of the
Fund
next determined after receipt of a purchase order by Lehman Brothers,
the
Distributor of the Fund's shares. Purchase orders for shares are accepted by
the
Fund only on a day on which both Lehman Brothers and the Federal Reserve Bank
of
Boston are open for business and must be transmitted to Lehman Brothers,
by
telephone at 1-800-851-3134. Orders received prior to noon, Eastern time
(9:00
A.M., Pacific time), for which payment has been received by Boston Safe
Deposit
and Trust Company ("Boston Safe"), the Fund's Custodian, will be executed
at
noon. Orders received prior to noon for which payment is received between
noon
and 4:00 P.M., Eastern time (1:00 P.M., Pacific time), will be executed at
4:00
P.M., Eastern time. Orders received after noon, and orders for which payment
has
not been received by 4:00 P.M., Eastern time (1:00 P.M., Pacific time), will
not
be accepted and notice thereof will be given to the institution placing
the
order. Payment for Fund shares may be made only in federal funds
immediately
available to Boston Safe. (Payment for orders which are not received or
accepted
by Lehman Brothers will be returned after prompt inquiry to the
sending
institution.) The Fund may in its discretion reject any order for shares.
The minimum aggregate initial investment by an institution in the
investment
portfolios that comprise the Trust is $1 million (with not less than
$25,000
invested in any one investment portfolio offered by the
Trust);
9
<PAGE>
however, broker-dealers and other institutional investors may set a
higher
minimum for their customers. To reach the minimum Trust-wide initial
investment,
purchases of shares may be aggregated over a period of six months. There is
no
minimum subsequent investment.
Conflict of interest restrictions may apply to an institution's receipt
of
compensation paid by the Fund in connection with the investment of
fiduciary
funds that in Class B or Class C shares. See also "Management of
the
Fund--Service Organizations." Institutions, including banks regulated by
the
Comptroller of the Currency and investment advisers and other money
managers
subject to the jurisdiction of the Securities and Exchange Commission,
the
Department of Labor or state securities commissions, should consult
legal
counsel before investing in Class B or Class C shares.
SUBACCOUNTING SERVICES. Institutions are encouraged to open single
master
accounts. However, certain Institutions may wish to use the Transfer
Agent's
subaccounting system to minimize their internal recordkeeping requirements.
The
Transfer Agent charges a fee based on the level of subaccounting
services
rendered. Institutions holding Fund shares in a fiduciary, agency, custodial
or
similar capacity may charge or pass through subaccounting fees as part of or
in
addition to normal trust or agency account fees. They may also charge fees
for
other services provided which may be related to the ownership of Fund
shares.
This Prospectus should, therefore, be read together with any agreement
between
the customer and the institution with regard to the services provided, the
fees
charged for those services and any restrictions and limitations imposed.
REDEMPTION PROCEDURES
Redemption orders must be transmitted to Lehman Brothers by telephone
at
1-800-851-3134. Payment for redeemed shares for which a redemption order
is
received by Lehman Brothers before noon, Eastern time (9:00 A.M., Pacific
time)
on a day that both Lehman Brothers and the Federal Reserve Bank of Boston
are
open for business is normally made in federal funds wired to the
redeeming
shareholder on the same business day. Payment for redeemed shares for which
a
redemption order is received by Lehman Brothers after noon, Eastern time
(9:00
A.M., Pacific time), on such a business day is normally made in federal
funds
wired to the redeeming shareholder on the next business day
following
redemption. The Fund reserves the right to wire redemption proceeds within
seven
days after receiving the redemption order if, in the judgment of the
investment
adviser and/or sub-investment adviser, an earlier payment could adversely
affect
the Fund.
Shares are redeemed at the net asset value per share next determined
after
Lehman Brothers' receipt of the redemption order. While the Fund intends to
use
its best efforts to maintain its net asset value per share at $1.00,
the
proceeds paid to an investor upon redemption may be more or less than the
amount
invested depending upon a share's net asset value at the time of redemption.
To
allow the Fund's Investment Adviser to manage the Fund effectively,
investors
are strongly urged to initiate all investments or redemptions of Fund shares
as
early in the day as possible and to notify Lehman Brothers at least one day
in
advance of transactions in excess of $5 million.
The Fund reserves the right to wire redemption proceeds within seven
days
after receiving the redemption order if, in the judgement of the
Investment
Advisor, an earlier payment could adversely affect the Fund. The Fund shall
have
the right to redeem shares involuntarily in any account at their net asset
value
if the value of the account is less than $10,000 after 60 days' prior
written
notice to the investor. Any such redemption shall be effected at the net
asset
value per share next determined after the redemption order is entered. If
during
the 60-day period the investor increases the value of its account to $10,000
or
more, no such redemption shall take
10
<PAGE>
place. In addition, the Fund may redeem shares involuntarily or suspend
the
right of redemption as permitted under the 1940 Act, or under certain
special
circumstances described in the Statement of Additional Information
under
"Additional Purchase and Redemption Information."
VALUATION OF SHARES--NET ASSET VALUE
The Fund's net asset value per share for purposes of pricing purchase
and
redemption orders is determined by the Fund's Administrator as of noon and
4:00
P.M., Eastern time (1:00 P.M., Pacific time) on each weekday, with the
exception
of those holidays on which either the New York Stock Exchange or the
Federal
Reserve Bank of Boston is closed. Currently, one or both of these
institutions
are closed on New Year's Day, Martin Luther King, Jr.'s Birthday
(observed),
Presidents' Day (Washington's Birthday), Good Friday, Memorial Day,
Independence
Day, Labor Day, Columbus Day (observed), Veterans Day, Thanksgiving Day
and
Christmas Day, and on the preceding Friday or subsequent Monday when one
of
these holidays falls on a Saturday or Sunday, respectively. The net asset
value
per share of the Fund is calculated by adding the value of all securities
and
other assets belonging to the Fund, subtracting liabilities and dividing
the
result by the number of the Fund's outstanding shares. Portfolio securities
are
valued on the basis of amortized cost. Under this method, the Fund values
a
portfolio security at cost on the date of purchase and thereafter assumes
a
constant amortization of any discount or premium until maturity of the
security.
As a result, the value of the security for purposes of determining net
asset
value normally does not change in response to fluctuating interest rates.
While
the amortized cost method seems to provide certainty in portfolio valuation,
it
may result in periods during which values, as determined by amortized cost,
are
higher or lower than the amount the Fund would receive if it sold
the
securities. The Fund's net asset value for purposes of pricing purchase
and
redemption orders is determined independently of the net asset value of
the
shares of the Trust's other investment portfolios.
OTHER MATTERS
Fund shares are sold and redeemed without charge by the Fund.
Institutional
investors purchasing or holding Fund shares for their customers' accounts
may
charge customers fees for cash management and other services provided
in
connection with their accounts. A customer should, therefore, consider the
terms
of its account with an institution before purchasing Fund shares. An
institution
purchasing or redeeming shares on behalf of its customers is responsible
for
transmitting orders to Lehman Brothers in accordance with its
customer
agreements.
DIVIDENDS
Investors of the Fund are entitled to dividends and distributions
arising
only from the net investment income and capital gains, if any, earned
on
investments held by the Fund. The Fund's net investment income is declared
daily
as a dividend to shares held of record at the close of business on the day
of
declaration. Shares begin accruing dividends on the day the purchase order
for
the shares is executed and continue to accrue dividends through, and
including,
the day before the redemption order for the shares is executed. Dividends
are
paid monthly by wire transfer within five business days after the end of
the
month or within five business days after a redemption of all of an
investor's
shares of a particular class. The Fund does not expect to realize net long-
term
capital gains.
11
<PAGE>
Dividends are determined in the same manner and are paid in the same
amount
for each Fund share, except that Class B and Class C shares bear all
the
expenses of fees paid to Service Organizations. As a result, at any given
time,
the net yield on Class B and Class C shares will be .25% and .35%,
respectively,
lower than the net yield on Class A shares.
Institutional investors may elect to have their dividends reinvested
in
additional full and fractional shares of the same class at the net asset
value
of such shares on the payment date. Reinvested dividends receive the same
tax
treatment as dividends paid in cash. Such election, or any revocation
thereof,
must be made in writing to the Fund's Distributor at 260 Franklin Street,
15th
Floor, Boston, Massachusetts 02110-9624, and will become effective with
respect
to dividends paid after its receipt by TSSG.
**1 TSSG, as Transfer Agent, will send each investor or its
authorized
representative, if any, an annual statement designating the amount of
any
dividends and capital gains distributions made during each year and
their
federal and California tax qualification.
TAXES
**2 The Fund qualified in its last taxable year and intends to qualify
in
future years as a "regulated investment company" under the Internal Revenue
Code
of 1986, as amended (the "Code"). A regulated investment company is exempt
from
federal income and California franchise and income taxes on amounts
distributed
to its shareholders. Qualification as a regulated investment company under
the
Code for a taxable year requires, among other things, that the Fund
distribute
to its investors at least the sum of 90% of its exempt-interest income net
of
certain deductions and 90% of its investment company taxable income for
such
year. Dividends derived from exempt-interest income (known as "exempt-
interest
dividends") may be treated by the Fund's investors as items of
interest
excludable from their gross income under Section 103(a) of the Code,
unless
under the circumstances applicable to the particular investor the
exclusion
would be disallowed. (See the Statement of Additional Information
under
"Additional Information Concerning Taxes.")
**3 The Fund may hold without limit certain private activity bonds
issued
after August 7, 1986. Investors must include, as an item of tax preference,
the
portion of dividends paid by the Fund that is attributable to interest on
such
bonds in their federal alternative minimum taxable income for purposes
of
determining liability (if any) for the 24% alternative minimum tax applicable
to
individuals and the 20% alternative minimum tax and the environmental
tax
applicable to corporations. Corporate investors must also take
all
exempt-interest dividends into account in determining certain adjustments
for
alternative minimum and environmental tax purposes. The environmental
tax
applicable to corporations is imposed at the rate of .12% on the excess of
the
corporation's modified federal alternative minimum taxable income
over
$2,000,000. Investors receiving Social Security benefits or Railroad
Retirement
Act benefits should note that all exempt-interest dividends will be taken
into
account in determining the taxability of such benefits.
**4 Dividends that are paid by the Fund to non-corporate investors and
are
derived from interest on California Municipal Obligations (as defined above)
or
Federal Obligations are also exempt from California state personal income
tax.
For this purpose, Federal Obligations are obligations the interest on which
is
excludable from gross income for state income tax purposes under
the
Constitution or laws of the United States. However, dividends paid to
corporate
investors subject to California state franchise tax or California
state
corporate income tax will be taxed as ordinary income to such
investors,
notwithstanding that all or a portion of such
12
<PAGE>
dividends is exempt from California state personal income tax. Moreover, to
the
extent that the Fund's dividends are derived from interest on debt
obligations
other than California Municipal Obligations or Federal Obligations,
such
dividends will be subject to California state personal income tax, even
though
such dividends may be exempt for federal income tax purposes.
**5 Except as noted with respect to California state personal income
tax,
dividends and distributions paid to investors that are derived from income
on
Municipal Obligations may be taxable income under state or local law even
though
all or a portion of such distributions may be derived from interest
on
tax-exempt obligations that, if paid directly to investors, would be tax-
exempt
income. To the extent, if any, that dividends paid to investors are derived
from
taxable income or from long-term or short-term capital gains, such
dividends
will not be exempt from federal income tax or California state personal
income
tax, whether paid in the form of cash or additional shares, and may also
be
subject to other state and local taxes.
**6 Dividends declared in October, November or December of any year
payable
to investors of record on a specified date in such months will be deemed to
have
been received by the investors and paid by the Fund on December 31 of such
year
in the event such dividends are actually paid during January of the
following
year.
**7 Investors will be advised at least annually as to the federal income
tax
as well as the California state personal income tax, status and consequences
of
dividends and distributions made each year.
**8 The foregoing is only a brief summary of some of the important
tax
considerations generally affecting the Fund and its investors. No attempt
is
made to present a detailed explanation of the federal, state or local income
tax
treatment of the Fund or its investors, and this discussion is not intended as
a
substitute for careful tax planning. Accordingly, potential investors in
the
Fund should consult their tax advisors with specific reference to their own
tax
situations.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the
Trust's Board of Trustees. The Trustees approve all significant
agreements
between the Trust and the persons or companies that furnish services to
the
Fund, including agreements with its Distributor, Investment
Adviser,
Administrator, Custodian and Transfer Agent. The day-to-day operations of
the
Fund are delegated to the Fund's Investment Adviser and Administrator.
The
Statement of Additional Information relating to the Fund contains
general
background information regarding each Trustee and executive officer of
the
Trust.
DISTRIBUTOR
Lehman Brothers, located at 3 World Financial Center, New York, New
York
10285, is the Distributor of the Fund's shares, Lehman Brothers, a leading
full
service investment firm, meets the diverse financial needs of
individuals,
institutions and governments around the world. Lehman Brothers has entered
into
a Distribution Agreement with the Trust pursuant to which it has
the
responsibility for distributing shares of the Fund.
INVESTMENT ADVISER--LEHMAN GLOBAL ASSET MANAGEMENT
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located at 3
World
Financial Center, New York, New York 10285, serves as the Fund's
Investment
Adviser. LBGAM is a wholly owned subsidiary of Lehman Brothers, which is
a
wholly owned subsidiary of Lehman Brothers Holdings Inc.
("Holdings").
13
<PAGE>
LBGAM, together with other Lehman Brothers Investment Advisory
affiliates,
serves as Investment Adviser to investment companies and private accounts
and
has assets under management in excess of [$15] billion as of , 1994.
As Investment Adviser to the Fund, LBGAM will among other
things,
participate in the formulation of the Fund's investment policies,
analyze
economic trends affecting the Fund, and monitor and evaluate the
Fund's
investment objective and policies and the Fund's investment performance. For
its
services LBGAM is entitled to receive a monthly fee from the Fund at the
annual
rate of .10% of the value of the Fund's average daily net assets. For the
period
February 8, 1993 (commencement of operations) to January 31, 1994,
LBGAM
received an advisory fee from the Fund in the amount of . % of, average
daily
net assets.
ADMINISTRATOR AND TRANSFER AGENT--THE SHAREHOLDER SERVICES GROUP, INC.
The Shareholder Services Group, Inc. ("TSSG"), located at One
Exchange
Place, 53 State Street, Boston, Massachusetts 02109, serves as the
Fund's
Administrator and Transfer Agent. TSSG is a wholly owned subsidiary of
First
Data Corporation. As Administrator, TSSG calculates the net asset value of
the
Fund's shares and generally assists in all aspects of the Fund's
administration
and operation. As compensation for TSSG's services as Administrator, TSSG
is
entitled to receive from the Fund a monthly fee at the annual rate of .10%
of
the value of the Fund's average daily net assets. TSSG is also entitled
to
receive a fee from the Fund for its services as Transfer Agent. TSSG pays
Boston
Safe, the Fund's Custodian, a portion of its monthly administration fee
for
custody services rendered to the Fund.
CUSTODIAN--BOSTON SAFE DEPOSIT AND TRUST COMPANY
Boston Safe, a wholly owned subsidiary of The Boston Company Inc.,
located
at One Boston Place, Boston, Massachusetts 02108, serves as the
Fund's
Custodian.
SERVICE ORGANIZATIONS
Financial institutions such as banks, savings and loan associations
and
other such institutions ("Service Organizations") and/or institutional
customers
of Service Organizations may purchase Class B or Class C shares. These
shares
are identical in all respects to Class A shares except that they bear the
fees
described below and enjoy certain exclusive voting rights on matters relating
to
these fees. The Fund will enter into an agreement with each Service
Organization
whose customers ("Customers") are the beneficial owners of Class B or Class
C
shares that requires the Service Organization to provide certain services
to
Customers in consideration of the Fund's payment of service fees at the
annual
rate of .25% or .35%, respectively, of the average daily net asset value of
the
respective Class beneficially owned by the Customers. Such services, which
are
described more fully in the Statement of Additional Information
under
"Management of the Fund--Service Organizations," may include aggregating
and
processing purchase and redemption requests from Customers and placing
net
purchase and redemption orders with Lehman Brothers; processing
dividend
payments from the Fund on behalf of Customers; providing
information
periodically to Customers showing their positions in shares; arranging for
bank
wires; responding to Customer inquiries relating to the services provided by
the
Service Organization and handling correspondence; acting as shareholder
of
record and nominee; and providing reasonable assistance in connection with
the
distribution of shares to Customers. Services provided with respect to Class
B
shares will generally be more limited than those provided with respect to
Class
C shares. Under the terms of the agreements, Service Organizations are
required
to provide to their Customers a schedule of any fees that they may charge
to
their Customers in connection with their investments in Class B or Class
C
shares. Class A shares
14
<PAGE>
are sold to financial institutions that have not entered into such
servicing
agreements with the Fund in connection with its investments. A salesperson
and
any other person entitled to receive compensation for selling or
servicing
shares of the Fund may receive different compensation for selling or
servicing
one Class of shares over another Class.
EXPENSES
The Fund bears all of its own expenses. The Fund's expenses include
taxes,
interest, fees and salaries of the Trust's trustees and officers who are
not
directors, officers or employees of the Fund's service contractors,
Securities
and Exchange Commission fees, state securities qualification fees, costs
of
preparing and printing prospectuses for regulatory purposes and for
distribution
to investors, advisory and administration fees, charges of the
custodian,
transfer agent and dividend disbursing agent, Service Organization fees,
certain
insurance premiums, outside auditing and legal expenses, costs of
shareholder
reports and shareholder meetings and any extraordinary expenses. The Fund
also
pays for brokerage fees and commissions (if any) in connection with the
purchase
and sale of portfolio securities. In order to maintain a competitive
expense
ratio during 1994, LBGAM and TSSG have agreed voluntarily to reimburse the
Fund
if and to the extent that the Fund's total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees under the 1940 Act
and
extraordinary expenses) exceed .16% of average daily net assets through
December
31, 1994. The Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
an
annualized expense ratio at a level no greater than .18% of average daily
net
assets thereafter. This voluntary reimbursement will not be changed
unless
investors are provided at least 60 days' advance notice. In addition,
these
service providers have agreed to reimburse the Fund to the extent required
by
applicable state law for certain expenses that are described in the Statement
of
Additional Information relating to the Fund. Any fees charged by
Service
Organizations or other institutional investors to their customers in
connection
with investments in Fund shares are not reflected in the Fund's expenses.
YIELDS
**9 From time to time the "yields," "effective yields" and "tax-
equivalent
yields" of its Class A, Class B and Class C shares may be quoted
in
advertisements or in reports to investors. Yield quotations are
computed
separately for each Class of shares. The "yield" quoted in advertisements for
a
particular class or sub-class of shares refers to the income generated by
an
investment in such shares over a specified period (such as a seven-day
period)
identified in the advertisement. This income is then "annualized"; that is,
the
amount of income generated by the investment during that week is assumed to
be
generated each week over a 52-week period and is shown as a percentage of
the
investment. The "effective yield" is calculated similarly but, when
annualized,
the income earned by an investment in a particular class of Fund shares
is
assumed to be reinvested. The "effective yield" will be slightly higher than
the
"yield" because of the compounding effect of this assumed reinvestment.
The
"tax-equivalent yield" demonstrates the level of taxable yield necessary
to
produce an after-tax yield equivalent to the Fund's tax-free yield. It
is
calculated by increasing the Fund's yield (calculated as above) by the
amount
necessary to reflect the payment of federal and California income taxes at
a
stated rate. The "tax-equivalent yield" will always be higher than the
"yield."
**10 The Fund's yields may be compared to those of other mutual funds
with
similar objectives, to bond or other relevant indices, or to rankings
prepared
by independent services or other financial or industry publications that
monitor
the performance of mutual funds, or to the average yields reported by the
BANK
RATE MONITOR
15
<PAGE>
from money market deposit accounts offered by the 50 leading banks and
thrift
institutions in the top five standard metropolitan statistical areas.
For
example, such data are reported in national financial publications such
as
IBC/DONOGHUE'S MONEY FUND REPORT-R-, IBBOTSON ASSOCIATES OF CHICAGO, THE
WALL
STREET JOURNAL and THE NEW YORK TIMES, reports prepared by Lipper
Analytical
Services, Inc. and publications of a local or regional nature.
**11 THE FUND'S YIELD FIGURES FOR A CLASS OF SHARES REPRESENT
PAST
PERFORMANCE, WILL FLUCTUATE AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE
OF
FUTURE RESULTS. The yield of any investment is generally a function of
portfolio
quality and maturity, type of investment and operating expenses. Since
holders
of Class B or Class C shares bear the service fees for services provided
by
Service Organizations, the net yield on such shares can be expected at any
given
time to be lower than the net yield on Class A shares. Any fees charged
by
Service Organizations or other institutional investors directly to
their
customers in connection with investments in Fund shares are not reflected in
the
Fund's expenses or yields. The methods used to compute the Fund's yields
are
described in more detail in the Statement of Additional Information.
Investors
may call 800-238-2560 (Class A shares code: 010; Class B shares code: 110;
Class
C shares code: 210) to obtain current yield information.
The yield, effective yield and tax-equivalent yield for Class A and Class
B
shares for the Fund for the seven-day period ended January 31, 1994 were
%,
%, % and , %, and %, respectively.
DESCRIPTION OF SHARES
*1 moved from here; text not shown
*2 moved from here; text not shown
*3 moved from here; text not shown
*4 moved from here; text not shown
*5 moved from here; text not shown
*6 moved from here; text not shown
*7 moved from here; text not shown
*8 moved from here; text not shown
The Trust was organized as a Massachusetts business trust on November
25,
1992.
The Trust's Declaration of Trust authorizes the Board of Trustees to
issue
an unlimited number of full and fractional shares of beneficial interest in
the
Trust and to classify or reclassify any unissued shares into one or more
classes
of shares. The Trust is an open-end management investment company, which
offers
twelve portfolios: Prime Money Market Fund (Class A, Class B and Class C),
Prime
Value Money Market Fund (Class A, Class B, Class C and Class D),
Government
Obligations Money Market Fund (Class A, Class B, Class C and Class D),
100%
Government Obligations Money Market Fund (Class A, Class B and Class
C),
Treasury Instruments Money Market Fund II (Class A, Class B and Class C),
100%
Treasury Instruments Money Market Fund (Class A, Class B and Class C), Tax-
Free
Money Market Fund (Class A, Class B and Class C), Municipal Money Market
Fund
(Class A, Class B, Class C and Class D), California Municipal Money Market
Fund
(Class A, Class B and Class C), New York Municipal Money Market Fund (Class
A,
Class B and Class C),
16
<PAGE>
Floating Rate U.S. Government Fund (Class A and Class B) and Short Duration
U.S.
Government Fund (Class A and Class B). Shares of the New York Municipal
Money
Market Fund are not currently sold to the public. The Declaration of
Trust
further authorizes the trustees to classify or reclassify any class of
shares
into one or more sub-classes.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT
OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S
OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
The Trust does not intend to hold annual meetings of shareholders except
as
required by the 1940 Act or other applicable law. The Trust will call a
meeting
of shareholders for the purpose of voting upon the question of removal of
a
member of the Board of Trustees upon written request of shareholders owning
at
least 10% of the outstanding shares of the Trust entitled to vote.
Each Fund share represents an equal proportionate interest in the
assets
belonging to the Fund. Each share, which has a par value of $.001, has
no
preemptive or conversion rights. When issued for payment as described in
this
Prospectus, shares will be fully paid and non-assessable.
Holders of the Fund's shares will vote in the aggregate and not by class
on
all matters, except where otherwise required by law and except that only Class
B
or Class C shares, as the case may be, will be entitled to vote on
matters
submitted to a vote of shareholders pertaining to the Fund's arrangements
with
Service Organizations with respect to the relevant Class. Further,
shareholders
of all of the Fund and of the Trust's other portfolios will vote in
the
aggregate and not by portfolio except as otherwise required by law or when
the
Board of Trustees determines that the matter to be voted upon affects only
the
interests of the investors of a particular portfolio. (See the Statement
of
Additional Information under "Additional Description Concerning Fund Shares"
for
examples where the 1940 Act requires voting by portfolio.) Shareholders of
the
Trust are entitled to one vote for each full share held (irrespective of
class
or portfolio) and fractional votes for fractional shares held. Voting rights
are
not cumulative, and, accordingly, the holders of more than 50% of the
aggregate
shares of the Trust may elect all of the trustees.
For information concerning the redemption of Fund shares and
possible
restrictions on their transferability, see "Purchase and Redemption of
Shares."
* 9 moved from here; text not shown
*10 moved from here; text not shown
*11 moved from here; text not shown
17
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
100% Government Obligations Money Market Fund
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
California Municipal Money Market Fund
New York Municipal Money Market Fund
------------------------
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT
OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT
LAWFULLY BE MADE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Background and Expense Information........ 2
Financial Highlights...................... 3
Investment Objective and Policies......... 4
Purchase and Redemption of Shares......... 9
Dividends................................. 11
Taxes..................................... 12
Management of the Fund.................... 13
Yields.................................... 15
Description of Shares..................... 16
</TABLE>
CALIFORNIA MUNICIPAL
MONEY MARKET FUND
-------------------
PROSPECTUS
May , 1994
---------------------
LEHMAN BROTHERS
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN
RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
<PAGE>
PROSPECTUS
NEW YORK MUNICIPAL MONEY MARKET FUND
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-
load,
open-end, management investment company. The shares described in this
Prospectus
represent interests in the New York Municipal Money Market Fund portfolio
(the
"Fund"), one of a family of money market portfolios of the Trust.
The Fund's INVESTMENT OBJECTIVE is to provide investors with as high a
level
of current income exempt from federal income tax and, to the extent
possible,
from New York State and New York City personal income taxes as is
consistent
with relative stability of principal. All or a portion of the Fund's
dividends
may be a specific preference item for purposes of the federal individual
and
corporate alternative minimum taxes.
Fund shares may not be purchased by individuals directly but
institutional
investors may purchase shares for accounts maintained by individuals. The
Fund
offers three classes of shares. In addition to Class A shares,
institutional
investors may purchase on behalf of their customers Class B shares and Class
C
shares which accrue daily dividends in the same manner as Class A shares
but
bear all fees payable by the Fund to institutional investors for
certain
services they provide to beneficial owners of such shares. See "Management
of
the Fund--Service Organizations."
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
ITS
NET ASSET VALUE OF $1.00 PER SHARE.
LEHMAN BROTHERS, INC. ("LEHMAN BROTHERS") sponsors the Fund and acts
as
Distributor of its shares. LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
serves
as the Fund's Investment Adviser.
The address of the Fund is One Exchange Place, Boston, Massachusetts
02109.
The Fund can be contacted as follows: for purchase and redemption orders
only
call 1-800-851-3134; for yield information call 1-800-238-2560 (Class A
shares
code: 011; Class B shares code: 211; Class C shares code: 311); for
other
information call 1-800-368-5556.
This Prospectus briefly sets forth certain information about the Fund
that
investors should know before investing. Investors are advised to read
this
Prospectus and retain it for future reference. Additional information about
the
Fund contained in a Statement of Additional Information dated May __, 1994,
as
amended or supplemented from time to time, has been filed with the
Securities
and Exchange Commission and is available to investors without charge by
calling
the Fund's Distributor at 1-800-368-5556. The Statement of
Additional
Information is incorporated in its entirety by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR
ENDORSED BY, ANY BANK, AND SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT
AGENCY. SHARES OF THE FUND INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING
THE
POSSIBLE LOSS OF PRINCIPAL.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
LEHMAN BROTHERS
May __, 1994
<PAGE>
BACKGROUND AND EXPENSE INFORMATION
EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A
CLASS B CLASS C
SHARES
SHARES SHARES
-------
------- -------
<S> <C>
<C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees (net of applicable fee waivers)......................... 0.00%*
0.00%* 0.00%*
Rule 12b-1 fees....................................................... none
.25% .35%
Other Expenses--including Administration Fees (net of applicable fee
waivers and reimbursement of expenses)............................... .16%*
.16%* .16%*
-------
------- -------
Total Fund Operating Expenses (after expense reimbursement)........... .16%
.41% .51%
-------
------- -------
-------
------- -------
<FN>
---------
* The Expense Summary above has been restated to reflect the Fund's
Investment
Adviser's and Administrator's voluntary reimbursement arrangements in
effect
for the Fund's fiscal year ending January 31, 1995. With respect to Class
A,
Class B and Class C shares for the month of January, 1995, the Total
Fund
Operating Expenses including reimbursement of expenses are anticipated to
be
.18%, .43% and .53%, respectively.
</TABLE>
In order to maintain a competitive expense ratio during 1994, the
Fund's
Investment Adviser and Administrator have voluntarily agreed to reimburse
the
Fund if and to the extent that total operating expenses (other than
taxes,
interest brokerage fees and commissions. Rule 12b-1 fees and
extraordinary
expenses) exceed .16% of average daily net assets through December 31, 1994.
For
the years 1995-1997, the Investment Adviser and Administrator intend to
continue
voluntarily to reimburse the Fund to the extent necessary to maintain
annualized
expense ratio at a level no greater than .18% of average daily net assets.
The
voluntary reimbursement arrangements described above will not be changed
unless
shareholders are provided at least 60 days' advance notice. The maximum
annual
contractual fees payable to the Investment Adviser and Administrator total
.20%
of average daily net assets. Absent reimbursement of expenses, Total
Fund
Operating Expenses of Class A, Class B and Class C would be .37%, .62% and
.72%
respectively, of the Fund's average daily net assets. The foregoing table
has
not been audited by the Fund's independent certified public accountants.
---------
Example
------------
An investor would pay the following expenses on a $1,000 investment,
assuming
(1) a 5% annual return and (2) redemption at the end of each time period
with
respect to the following shares:
<TABLE>
<CAPTION>
1 YEAR 3
YEARS
------ -----
--
<S> <C> <C>
Class A shares: $ 1.54 $
5.28
Class B shares: $ 4.09 $
13.29
Class C shares: $ 5.11 $
16.48
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL
EXPENSES
AND RATES OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
The purpose of the foregoing table is to assist an investor in
understanding
the various costs and expenses that an investor in the Fund will bear
directly
or indirectly. Certain Service Organizations (as defined below)
also
2
<PAGE>
may charge their clients fees in connection with investments in Fund
shares,
which fees are not reflected in the table. For more complete descriptions of
the
various costs and expenses, see "Management of the Fund" in this Prospectus
and
the Statement of Additional Information.
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to provide investors with as high a
level
of current income exempt from federal income tax and, to the extent
possible,
from New York State and New York City personal income taxes as is
consistent
with relative stability of principal. All or a portion of the Fund's
dividends
may be a specific tax preference item for purposes of the federal individual
and
corporate alternative minimum taxes.
In pursuing its investment objective, the Fund, which operates as
a
non-diversified investment company, invests substantially all of its assets
in
debt obligations issued by or on behalf of the State of New York and
other
states, territories and possessions of the United States, the District
of
Columbia, and their respective authorities, agencies, instrumentalities
and
political subdivisions, and tax-exempt derivative securities such as
tender
option bonds, participations, beneficial interests in trusts and
partnership
interests (collectively "Municipal Obligations"). Dividends paid by the
Fund
that are derived from interest on obligations that are exempt from
taxation
under the Constitution or statutes of New York ("New York
Municipal
Obligations") are exempt from regular federal income tax and New York State
and
New York City personal income taxes. New York Municipal Obligations
include
municipal securities issued by the State of New York and its
political
sub-divisions, as well as certain other governmental issuers such as
the
Commonwealth of Puerto Rico. Dividends derived from interest on
Municipal
Obligations other than New York Municipal Obligations are exempt from
federal
income tax but may be subject to New York State and New York City
personal
income taxes. The Fund expects that, except during temporary defensive
periods,
the Fund's assets will be invested primarily in New York Municipal
Obligations,
although the amount of the Fund's assets invested in such securities will
vary
from time to time.
PRICE AND PORTFOLIO MATURITY. The Fund will not knowingly
purchase
securities the interest on which is subject to regular federal income tax.
(See,
however, "Taxes" below concerning treatment of exempt-interest dividends paid
by
the Fund for purposes of the federal alternative minimum tax applicable
to
particular classes of investors.) Except during temporary defensive periods,
the
Fund will invest substantially all, but in no event less than 80%, of its
total
assets in Municipal Obligations with remaining maturities of thirteen months
or
less as determined in accordance with the rules of the Securities and
Exchange
Commission. The Fund maintains a dollar-weighted average portfolio maturity
of
90 days or less. The Fund may hold uninvested cash reserves pending
investment
during temporary defensive periods, including when suitable tax-
exempt
obligations are unavailable. Uninvested cash reserves will not earn income.
PORTFOLIO QUALITY AND DIVERSIFICATION. The Fund will purchase
only
Municipal Obligations which are "Eligible Securities" (as defined by
the
Securities and Exchange Commission) and which present minimal credit risks
as
determined by the Investment Adviser pursuant to guidelines approved by
the
Trust's Board of Trustees. Eligible Securities consist of (i) instruments
that
are rated at the time of purchase in one of the top two rating categories by
at
least two unaffiliated nationally recognized statistical rating
organizations
("NRSROs"), (ii) instruments rated in one of the top two rating categories
by
one such NRSRO (if only one such organization rates the instrument),
(iii)
instruments issued by issuers with short-term debt having such ratings,
and
3
<PAGE>
(iv) unrated instruments determined by the Investment Adviser, pursuant
to
procedures approved by the Board of Trustees, to be of comparable quality
to
such instruments. The Appendix to the Statement of Additional
Information
includes a description of applicable NRSRO ratings.
INVESTMENT LIMITATIONS
There can be no assurance that the Fund will achieve its
investment
objective. The Fund's investment objective and the policies described herein
may
be changed by the Trust's Board of Trustees without the affirmative vote of
the
holders of a majority of the Fund's outstanding shares, except that the
Fund's
policy of investing at least 80% of its assets in Municipal Obligations and
the
following investment limitations are fundamental and may not be changed
without
such a vote of shareholders. (A complete list of the investment limitations
that
cannot be changed without a vote of shareholders is contained in the
Statement
of Additional Information under "Investment Objective and Policies.") The
Fund
may not:
1. Borrow money except from banks for temporary purposes and then
in
amounts not exceeding 10% of the value of the Fund's assets; or mortgage,
pledge
or hypothecate its assets except in connection with any such borrowing and
in
amounts not in excess of the lesser of the dollar amounts borrowed or 10% of
the
value of the Fund's total assets at the time of such borrowing.
Additional
investments will not be made when borrowings exceed 5% of the Fund's assets.
2. Purchase any securities which would cause 25% or more of the value
of
its total assets at the time of purchase to be invested in the securities
of
issuers conducting their principal business activities in the same
industry;
provided that this limitation shall not apply to Municipal Obligations
or
governmental guarantees of Municipal Obligations; and provided, further,
that
for the purpose of this limitation only, industrial development bonds that
are
considered to be issued by non-governmental users (see the third
investment
limitation below) shall not be deemed to be Municipal Obligations; and
provided,
further, that there is no limitation with respect to investments in
U.S.
government securities.
3. Purchase the securities of any issuer if as a result more than 5% of
the
value of the Fund's total assets would be invested in the securities of
such
issuer, except that (a) up to 50% of the value of the Fund's total assets may
be
invested without regard to this 5% limitation, provided that no more than 25%
of
the value of the Fund's total assets are invested in the securities of any
one
issuer and (b) this 5% limitation does not apply to U.S. government
securities.
For purposes of this limitation, a security is considered to be issued by
the
governmental entity (or entities) whose assets and revenues back the
security,
or, with respect to a private activity bond that is backed only by the
assets
and revenues of a non-governmental user, by such non-governmental user.
In
certain circumstances, the guarantor of a guaranteed security may also
be
considered to be an issuer in connection with such guarantee, except that
a
guarantee of a security shall not be deemed to be a security issued by
the
guarantor when the value of all securities issued and guaranteed by
the
guarantor and owned by the Fund does not exceed 10% of the value of the
Fund's
total assets.
Opinions relating to the validity of Municipal Obligations and to
the
exemption of interest thereon from federal income tax (and, with respect to
New
York Municipal Obligations, to the exemption of interest thereon from New
York
State and New York City personal income taxes) are rendered by bond counsel
to
the respective issuers at the time of issuance, and opinions relating to
the
validity of and the tax-exempt status of payments received by the Fund
from
tax-exempt derivatives are rendered by counsel to the respective sponsors
of
such
4
<PAGE>
derivatives. The Fund and its Investment Adviser will rely on such opinions
and
will not review independently the underlying proceedings relating to
the
issuance of Municipal Obligations, the creation of any tax-exempt derivatives
or
the bases for such opinions.
TYPES OF MUNICIPAL OBLIGATIONS
The two principal classifications of Municipal Obligations that may be
held
by the Fund are "general obligation" securities and "revenue"
securities.
General obligation securities are secured by the issuer's pledge of its
full
faith, credit and taxing power for the payment of principal and
interest.
Revenue securities are payable only from the revenues derived from a
particular
facility or class of facilities or, in some cases, from the proceeds of
a
special excise tax or other specific revenue source such as the user of
the
facility being financed. Revenue securities may include private activity
bonds.
Such bonds may be issued by or on behalf of public authorities to
finance
various privately operated facilities and are not payable from the
unrestricted
revenues of the issuer. As a result, the credit quality of private
activity
bonds is frequently related directly to the credit standing of
private
corporations or other entities.
The Tax Reform Act of 1986 substantially revised provisions of prior
law
affecting the issuance and use of proceeds of certain tax-exempt obligations.
A
new definition of private activity bonds was applied to many types of
bonds,
including those which were industrial development bonds under prior
law.
Interest on private activity bonds is tax-exempt only if the bonds fall
within
certain defined categories of qualified private activity bonds and meet
the
requirements specified in those respective categories. The Act generally did
not
change the tax treatment of bonds issued to finance governmental operations.
The
changes generally apply to bonds issued after August 15, 1986, with
certain
transitional rule exemptions. As used in this Prospectus, the term
"private
activity bonds" also includes industrial development revenue bonds
issued
pursuant to the Internal Revenue Code of 1986, as amended.
The Fund's portfolio may also include "moral obligation" securities,
which
are normally issued by special purpose public authorities. If the issuer
of
moral obligation securities is unable to meet its debt service obligations
from
current revenues, it may draw on a reserve fund, the restoration of which is
a
moral commitment but not a legal obligation of the state or municipality
that
created the issuer.
OTHER INVESTMENT PRACTICES
Municipal Obligations purchased by the Fund may include variable rate
demand
notes. Such notes may not be rated by credit rating agencies, but unrated
notes
purchased by the Fund will be determined by the Fund's Investment Adviser to
be
of comparable quality at the time of purchase to rated instruments
purchasable
by the Fund. Where necessary to ensure that a note is an Eligible Security,
the
Fund will require that the issuer's obligation to pay the principal of the
note
be backed by an conditional bank letter or line of credit, guarantee
or
commitment to lend. While there may be no active secondary market with
respect
to a particular variable rate demand note purchased by the Fund, the Fund
may,
upon the notice specified in the note, demand payment of the principal of
the
note at any time or during specified periods not exceeding thirteen
months,
depending upon the instrument involved, and may resell the note at any time to
a
third party. The absence of such an active secondary market, however, could,
in
some instances, make it difficult for the Fund to dispose of a variable
rate
demand note if the issuer were to default on its payment obligation or
during
periods that the Fund is not entitled to exercise its demand rights, and
the
Fund could, for this or other reasons, suffer a loss to the extent of
the
default. While, in general, the Fund will invest only in securities that
mature
within thirteen months of
5
<PAGE>
purchase, the Fund may invest in variable rate demand notes which have
nominal
maturities in excess of thirteen months, if such instruments carry
demand
features that comply with conditions established by the Securities and
Exchange
Commission.
The Fund may also purchase Municipal Obligations on a "when-issued"
basis.
When-issued securities are securities purchased for delivery beyond the
normal
settlement date at a stated price and yield. The Fund generally will not pay
for
such securities or start earning interest on them until they are
received.
Securities purchased on a when-issued basis are recorded as an asset and
are
subject to changes in value based upon changes in the general level of
interest
rates. The Fund expects that commitments to purchase when-issued securities
will
not exceed 25% of the value of its total assets absent unusual
market
conditions. The Fund does not intend to purchase when-issued securities
for
speculative purposes but only in furtherance of its investment objective.
In addition, the Fund may acquire "stand-by commitments" with respect
to
Municipal Obligations held in its portfolio. Under a stand-by commitment,
a
dealer agrees to purchase at the Fund's option specified Municipal
Obligations
at a specified price. The Fund will acquire stand-by commitments solely
to
facilitate portfolio liquidity and does not intend to exercise its
rights
thereunder for trading purposes.
The Fund may purchase tender option bonds. A tender option bond is
a
municipal obligation (generally held pursuant to a custodial arrangement)
having
a relatively long maturity and bearing interest at a fixed rate
substantially
higher than prevailing short-term tax-exempt rates, that has been coupled
with
the agreement of a third party, such as a bank, broker-dealer or other
financial
institution, pursuant to which such institution grants the security holders
the
option, at periodic intervals, to tender their securities to the institution
and
receive the face value thereof. As consideration for providing the option,
the
financial institution receives periodic fees equal to the difference between
the
municipal obligation's fixed coupon rate and the rate, as determined by
a
remarketing or similar agent at or near the commencement of such period,
that
would cause the securities, coupled with the tender option, to trade at or
near
par on the date of such determination. Thus, after payment of this fee,
the
security holder effectively holds a demand obligation that bears interest at
the
prevailing short-term tax exempt rate. The Fund's Investment Adviser
will
consider on an ongoing basis the creditworthiness of the issuer of
the
underlying municipal obligation, of any custodian and of the third
party
provider of the tender option. In certain instances and for certain
tender
option bonds, the option may be terminable in the event of a default in
payment
of principal or interest on the underlying municipal obligations and for
other
reasons.
Additionally, the above description of tender option bonds is meant only
to
provide an example of one possible structure of such obligations, and the
Fund
may purchase tender option bonds with different types of ownership,
payment,
credit and/or liquidity arrangement.
The Fund may acquire custodial receipts or certificates underwritten
by
securities dealers or banks that evidence ownership of future interest
payments,
principal payments or both, on certain municipal obligations. The underwriter
of
these certificates or receipts typically purchases municipal obligations
and
deposits the obligations in an irrevocable trust or custodial account with
a
custodian bank, which then issues receipts or certificates that
evidence
ownership of the periodic unmatured coupon payments and the final
principal
payment on the obligations. Although under the terms of a custodial receipt,
the
Fund would be typically authorized to assert its rights directly against
the
issuer of the underlying obligation, the Fund could be required to
assert
through the custodian bank those rights as may exist against the
underlying
issuer. Thus, in the event
6
<PAGE>
the underlying issuer fails to pay principal and/or interest when due, the
Fund
may be subject to delays, expenses and risks that are greater than those
that
would have been involved if the Fund had purchased a direct obligation of
the
issuer. In addition, in the event that the trust or custodial account in
which
the underlying security has been deposited is determined to be an
association
taxable as a corporation instead of a non-taxable entity, the yield on
the
underlying security would be reduced in recognition of any taxes paid.
The Fund may purchase from financial institutions tax-exempt
participation
interests in Municipal Obligations. A participation interest gives the Fund
an
undivided interest in the Municipal Obligation in the proportion that the
Fund's
participation interest bears to the total amount of the Municipal
Obligation.
These instruments may have floating or variable rates of interest. If
the
participation interest is unrated, it will be backed by an irrevocable letter
of
credit or guarantee of a bank that the Company's Board of Trustees
has
determined meets certain quality standards or the payment obligation
otherwise
will be collateralized by obligations of the U.S. government and its
agencies
and instrumentalities. The Fund will have the right, with respect to
certain
participation interests, to demand payment, on a specified number of
days'
notice, for all or any part of the Fund's interest in the Municipal
Obligation,
plus accrued interest. The Fund will invest no more than 5% of its total
assets
in participation interests.
The Fund will not knowingly invest more than 10% of the value of its
total
net assets in illiquid securities, including securities that are illiquid
by
virtue of the absence of a readily available market or legal or
contractual
restrictions on resale. Securities that have legal or contractual
restrictions
on resale but have a readily available market are not deemed illiquid
for
purposes of this limitation. The Fund's Investment Adviser will monitor
the
liquidity of such restricted securities under the supervision of the Board
of
Trustees. See "Investment Objective and Policies--Additional Information
and
Investment Practices--Illiquid Securities" in the Statement of
Additional
Information.
RISK FACTORS
The Fund intends to follow the diversification standards set forth in
the
Investment Company Act of 1940, as amended (the "1940 Act"), except to
the
extent, in the judgment of the Investment Adviser, that non-diversification
is
appropriate in order to maximize the percentage of the Fund's assets that
are
New York Municipal Obligations. The investment return on a non-
diversified
portfolio typically is dependent upon the performance of a smaller number
of
issuers relative to the number of issuers held in a diversified portfolio.
In
the event of changes in the financial condition of or in the market's
assessment
of certain issuers, the Fund's maintenance of large positions in the
obligations
of a small number of issuers may affect the value of the Fund's portfolio to
a
greater extent than that of a diversified portfolio.
Although the Fund does not presently intend to do so on a regular basis,
it
may invest more than 25% of its assets in Municipal Obligations the interest
on
which is paid solely from revenues of similar projects if such investment
is
deemed necessary or appropriate by the Fund's Investment Adviser. To the
extent
that the Fund's assets are concentrated in Municipal Obligations payable
from
revenues on similar projects, are issued by issuers located in New York or
are
private activity bonds, the Fund will be subject to the peculiar risks
presented
by such state, projects and bonds to a greater extent than it would be if
the
Fund's assets were not so concentrated.
7
<PAGE>
The Fund's ability to achieve its investment objective is dependent upon
the
ability of the issuers of New York Municipal Obligations to meet
their
continuing obligations for the payment of principal and interest. New York
State
and New York City face long-term economic problems that could seriously
affect
their ability and that of other issuers of New York Municipal Obligations
to
meet their financial obligations.
Investors should be aware that certain substantial issuers of New
York
Municipal Obligations (including issuers whose obligations may be acquired
by
the Fund) have experienced serious financial difficulties in recent years.
These
difficulties have at times jeopardized the credit standing and impaired
the
borrowing abilities of all New York issuers and have generally contributed
to
higher interest costs for their borrowing and fewer markets for
their
outstanding debt obligations. In recent years, several different issues
of
municipal securities of New York State and its agencies and
instrumentalities
and of New York City have been downgraded by Standard & Poor's Corporation
and
Moody's Investors Service, Inc. On the other hand, strong demand for New
York
Municipal Obligations has more recently had the effect of permitting New
York
Municipal Obligations to be issued with yields relatively lower, and
after
issuance, to trade in the market at prices relatively higher, than
comparably
rated Municipal Obligations issued by other jurisdictions. A recurrence of
the
financial difficulties previously experienced by certain issuers of New
York
Municipal Obligations could result in defaults or declines in the market
values
of those issuers' existing obligations and, possibly, in the obligations
of
other issuers of New York Municipal Obligations. Although, as of the date
of
this Prospectus, no issuers of New York Municipal Obligations are in
default
with respect to the payment of their Municipal Obligations, the occurrence
of
any such default could affect adversely the market values and marketability
of
all New York Municipal Obligations and, consequently, the net asset value of
the
Fund's portfolio.
Other considerations affecting the Fund's investments in New York
Municipal
Obligations are summarized in the Statement of Additional Information.
The value of the Fund's portfolio securities can be expected to
vary
inversely with changes in prevailing interest rates.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Shares of the Fund are sold at the net asset value per share of the
Fund
next determined after receipt of a purchase order by Lehman Brothers,
the
Distributor of the Fund's shares. Purchase orders for shares are accepted by
the
Fund only on a day on which both Lehman Brothers and the Federal Reserve Bank
of
Boston are open for business and must be transmitted to Lehman Brothers,
by
telephone at 1-800-851-3134. Orders received prior to noon, Eastern time,
for
which payment has been received by Boston Safe Deposit and Trust
Company
("Boston Safe"), the Fund's Custodian, will be executed at noon. Orders
received
prior to noon for which payment is received between noon and 4:00 P.M.,
Eastern
time, will be executed at 4:00 P.M. Orders received after noon, and orders
for
which payment has not been received by 4:00 P.M., Eastern time, will not
be
accepted and notice thereof will be given to the institution placing the
order.
Payment for Fund shares may be made only in federal funds immediately
available
to Boston Safe. (Payment for orders which are not received or accepted by
Lehman
Brothers will be returned after prompt inquiry to the sending institution.)
The
Fund may in its discretion reject any order for shares.
8
<PAGE>
The minimum aggregate initial investment by an institution in the
investment
portfolios that comprise the Trust is $1 million (with not less than
$25,000
invested in any one investment portfolio offered by the Trust);
however,
broker-dealers and other institutional investors may set a higher minimum
for
their customers. To reach the minimum Trust-wide initial investment,
purchases
of shares may be aggregated over a period of six months. There is no
minimum
subsequent investment.
Conflict of interest restrictions may apply to an institution's receipt
of
compensation paid by the Fund on fiduciary funds that are invested in Class B
or
Class C shares. See also "Management of the Fund--Service
Organizations."
Institutions, including banks regulated by the Comptroller of the Currency
and
investment advisers and other money managers subject to the jurisdiction of
the
Securities and Exchange Commission, the Department of Labor or state
securities
commissions, should consult legal counsel before investing in Class B or Class
C
shares.
SUBACCOUNTING SERVICES. Institutions are encouraged to open single
master
accounts. However, certain institutions may wish to use the Transfer
Agent's
subaccounting system to minimize their internal recordkeeping requirements.
The
Transfer Agent charges a fee based on the level of subaccounting
services
rendered. Institutions holding Fund shares in a fiduciary, agency, custodial
or
similar capacity may charge or pass through subaccounting fees as part of or
in
addition to normal trust or agency account fees. They may also charge fees
for
other services provided which may be related to the ownership of Fund
shares.
This Prospectus should, therefore, be read together with any agreement
between
the customer and the institution with regard to the services provided, the
fees
charged for those services and any restrictions and limitations imposed.
REDEMPTION PROCEDURES
Redemption orders must be transmitted to Lehman Brothers by telephone
at
1-800-851-3134. Payment for redeemed shares for which a redemption order
is
received by Lehman Brothers prior to noon, Eastern time, on a day that
both
Lehman Brothers and the Federal Reserve Bank of Boston are open for business
is
normally made in federal funds wired to the redeeming shareholder on the
same
business day. Payment for redeemed shares for which a redemption order
is
received by Lehman Brothers after noon, Eastern time, on such a business day
is
normally made in federal funds wired to the redeeming shareholder on the
next
business day following redemption.
Shares are redeemed at the net asset value per share next determined
after
Lehman Brothers' receipt of the redemption order. While the Fund intends to
use
its best efforts to maintain its net asset value per share at $1.00,
the
proceeds paid to an investor upon redemption may be more or less than the
amount
invested depending upon a share's net asset value at the time of redemption.
To
allow the Fund's Investment Adviser to manage the Fund effectively,
investors
are strongly urged to initiate all investments or redemptions of Fund Shares
as
early in the day as possible and to notify Lehman Brothers at least one day
in
advance of transactions in excess of $5 million.
The Fund reserves the right to wire redemption proceeds within seven
days
after receiving the redemption order if, in the judgment of the
Investment
Adviser, an earlier payment could adversely affect the Fund. The Fund shall
have
the right to redeem involuntarily shares in any account at their net asset
value
if the value of the account is less than $10,000 after 60 days' prior
written
notice to the investor. Any such redemption shall be effected at the net
asset
value per share next determined after the redemption order is entered. If
during
the 60-day period the investor increases the value of its account to $10,000
or
more, no such redemption shall take
9
<PAGE>
place. In addition, the Fund may redeem shares involuntarily or suspend
the
right of redemption as permitted under the 1940 Act, or under certain
special
circumstances described in the Statement of Additional Information
under
"Additional Purchase and Redemption Information."
VALUATION OF SHARES -- NET ASSET VALUE
The Fund's net asset value per share for purposes of pricing purchase
and
redemption orders is determined by the Fund's Administrator Custodian as of
noon
and 4:00 P.M., Eastern time, on each weekday, with the exception of
those
holidays on which either Lehman Brothers or the Federal Reserve Bank of
Boston
is closed. Currently, one or both of these institutions are closed on New
Year's
Day, Martin Luther King, Jr.'s Birthday (observed), Presidents'
Day
(Washington's Birthday), Good Friday, Memorial Day, Independence Day, Labor
Day,
Columbus Day (observed), Veterans Day, Thanksgiving Day and Christmas Day,
and
on the preceding Friday or subsequent Monday when one of these holidays falls
on
a Saturday or Sunday, respectively. The net asset value per share of the Fund
is
calculated by adding the value of all securities and other assets belonging
to
the Fund, subtracting liabilities and dividing the result by the number of
the
Fund's outstanding shares. Portfolio securities are valued on the basis
of
amortized cost. Under this method, the Fund values a portfolio security at
cost
on the date of purchase and thereafter assumes a constant amortization of
any
discount or premium until maturity of the security. As a result, the value
of
the security for purposes of determining net asset value normally does
not
change in response to fluctuating interest rates. While the amortized
cost
method seems to provide certainty in portfolio valuation, it may result
in
periods during which values, as determined by amortized cost, are higher
or
lower than the amount the Fund would receive if it sold the securities.
The
Fund's net asset value for purposes of pricing purchase and redemption orders
is
determined independently of the net asset values of the shares of the
Trust's
other investment portfolios.
OTHER MATTERS
Fund shares are sold and redeemed without charge by the Fund.
Institutional
investors purchasing or holding Fund shares for their customers' accounts
may
charge customers fees for cash management and other services provided
in
connection with their accounts. A customer should, therefore, consider the
terms
of its account with an institution before purchasing Fund shares. An
institution
purchasing or redeeming shares on behalf of its customers is responsible
for
transmitting orders to Lehman Brothers in accordance with its
customer
agreements.
DIVIDENDS
Investors of the Fund are entitled to dividends and distributions
arising
only from the net investment income and capital gains, if any, earned
on
investments held in the Fund. The Fund's net investment income is declared
daily
as a dividend to shareholders of record at the close of business on the day
of
declaration. Shares begin accruing dividends on the day the purchase order
for
the shares is executed and continue to accrue dividends through, and
including,
the day before the redemption order for the shares is executed. Dividends
are
paid monthly by wire transfer within five business days after the end of
the
month or within five business days of the redemption of all of an
investor's
shares of a particular class. The Fund does not expect to realize net long-
term
capital gains.
10
<PAGE>
Dividends are determined in the same manner and are paid in the same
amount
for each Fund share, except that Class B and Class C shares bear all the
expense
of fees paid to Service Organizations. As a result, at any given time, the
net
yield on Class B and Class C shares will be .25% and .35%, respectively,
lower
than the net yield on Class A shares.
Institutional investors may elect to have their dividends reinvested
in
additional full and fractional shares of the same class at the net asset
value
of such shares on the payment date. Reinvested dividends receive the same
tax
treatment as dividends paid in cash. Such election, or any revocation
thereof,
must be made in writing to as the Fund's Distribution 260 Franklin
Street,
Boston, Massachusetts 02110-9624 and will become effective with respect
to
dividends paid after its receipt by the Distributor, with respect to
dividends
paid.
**1 TSSG, as Transfer Agent, will send each Fund investor or its
authorized
representative, if any, an annual statement designating the amount, of
any
dividends and capital gains distributions made during each year and
their
federal and New York tax qualification.
TAXES
**2 The Fund intends to qualify each year as a "regulated
investment
company" under the Internal Revenue Code of 1986, as amended (the "Code").
A
regulated investment company is exempt from federal income taxes on
amounts
distributed to its investors. Qualification as a regulated investment
company
under the Code for a taxable year requires, among other things, that the
Fund
distribute to its investors at least the sum of 90% of its exempt-
interest
income net of certain deductions and 90% of its investment company
taxable
income for such year. Dividends derived from exempt-interest income (known
as
"exempt-interest dividends") may be treated by the Fund's shareholders as
items
of interest excludable from their gross income under Section 103(a) of the
Code,
unless under the circumstances applicable to the particular shareholder
the
exclusion would be disallowed. (See the Statement of Additional
Information
under "Additional Information Concerning Taxes.")
**3 The Fund may hold without limit certain private activity bonds
issued
after August 7, 1986. The portion of dividends attributable to interest on
such
bonds must be included in a shareholder's federal alternative minimum
taxable
income, as an item of tax preference, for the purpose of determining
liability
(if any) for the 24% alternative minimum tax for individuals and the
20%
alternative minimum tax and the environmental tax applicable to
corporations.
Corporate shareholders must also take all exempt-interest dividends into
account
in determining certain adjustments for federal alternative minimum
and
environmental tax purposes. The environmental tax applicable to corporations
is
imposed at a rate of .12% on the excess of the corporation's modified
federal
alternative minimum taxable income over $2,000,000. Investors receiving
Social
Security benefits or Railroad Retirement Act benefits should note that
all
exempt-interest dividends will be taken into account in determining
the
taxability of such benefits.
**4 Exempt-interest dividends derived from interest on New York
Municipal
Obligations will be exempt from New York State and New York City personal
income
taxes (but not corporate franchise taxes), provided the interest on
such
obligations is and continues to be excluded or exempt from applicable
federal
income taxation and New York State and New York City income taxation.
Dividends
and distributions derived from taxable
11
<PAGE>
income and capital gains, if any, are not exempt from federal income tax or
from
New York State and New York City taxes. Interest on indebtedness incurred
or
continued by an investor to purchase or carry shares of the Fund is
not
deductible for federal, New York State or New York City personal income
tax
purposes.
**5 Except as noted with respect to New York State and New York
City
personal income taxes, dividends and distributions paid to shareholders that
are
derived from income on Municipal Obligations may be taxable income under
state
or local law even though all or a portion of such dividends or distributions
may
be derived from interest on tax-exempt obligations that, if paid directly
to
investors, would be tax-exempt income. To the extent, if any, that
dividends
paid to shareholders are derived from taxable income or from long-term or
short-
term capital gains, such dividends will not be exempt from federal income tax
or
from New York State or New York City taxes, whether such dividends are paid
in
the form of cash or additional shares, and may also be subject to other
state
and local taxes.
**6 Dividends declared in October, November or December of any year
payable
to investors of record on a specified date in such months will be deemed to
have
been received by the shareholders and paid by the Fund on December 31 of
such
year in the event such dividends are actually paid during January of
the
following year.
**7 Investors will be advised at least annually as to the federal
income
tax, as well as the New York State and New York City personal income tax,
status
and consequences of dividends and distributions made each year.
**8 The foregoing is only a brief summary of some of the important
tax
considerations generally affecting the Fund and its investors. No attempt
is
made to present a detailed explanation of the federal, state or local income
tax
treatment of the Fund or its investors, and this discussion is not intended as
a
substitute for careful tax planning. Accordingly, potential investors in
the
Fund should consult their tax advisors with specific reference to their own
tax
situations.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the
Trust's Board of Trustees. The Trustees approve all significant
agreements
between the Trust and the persons or companies that furnish services to
the
Fund, including agreements with its distributors, Investment
Adviser,
Administrator, Custodian and Transfer Agent. The day-to-day operations of
the
Fund are delegated to the Fund's Investment Adviser and Administrator
Custodian.
The Statement of Additional Information relating to the Fund contains
general
background information regarding each Trustee and executive officer of
the
Trust.
DISTRIBUTOR
Lehman Brothers, located at 3 World Financial Center, New York, New
York
10285, is the Distributor of the Fund's shares. Lehman Brothers, a leading
full
service investment firm, meets the diverse financial needs of
individuals,
institutions and governments around the world. Lehman Brothers has entered
into
a Distribution Agreement with the Trust pursuant to which it has
the
responsibility for distributing shares of the Fund.
INVESTMENT ADVISER--LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located at 3
World
Financial Center, New York, New York 10285, serves as the Fund's
Investment
Adviser. LBGAM is a wholly owned subsidiary of
12
<PAGE>
Lehman Brothers Holdings Inc. ("Holdings"). LBGAM, together with other
Lehman
Brother investment advisory affiliates, serve as Investment Adviser
to
investment companies and private accounts and has assets under management
in
excess of [$15] billion as of ____________, 1994.
As Investment Adviser to the Fund, LBGAM will among other
things,
participate in the formulation of the Fund's investment policies,
analyze
economic trends affecting the Fund and monitor and evaluate the
Fund's
investment objective and policies and the Fund's investment performance. For
its
services LBGAM is entitled to receive a monthly fee from the Fund at the
annual
rate of .10% of the value of the Fund's average daily net assets.
ADMINISTRATOR AND TRANSFER AGENT--THE SHAREHOLDER SERVICES GROUP, INC.
The Shareholder Services Group, Inc. ("TSSG"), located at One
Exchange
Place, 53 State Street, Boston, Massachusetts 02109, serves as the
Fund's
Administrator and Transfer Agent. TSSG is a wholly owned subsidiary of
First
Data Corporation. As Administrator, TSSG calculates the net asset value of
the
Fund's shares and generally assists in all aspects of the Fund's
administration
and operation. As compensation for TSSG's services as Administrator, TSSG
is
entitled to receive from the Fund a monthly fee at the annual rate of .10%
of
the value of the Fund's average daily net assets. TSSG is also entitled
to
receive a fee from the Fund for its services as Transfer Agent. TSSG pays
Boston
Safe, the Fund's Custodian, a portion of its monthly administration fee
for
custody services rendered to the Fund.
CUSTODIAN--BOSTON SAFE DEPOSIT AND TRUST COMPANY
Boston Safe, a wholly owned subsidiary of The Boston Company, Inc.,
located
at One Boston Place, Boston, Massachusetts 02108, serves as the
Fund's
Custodian.
SERVICE ORGANIZATIONS
Financial institutions, such as banks, savings and loan associations
and
other such institutions ("Service Organizations") and/or institutional
customers
of Service Organizations may purchase Class B or Class C shares. These
shares
are identical in all respects to Class A shares except that they bear the
fees
described below and enjoy certain exclusive voting rights on matters relating
to
these fees. The Fund will enter into an agreement with each Service
Organization
whose customers ("Customers") are the beneficial owners of Class B or Class
C
shares that requires the Service Organization to provide certain services
to
Customers in consideration of the Fund's payment of service fees at the
annual
rate of .25% or .35%, respectively of the average daily net asset value of
the
respective Class beneficially owned by Customers. Such services, which
are
described more fully in the Statement of Additional Information
under
"Management of the Fund--Service Organizations," may include aggregating
and
processing purchase and redemption requests from Customers and placing
net
purchase and redemption orders with Lehman Brothers; processing
dividend
payments from the Fund on behalf of Customers; providing
information
periodically to Customers showing their positions in shares; arranging for
bank
wires; responding to Customer inquiries relating to the services provided by
the
Service Organization and handling correspondence; acting as shareholder
of
record and nominee and providing reasonable assistance in connection with
the
distribution of shares to Customers. Services provided with respect to Class
B
shares will generally be more limited than those provided with respect to
Class
C shares. Under the terms of the agreements, Service Organizations are
required
to provide to their Customers a schedule of any fees that they may charge
such
Customers relating to the investment of such Customers' assets in Class B
or
Class C shares. Class A shares are sold to financial institutions that
have
entered into servicing agreements with the Fund in
13
<PAGE>
connection with their investments. A salesperson and any other person
entitled
to receive compensation for selling or servicing shares of the Fund may
receive
different compensation for selling or servicing shares of the Fund may
receive
different compensation for selling or servicing one Class of shares over
another
Class.
EXPENSES
The Fund bears all of its own expense. The Fund's expenses include
taxes,
interest, fees and salaries of the Trust's trustees and officers who are
not
directors, officers or employees of the Fund's service contractors,
Securities
and Exchange Commission fees, state securities qualification fees, costs
of
preparing and printing prospectuses for regulatory purposes and for
distribution
to investors, advisory and administration fees, charges of the
Custodian.
Transfer Agent and dividend disbursing agent, Service Organization fees,
certain
insurance premiums, outside auditing and legal expenses, costs of
shareholder
reports and shareholder meetings and any extraordinary expenses. The Fund
also
pays for brokerage fees and commissions (if any) in connection with the
purchase
and sale of portfolio securities. In order to maintain a competitive
expense
ratio during 1994, LBGAM and TSSG have agreed voluntarily to reimburse the
Fund
if and to the extent that the Fund's total operating expenses (other than
taxes,
interest, brokerage fees and commissions, Rule 12b-1 fees under the 1940 Act
and
extraordinary expenses) exceed .16% of the average daily net assets
through
December 31, 1994. The Investment Adviser and Administrator Custodian intend
to
continue voluntarily to reimburse the Fund to the extent necessary to
maintain
an annualized expense ratio at a level no greater than .18% of average daily
net
assets thereafter. This voluntary reimbursement will not be changed
unless
shareholders are provided at least 60 days' advance notice. In addition,
these
service providers have agreed to reimburse the Fund to the extent required
by
applicable state law for certain expenses that are described in the Statement
of
Additional Information relating to the Fund. Any fees charged by
Service
Organizations or other institutional investors to their customers in
connection
with investments in Fund shares are not reflected in the Fund's expenses.
YIELDS
**9 From time to time the "yields," "effective yields" and "tax-
equivalent
yields" of its Class A, Class B and Class C shares may be quoted
in
advertisements or in reports to investors. Yield quotations are
computed
separately for each Class of shares. The "yield" quoted in advertisements for
a
particular class or subclass of shares refers to the income generated by
an
investment in such shares over a specific period (such as a seven-day
period)
identified in the advertisement. This income is then "annualized," that is,
the
amount of income generated by the investment during the week is assumed to
be
generated each week over a 52-week or one year period and is shown as
a
percentage of the investment. The "effective yield" is calculated similarly
but,
when annualized, the income earned by an investment in a class of Fund shares
is
assumed to be reinvested. The "effective yield" will be slightly higher than
the
"yield" because of the compounding effect of this assumed reinvestment.
The
"tax-equivalent yield" demonstrates the level of taxable yield necessary
to
produce an after-tax yield equivalent to the Fund's tax-free yield. It
is
calculated by increasing the Fund's yield (calculated as above) by the
amount
necessary to reflect the payment of federal and New York income taxes at
a
stated rate. The "tax-equivalent yield" will always be higher than the
"yield."
**10 The Fund's yields may be compared to those of other mutual funds
with
similar objectives, to bond or other relevant indices, or to rankings
prepared
by independent services or other financial or industry publications that
monitor
the performance of mutual funds, or to the average yields reported by the
BANK
RATE MONITOR from money market deposit accounts offered by the 50 leading
banks
and thrift institutions in the top five
14
<PAGE>
standard metropolitan statistical areas. For example, such data are reported
in
national financial publications such as IBC/DONOGHUE'S MONEY FUND REPORT-
R-,
IBBOTSON ASSOCIATES OF CHICAGO, THE WALL STREET JOURNAL and THE NEW YORK
TIMES,
reports prepared by Lipper Analytical Services, Inc. and publications of a
local
or regional nature.
**11 THE FUND'S YIELD FIGURES FOR A CLASS OF SHARES REPRESENT
PAST
PERFORMANCE, WILL FLUCTUATE AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE
OF
FUTURE RESULTS. The yield of any investment is generally a function of
portfolio
quality and maturity, type of investment and operating expenses. Since
holders
of Class B or Class C shares bear the service fees for support services
provided
by Service Organizations the net yield on such shares can be expected at
any
given time to be lower than the net yield on Class A shares. Any fees charged
by
Service Organizations or other institutional investors directly to
their
customers in connection with investments in Fund shares are not reflected in
the
Fund's expenses or yields. The methods used to compute the Fund's yields
are
described in more detail in the Statement of Additional Information.
Investors
may call 1-800-238-2560 (Class A shares code: 011; Class B shares code:
211;
Class C shares code: 311) to obtain current yield information.
DESCRIPTION OF SHARES
* 1 moved from here; text not shown
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The Trust was organized as a Massachusetts business trust on November
25,
1992.
The Trust's Declaration of Trust authorizes the Board of Trustees to
issue
an unlimited number of full and fractional shares of beneficial interest in
the
Trust and to classify or reclassify any unissued shares into one or more
classes
of shares. The Trust is an open-end management investment company, which
offers
twelve portfolios: Prime Money Market Fund (Class A, Class B and Class C),
Prime
Value Money Market Fund (Class A, Class B, Class C and Class D),
Government
Obligations Money Market Fund (Class A, Class B, Class C and Class D),
100%
Government Obligations Money Market Fund (Class A, Class B and Class
C),
Treasury Instruments Money Market Fund II (Class A, Class B and Class C),
100%
Treasury Instruments Money Market Fund (Class A, Class B and Class C), Tax-
Free
Money Market Fund (Class A, Class B and Class C), Municipal Money Market
Fund
(Class A, Class B, Class C and Class D), California Municipal Money Market
Fund
(Class A, Class B and Class C), New York Municipal Money Market Fund (Class
A,
Class B and Class C), Floating Rate U.S. Government Fund (Class A and Class
B)
and Short Duration U.S. Government Fund (Class A
15
<PAGE>
and Class B). Shares of the New York Municipal Money Market Fund are
not
currently sold to the public. The Declaration of Trust further authorizes
the
trustees to classify or reclassify any class of shares into one or
more
sub-classes.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT
OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S
OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING
LEHMAN
BROTHERS AT 1-800-368-5556.
The Trust does not intend to hold annual meetings of shareholders except
as
required by the 1940 Act or other applicable law. The Trust will call a
meeting
of shareholders for the purpose of voting upon the question of removal of
a
member of the Board of Trustees upon written request of shareholders owning
at
least 10% of the outstanding shares of the Trust entitled to vote.
Each Fund share represents an equal proportionate interest in the
assets
belonging to the Fund. Each share, which has a par value of $.001, has
no
preemptive or conversion rights. When issued for payment as described in
this
Prospectus, shares will be fully paid and non-assessable.
Holders of the Fund's shares will vote in the aggregate and not by class
on
all matters, except where otherwise required by law and except that only Class
B
or Class C shares, as the case may be, will be entitled to vote on
matters
submitted to a vote of shareholders pertaining to the Fund's arrangements
with
Service Organizations with respect to the relevant Class. Further,
shareholders
of all of the Trust's portfolios will vote in the aggregate and not by
portfolio
except as otherwise required by law or when the Board of Trustees
determines
that the matter to be voted upon affects only the interests of the
shareholders
of a particular portfolio. (See the Statement of Additional Information
under
"Additional Description Concerning Fund Shares" for examples where the 1940
Act
requires voting by portfolio.) Shareholders of the Trust are entitled to
one
vote for each full share held (irrespective of class or portfolio)
and
fractional votes for fractional shares held. Voting rights are not
cumulative,
and, accordingly, the holders of more than 50% of the aggregate shares of
the
Trust may elect all of the trustees.
For information concerning the redemption of Fund shares and
possible
restrictions on their transferability, see "Purchase and Redemption of
Shares."
* 9 moved from here; text not shown
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16
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
100% Government Obligations Money Market Fund
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
California Municipal Money Market Fund
New York Municipal Money Market Fund
------------------------
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT
OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT
LAWFULLY BE MADE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Background and Expense Information........ 2
Investment Objective and Policies......... 3
Purchase and Redemption of Shares......... 8
Dividends................................. 10
Taxes..................................... 11
Management of the Fund.................... 12
Yields.................................... 14
Description of Shares..................... 15
</TABLE>
NEW YORK MUNICIPAL
MONEY MARKET FUND
-------------------
PROSPECTUS
May __, 1994
---------------------
LEHMAN BROTHERS
THIS PROSPECTUS AND THE STATEMENT
OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE
PRIMARILY TO THE FUND AND
DESCRIBE ONLY THE INVESTMENT
OBJECTIVE AND POLICIES, OPERATIONS,
CONTRACTS AND OTHER MATTERS
RELATING TO THE FUND. INVESTORS
WISHING TO OBTAIN SIMILAR
INFORMATION REGARDING THE
TRUST'S OTHER PORTFOLIOS MAY
OBTAIN SEPARATE PROSPECTUSES
DESCRIBING THEM BY CONTACTING
LEHMAN BROTHERS AT 1-800-368-5556.
<PAGE>
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
TREASURY INSTRUMENTS MONEY MARKET FUND
TREASURY INSTRUMENTS MONEY MARKET FUND II
INVESTMENT PORTFOLIOS OFFERED BY LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP
TRUST
<TABLE>
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION
</TABLE>
MAY__,
1994
This Statement of Additional Information is meant to be read in
conjunction
with the Prospectuses for Government Obligations Money Market Fund,
Treasury
Instruments Money Market Fund and Treasury Instruments Money Market Fund
II,
each dated May __, 1994 as amended or supplemented from time to time, and
is
incorporated by reference in its entirety into those Prospectuses. Because
this
Statement of Additional Information is not itself a prospectus, no investment
in
shares of Government Obligations Money Market Fund, Treasury Instruments
Money
Market Fund or Treasury Instruments Money Market Fund II should be made
solely
upon the information contained herein. Copies of the Prospectuses for
Government
Obligations Money Market Fund, Treasury Instruments Money Market Fund
and
Treasury Instruments Money Market Fund II may be obtained by calling
Lehman
Brothers Inc. ("Lehman Brothers"), at 1-800-368-5556. Capitalized terms used
but
not defined herein have the same meanings as in the Prospectuses.
TABLE OF CONTENTS
<TABLE>
<S>
<C>
The Trust...............................................................
2
Investment Objective and Policies.......................................
2
Additional Purchase and Redemption Information..........................
5
Management of the Funds.................................................
8
Additional Information Concerning Taxes.................................
15
Dividends...............................................................
16
Additional Yield Information............................................
16
Additional Description Concerning Fund Shares...........................
18
Counsel.................................................................
18
Auditors................................................................
19
Financial Statements....................................................
19
Miscellaneous...........................................................
19
</TABLE>
<PAGE>
THE TRUST
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-
load,
open-end management investment company. The Trust currently includes a family
of
money market and non-money market portfolios, three of which are
Government
Obligations Money Market, Treasury Instruments Money Market Fund and
Treasury
Instruments Money Market Fund II (individually, a "Fund"; collectively,
the
"Funds").
The securities held by Government Obligations Money Market Fund consist
of
obligations issued or guaranteed by the U.S. Government, its agencies
or
instrumentalities and repurchase agreements relating to such
obligations.
Securities held by Treasury Instruments Money Market Fund and
Treasury
Instruments Money Market Fund II are limited to U.S. Treasury bills, notes
and
other direct obligations of the U.S. Treasury and repurchase agreements
relating
to direct Treasury obligations. Although all three Funds have the
same
investment adviser and have comparable investment objectives, their
yields
normally will differ due to their differing cash flows and differences in
the
specific portfolio securities held.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE FUNDS' PROSPECTUSES
RELATE
PRIMARILY TO THE FUNDS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUNDS. INVESTORS
WISHING
TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER PORTFOLIOS MAY
OBTAIN
SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING LEHMAN BROTHERS
AT
1-800-368-5556.
INVESTMENT OBJECTIVE AND POLICIES
As stated in the Funds' Prospectuses, the investment objective of the Funds
is
current income with liquidity and security of principal. The following
policies
supplement the description in the Prospectuses of the investment objectives
and
policies of the Funds.
The Funds are managed to provide stability of capital while
achieving
competitive yields. The investment adviser intends to follow a value-
oriented,
research-driven and risk-averse investment strategy, engaging in a full range
of
economic, strategic, credit and market-specific analyses in
researching
potential investment opportunities.
PORTFOLIO TRANSACTIONS
Subject to the general control of the Trust's Board of Trustees and
Lehman
Brothers Global Asset Management Inc. ("LBGAM"), the Funds' investment
adviser,
LBGAM is responsible for, makes decisions with respect to and places orders
for
all purchases and sales of portfolio securities for the Funds. Purchases
of
portfolio securities are usually principal transactions without
brokerage
commissions. In making portfolio investments, LBGAM seeks to obtain the best
net
price and the most favorable execution of orders. To the extent that
the
execution and price offered by more than one dealer are comparable, LBGAM
may,
in its discretion, effect transactions in portfolio securities with dealers
who
provide the Trust with research advice or other services. Although the
Funds
will not seek profits through short-term trading, LBGAM may, on behalf of
the
Funds, dispose of any portfolio security prior to its maturity if it
believes
such disposition is advisable.
2
<PAGE>
Investment decisions for the Funds are made independently from those
for
other investment company portfolios advised by LBGAM. Such other
investment
company portfolios may invest in the same securities as the Funds.
When
purchases or sales of the same security are made at substantially the same
time
on behalf of such other investment company portfolios, transactions are
averaged
as to price, and available investments allocated as to amount, in a manner
which
LBGAM believes to be equitable to each portfolio, including the Funds. In
some
instances, this investment procedure may adversely affect the price paid
or
received by the Funds or the size of the position obtained for the Funds. To
the
extent permitted by law, LBGAM may aggregate the securities to be sold
or
purchased for the Funds with those to be sold or purchased for such
other
investment company portfolios in order to obtain best execution.
Portfolio securities will not be purchased from or sold to and the Funds
will
not enter into repurchase agreements or reverse repurchase agreements
with
Lehman Brothers Inc. ("Lehman Brothers") LBGAM, or any affiliated person
(as
such term is defined in the Investment Company Act of 1940, as amended
(the
"1940 Act")) of any of them, except to the extent permitted by the
Securities
and Exchange Commission (the "SEC"). Furthermore, with respect to
such
transactions, securities, deposits and repurchase agreements, the Funds will
not
give preference to Service Organizations with which the Funds enter
into
agreements relating to Class B or Class C shares. (See the
Prospectuses,
"Management of the Fund--Service Organizations.")
The Funds do not intend to seek profits through short-term trading.
The
Funds' annual portfolio turnover rates will be relatively high but the
Funds'
portfolio turnover is not expected to have a material effect on their
net
incomes. The portfolio turnover rate for each of the Funds is expected to
be
zero for regulatory reporting purposes.
ADDITIONAL INFORMATION ON INVESTMENT PRACTICES
The repurchase price under the repurchase agreements described in the
Funds'
Prospectuses generally equals the price paid by a Fund plus interest
negotiated
on the basis of current short-term rates (which may be more or less than
the
rate on the securities underlying the repurchase agreement). Securities
subject
to repurchase agreements will be held by the Funds' custodian, sub-custodian
or
in the Federal Reserve/Treasury bookentry system. Repurchase agreements
are
considered to be loans by the Funds under the 1940 Act.
Whenever the Funds enter into reverse repurchase agreements as described
in
their Prospectuses, they will place in a segregated custodian account
liquid
assets having a value equal to the repurchase price (including accrued
interest)
and will subsequently monitor the account to ensure such equivalent value
is
maintained. Reverse repurchase agreements are considered to be borrowings by
the
Funds under the 1940 Act.
As stated in the Funds' Prospectuses, the Funds may purchase securities on
a
"when-issued" basis (i.e., for delivery beyond the normal settlement date at
a
stated price and yield). When a Fund agrees to purchase when-issued
securities,
its custodian will set aside cash or liquid portfolio securities equal to
the
amount of the commitment in a separate account. Normally, the custodian will
set
aside portfolio securities to satisfy a purchase commitment, and in such a
case
such Fund may be required subsequently to place additional assets in
the
separate account in order to ensure that the value of the account remains
equal
to the amount of such Fund's commitment. It may be expected that a Fund's
net
assets will fluctuate to a greater degree when it sets aside
portfolio
securities to cover such purchase commitments than when it sets aside
cash.
Because the Funds will set aside cash or liquid assets to satisfy
their
respective purchase commitments in the manner
3
<PAGE>
described, such a Fund's liquidity and ability to manage its portfolio might
be
affected in the event its commitments to purchase when-issued securities
ever
exceeded 25% of the value of its assets. The Funds do not intend to
purchase
when-issued securities for speculative purposes but only in furtherance of
their
investment objectives. The Funds reserve the right to sell the securities
before
the settlement date if it is deemed advisable.
When a Fund engages in when-issued transactions, it relies on the seller
to
consummate the trade. Failure of the seller to do so may result in a
Fund's
incurring a loss or missing an opportunity to obtain a price considered to
be
advantageous.
Each Fund has the ability to lend securities from its portfolio to
brokers,
dealers and other financial organizations. There is no investment restriction
on
the amount of securities that may be loaned. A Fund may not lend its
portfolio
securities to Lehman Brothers or its affiliates without specific
authorization
from the SEC. Loans of portfolio securities by a Fund will be collateralized
by
cash, letters of credit or securities issued or guaranteed by the
U.S.
Government or its agencies which will be maintained at all times in an
amount
equal to at least 100% of the current market value of the loaned
securities.
From time to time, a Fund may return a part of the interest earned from
the
investment of collateral received for securities loaned to the borrower and/or
a
third party, which is unaffiliated with the Fund or with Lehman Brothers,
and
which is acting as a "finder." With respect to loans by the Funds of
their
portfolio securities, the Funds would continue to accrue interest on
loaned
securities and would also earn income on loans. Any cash collateral received
by
the Funds in connection with such loans would be invested in short-term
U.S.
government obligations.
INVESTMENT LIMITATIONS
The Funds' Prospectuses summarize certain investment limitations that may not
be
changed without the affirmative vote of the holders of a "majority of
the
outstanding shares" of the respective Fund (as defined below
under
"Miscellaneous"). Investment limitations numbered 1 through 7 may not be
changed
without such a vote of shareholders; investment limitations 8 through 13 may
be
changed by a vote of the Trust's Board of Trustees at any time.
A Fund may not:
1. Purchase the securities of any issuer if as a result more than 5% of
the
value of the Fund's assets would be invested in the securities of
such
issuer, except that 25% of the value of the Fund's assets may be
invested
without regard to this 5% limitation and provided that there is no
limitation
with respect to investments in U.S. government securities.
2. Borrow money except from banks for temporary purposes and then in
an
amount not exceeding 10% of the value of the particular Fund's
total
assets, or mortgage, pledge or hypothecate its assets except in
connection
with any such borrowing and in amounts not in excess of the lesser of
the
dollar amounts borrowed or 10% of the value of the particular Fund's
total
assets at the time of such borrowing. Borrowing may take the form of a
sale
of portfolio securities accompanied by a simultaneous agreement as to
their
repurchase. Additional investments will not be made when borrowings exceed
5%
of the Fund's assets.
4
<PAGE>
3. Make loans except that the Fund may purchase or hold debt obligations
in
accordance with its investment objective and policies, may enter
into
repurchase agreements for securities and may lend portfolio securities.
4. Act as an underwriter, except insofar as the Fund may be deemed
an
underwriter under applicable securities laws in selling
portfolio
securities.
5. Purchase or sell real estate or real estate limited partnerships
except
that the Fund may invest in securities secured by real estate
or
interests therein.
6. Purchase or sell commodities or commodity contracts, or invest in
oil,
gas or mineral exploration or development programs or in mineral
leases.
7. Purchase any securities which would cause 25% or more of the value of
its
total assets at the time of purchase to be invested in the securities
of
issuers conducting their principal business activities in the same
industry,
provided that there is no limitation with respect to investments in
U.S.
government securities.
8. Knowingly invest more than 10% of the value of the Fund's assets
in
securities that may be illiquid because of legal or
contractual
restrictions on resale or securities for which there are no readily
available
market quotations.
9. Purchase securities on margin, make short sales of securities or
maintain
a short position.
10. Write or sell puts, calls, straddles, spreads or combinations thereof.
11. Invest in securities if as a result the Fund would then have more than
5%
of its total assets in securities of companies (including
predecessors)
with less than three years of continuous operation.
12. Purchase securities of other investment companies except as
permitted
under the 1940 Act or in connection with a merger,
consolidation,
acquisition or reorganization.
13. Invest in warrants.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
IN GENERAL
Information on how to purchase and redeem a Fund's shares is included in
its
Prospectus. The issuance of shares is recorded on the books of the Funds,
and
share certificates are not issued.
The regulations of the Comptroller of the Currency (the
"Comptroller")
provide that funds held in a fiduciary capacity by a national bank approved
by
the Comptroller to exercise fiduciary powers must be invested in accordance
with
the instrument establishing the fiduciary relationship and local law. The
Trust
believes that the purchase of Government Obligations Money Market Fund
shares,
Treasury Instruments Money Market Fund shares and Treasury Instruments
Money
Market Fund II shares by such national banks acting on behalf of their
fiduciary
accounts is not contrary to applicable regulations if consistent with
the
particular account and proper under the law governing the administration of
the
account.
Conflict of interest restrictions may apply to an institution's receipt
of
compensation paid by the Funds on fiduciary funds that are invested in a
Fund's
Class B or Class C shares. Institutions, including banks
5
<PAGE>
regulated by the Comptroller and investment advisers and other money
managers
subject to the jurisdiction of the SEC, the Department of Labor or
state
securities commissions, should consult their legal advisors before
investing
fiduciary funds in a Fund's Class B or Class C shares.
Prior to effecting a redemption of shares represented by certificates,
The
Shareholder Services Group, Inc. ("TSSG"), the Funds' transfer agent, must
have
received such certificates at its principal office. All such certificates
must
be endorsed by the redeeming shareholder or accompanied by a signed stock
power,
in each instance with the signature guaranteed by a commercial bank or a
member
of a major stock exchange, unless other arrangements satisfactory to the
Funds
have previously been made. The Funds may require any additional
information
reasonably necessary to evidence that a redemption has been duly authorized.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone
the date of payment upon redemption for any period during which the New
York
Stock Exchange ("Exchange") is closed, other than customary weekend and
holiday
closings, or during which trading on said Exchange is restricted, or
during
which (as determined by the SEC by rule or regulation) an emergency exists as
a
result of which disposal or valuation of portfolio securities is not
reasonably
practicable, or for such other periods as the SEC may permit. (The Funds
may
also suspend or postpone the recordation of the transfer of their shares
upon
the occurrence of any of the foregoing conditions.) In addition, the Funds
may
redeem shares involuntarily in certain other instances if the Board of
Trustees
determines that failure to redeem may have material adverse consequences to
a
Fund's shareholders in general. Each Fund is obligated to redeem shares
solely
in cash up to $250,000 or 1% of the Fund's net asset value, whichever is
less,
for any one shareholder within a 90-day period. Any redemption beyond
this
amount will also be in cash unless the Board of Trustees determines
that
conditions exist which make payment of redemption proceeds wholly in cash
unwise
or undesirable. In such a case, the Fund may make payment wholly or partly
in
readily marketable securities or other property, valued in the same way as
the
Fund determines net asset value. See "Net Asset Value" below for an example
of
when such redemption or form of payment might be appropriate. Redemption in
kind
is not as liquid as a cash redemption. Shareholders who receive a redemption
in
kind may incur transaction costs if they sell such securities or property,
and
may receive less than the redemption value of such securities or property
upon
sale, particularly where such securities are sold prior to maturity.
Any institution purchasing shares on behalf of separate accounts will
be
required to hold the shares in a single nominee name (a "Master
Account").
Institutions investing in more than one of the Trust's portfolios or classes
of
shares must maintain a separate Master Account for each portfolio and class
of
shares. Sub-accounts may be established by name or number either when the
Master
Account is opened or later.
NET ASSET VALUE
As stated in each Fund's Prospectus, a Fund's net asset value per share
is
calculated by adding the value of all of that Fund's portfolio securities
and
other assets belonging to that Fund, subtracting the liabilities charged to
that
Fund, and dividing the result by the total number of that Fund's
shares
outstanding (irrespective of class). "Assets belonging to" a Fund consist of
the
consideration received upon the issuance of shares together with all
income,
earnings, profits and proceeds derived from the investment thereof,
including
any proceeds from the sale, exchange or liquidation of such investments,
any
funds or payments derived from any reinvestment of such proceeds, and a
portion
of any general assets of the Trust not belonging to a particular
portfolio.
Assets belonging to a particular Fund are charged with the direct liabilities
of
that Fund
6
<PAGE>
and with a share of the general liabilities of the Trust allocated in
proportion
to the relative net assets of such Fund and the Trust's other
portfolios.
Determinations made in good faith and in accordance with generally
accepted
accounting principles by the Board of Trustees as to the allocations of
any
assets or liabilities with respect to a Fund are conclusive.
As stated in the Funds' Prospectuses, in computing the net asset value
of
shares of the Funds for purposes of sales and redemptions, the Funds use
the
amortized cost method of valuation. Under this method, the Funds value each
of
their portfolio securities at cost on the date of purchase and thereafter
assume
a constant proportionate amortization of any discount or premium until
maturity
of the security. As a result, the value of a portfolio security for purposes
of
determining net asset value normally does not change in response to
fluctuating
interest rates. While the amortized cost method provides certainty in
portfolio
valuation, it may result in valuations for the Funds' securities which
are
higher or lower than the market value of such securities.
In connection with their use of amortized cost valuation, each of the
Funds
limits the dollar-weighted average maturity of its portfolio to not more than
90
days and does not purchase any instrument with a remaining maturity of more
than
thirteen months (with certain exceptions) (12 months in the case of
Government
Obligations Money Market Fund). In determining the average weighted
portfolio
maturity of each Fund, a variable rate obligation that is issued or
guaranteed
by the U.S. Government, or an agency or instrumentality thereof, is deemed
to
have a maturity equal to the period remaining until the obligation's
next
interest rate adjustment. The Trust's Board of Trustees has also
established
procedures, pursuant to rules promulgated by the SEC, that are intended
to
stabilize the net asset value per share of each Fund for purposes of sales
and
redemptions at $1.00. Such procedures include the determination at
such
intervals as the Board deems appropriate, of the extent, if any, to which
each
Fund's net asset value per share calculated by using available market
quotations
deviates from $1.00 per share. In the event such deviation exceeds 1/2 of
1%
with respect to a Fund, the Board will promptly consider what action, if
any,
should be initiated. If the Board believes that the amount of any deviation
from
the $1.00 amortized cost price per share of a Fund may result in
material
dilution or other unfair results to investors or existing shareholders, it
will
take such steps as it considers appropriate to eliminate or reduce to the
extent
reasonably practicable any such dilution or unfair results. These steps
may
include selling portfolio instruments prior to maturity; shortening the
Fund's
average portfolio maturity; withholding or reducing dividends; redeeming
shares
in kind; or utilizing a net asset value per share determined by using
available
market quotations.
7
<PAGE>
MANAGEMENT OF THE FUNDS
TRUSTEES AND OFFICERS
The Trust's trustees and executive officers, their addresses,
principal
occupations during the past five years and other affiliations are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5
NAME AND ADDRESS POSITION WITH THE TRUST
YEARS AND OTHER AFFILIATIONS
--------------------------------------------- -------------------------- ---
-------------------------------------
<S> <C> <C>
Steven Spiegel(1)(2) Vice Chairman of the Board
Managing Director, Lehman Brothers;
3 World Financial Center and Trustee
President, Lehman Brothers Global Asset
New York, New York 10285
Management Inc.; formerly Chairman,
Lehman Brothers International (Europe).
Charles F. Barber(2)(3) Trustee
Consultant; formerly Chairman of the
66 Glenwood Drive
Board, ASARCO Incorporated.
Greenwich, CT 06830
Burt N. Dorsett(2)(3) Trustee
Managing Partner, Dorsett McCabe Capital
201 East 62nd Street
Management, Inc., an investment
New York, NY 10022
counselling firm; Director, Research
Corporation Technologies, a non-profit
patent-clearing and licensing operation;
formerly President, Westinghouse Pension
Investments Corporation; formerly
Executive Vice President and Trustee,
College Retirement Equities Fund, Inc.,
a
variable annuity fund; and formerly
Investment Officer, University of
Rochester.
Edward J. Kaier(2)(3) Trustee
Partner with the law firm of Hepburn
1100 One Penn Center
Willcox Hamilton & Putnam.
Philadelphia, PA 19103
S. Donald Wiley(2)(3) Trustee
Vice-Chairman and Trustee, H.J. Heinz
USX Tower
Company Foundation; prior to October
Pittsburgh, PA 15219
1990, Senior Vice President, General
Counsel and Secretary, H.J. Heinz
Company.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5
NAME AND ADDRESS POSITION WITH THE TRUST
YEARS AND OTHER AFFILIATIONS
--------------------------------------------- -------------------------- ---
-------------------------------------
<S> <C> <C>
Peter Meenan President
Managing Director of Lehman Brothers;
260 Franklin Street
President of Lehman Brothers
Boston, MA 02110
Institutional Funds Group Trust;
formerly, Director, Senior Vice
President and Director of Institutional
Fund Services, The Boston Company
Advisors, Inc. from February 1984 to May
1993; Director, Funds Distributor, Inc.
(1992-1993); Senior Vice President, The
Boston Company Advisors, Inc. from
August 1984 to May 1993.
John M. Winters Vice President and
Senior Vice President and Senior Money
3 World Financial Center Investment Officer
Market Portfolio Manager, Lehman
New York, NY 10285
Brothers, Global Asset Management Inc.;
formerly Product Manager with Lehman
Brothers Capital Markets Group.
Michael C. Kardok Treasurer
Vice President, The Shareholder Services
One Exchange Place
Group, Inc.; prior to May 1994, Vice
Boston, MA 02109
President, The Boston Company Advisors,
Inc.
Patricia L. Bickimer Secretary
Vice President and Associate General
One Exchange Place
Counsel, The Shareholder Services Group,
Boston, MA 02109
Inc.; prior to May 1994, Vice President
and
Associate General Counsel, The
Boston Company Advisors, Inc.
<FN>
------------------------
1. Considered by the Trust to be "interested persons" of the Trust as defined
in
the 1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.
</TABLE>
One trustee of the Trust, Mr. Dorsett, serves as trustee or director of
other
investment companies for which Lehman Brothers and LBGAM serve as
distributor
and investment adviser.
No employee of Lehman Brothers, LBGAM or TSSG receives any compensation
from
the Trust for acting as an officer or trustee of the Trust. The Trust pays
each
trustee who is not a director, officer or employee of Lehman Brothers, LBGAM
or
TSSG or any of their affiliates, a fee of $20,000 per annum plus $1,250
per
meeting attended and reimburses them for travel and out-of-pocket expenses.
By virtue of the responsibilities assumed by Lehman Brothers, LBGAM, TSSG
and
their affiliates under their respective agreements with the Trust, the
Trust
itself requires no employees in addition to its officers.
9
<PAGE>
For the fiscal period ended January 31, 1994, such fees and expenses
totalled
$9,589 for each Fund and $94,754 for the Trust in the aggregate. As of May
13,
1994, Trustees and officers of the Trust as a group beneficially owned less
than
1% of the outstanding shares of each Fund.
INVESTMENT ADVISER
LBGAM serves as the investment adviser to each of the Funds. The
investment
advisory agreements provide that LBGAM is responsible for all
investment
activities of the Funds, including executing portfolio strategy, Fund
purchase
and sale transactions and employs professional portfolio managers and
security
analysts who provide research for the Funds.
The Investment Advisory Agreements with respect to each of the Funds
will
continue in effect for a period of two years from February 5, 1993
and
thereafter from year to year provided the continuance is approved annually
(i)
by the Trust's Board of Trustees or (ii) by a vote of a "majority" (as
defined
in the 1940 Act) of a Fund's outstanding voting securities, except that
in
either event the continuance is also approved by a majority of the Trustees
of
the Trust who are not "interested persons" (as defined in the 1940 Act).
Each
Investment Advisory Agreement may be terminated (i) on 60 days' written
notice
by the Trustees of the Trust, (ii) by vote of holders of a majority of a
Fund's
outstanding voting securities, or upon 90 days' written notice by
Lehman
Brothers, or (iii) automatically in the event of its assignment (as defined
in
the 1940 Act).
As compensation for LBGAM's services rendered to the Funds, each Fund pays
a
fee, computed daily and paid monthly, at the annual rate of .30% of the
average
daily net assets of the Fund. For the period February 8, 1993 (commencement
of
operations) to January 31, 1994, LBGAM received net advisory fees in
the
following amounts: the Government Obligations Money Market Fund, $72,100,
the
Treasury Instruments Money Market Fund, $6,589 and the Treasury
Instruments
Money Market Fund II, $96,737. Waivers by LBGAM of advisory fees
and
reimbursement of expenses to which it was entitled amounted to: the
Government
Obligations Money Market Fund, $72,100 and $163,039, respectively, the
Treasury
Instrument Money Market Fund, $6,589 and $138,230, respectively, and
the
Treasury Instruments Money Market Fund II, $96,737 and $173,335,
respectively.
In order to maintain competitive expense ratios during 1994 through 1997,
the
investment adviser and administrator have agreed to reimburse the Funds if
total
operating expenses exceed certain levels. See "Background and
Expense
Information" in each Fund's Prospectus.
PRINCIPAL HOLDERS
At May 13, 1994, the principal holders of each Fund were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES HELD OF
GOVERNMENT OBLIGATIONS MONEY MARKET FUND NAME AND ADDRESS
RECORD ONLY
------------------------------------------------------------------------------
----------
<S> <C> <C>
Class A Shares Lehman Brothers Inc.
55.71 %
World Financial Center
New York, NY 10285
Oster & Co.
8.74 %
P.O. Box 1338
Victoria, TX 77902
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES HELD OF
GOVERNMENT OBLIGATIONS MONEY MARKET FUND NAME AND ADDRESS
RECORD ONLY
------------------------------------------------------------------------------
----------
<S> <C> <C>
Old Kent Bank and Trust
6.86 %
111 Lyon Street N.W.
Grand Rapids, MI 49503
Class B Shares Hare & Co.
99.99 %
c/o Bank of New York
Special Processing Unit
One Wall Street
New York, NY 10286
TREASURY INSTRUMENTS MONEY MARKET FUND
Class A Shares Lehman Brothers Inc.
99.99 %
World Financial Center
New York, NY 10286
TREASURY INSTRUMENTS MONEY MARKET FUND II
Class A Shares USNAB & Co.
73.26 %
P.O. Box 179
Galveston, TX 77553
MAC & Co.
6.13 %
Mellon Bank
P.O. Box 320
Pittsburgh, PA 15230
Class B Shares Perusahaan Petambangan
84.69 %
Minyak Dan
Gas Bumi Negara (Pertamina)
c/o Sakura Trust Co.
350 Park Avenue
New York, NY 10022
Hare & Co.
9.25 %
c/o Bank of New York
Special Processing Dept.
One Wall Street
New York, NY 10286
</TABLE>
As of May 13, 1994, the Class B and Class C shares of the
Government
Obligations Money Market Fund and the Treasury Instruments Money Market Fund
and
the Class C shares of the Treasury Instruments Money Market Fund II had not
been
offered to the public and all outstanding shares were held by Lehman Brothers.
11
<PAGE>
The shareholders described above have indicated that they each hold
their
shares on behalf of various accounts and not as beneficial owners. To the
extent
that any shareholder is the beneficial owner of more than 25% of the
outstanding
shares of a Fund, such shareholder may be deemed to be a "control person"
of
that Fund for purposes of the 1940 Act.
ADMINISTRATOR
TSSG, a subsidiary of First Data Corporation, is located at One Exchange
Place,
Boston, Massachusetts 02109, and serves as the Trust's administrator
and
transfer agent. As the Funds' administrator, TSSG has agreed to provide
the
following services: (i) assist generally in supervising the Funds'
operations,
providing and supervising the operation of an automated data processing
system
to process purchase and redemption orders, providing information concerning
the
Funds to their shareholders of record, handling shareholder
problems,
supervising the services of employees whose principal responsibility
and
function is to preserve and strengthen shareholder relations and monitoring
the
arrangements pertaining to the Funds' agreements with Service
Organizations;
(ii) prepare reports to the Funds' shareholders and prepare tax returns
and
reports to and filings with the SEC; (iii) compute the respective net
asset
value per share of each Fund; (iv) provide the services of certain persons
who
may be elected as trustees or appointed as officers of the Trust by the Board
of
Trustees; and (v) maintain the registration or qualification of the
Funds'
shares for sale under state securities laws. TSSG receives, as compensation
for
its services rendered under an administration agreement, an administrative
fee,
computed daily and paid monthly, at the annual rate of .10% of the average
daily
net assets of each Fund. TSSG pays Boston Safe, the Fund's custodian, a
portion
of its monthly administration fee for custody services rendered to the Funds.
Prior to May 6, 1994, The Boston Company Advisors, Inc. ("TBCA"),
a
wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"), served
as
administrator of the Funds. On May 6, 1994, TSSG acquired TBCA's third
party
mutual fund administration business from Mellon, and each Fund's
administration
agreement with TBCA was assigned to TSSG. For the period February 8,
1993
(commencement of operations) to January 31, 1994, TBCA received
net
administration fees in the following amounts: the Government Obligations
Money
Market Fund, $72,100, the Treasury Instruments Money Market Fund, $6,589 and
the
Treasury Instruments Money Market Fund II, $96,737. Waivers by TBCA
of
administration fees and reimbursement of expenses to which it was
entitled
amounted to the following: the Government Obligations Money Market Fund,
$72,100
and $19,087, respectively, the Treasury Instruments Money Market Fund,
$6,589
and $9,345, respectively, and the Treasury Instruments Money Market Fund
II,
$96,737 and $42,443, respectively. In order to maintain competitive
expense
ratios during 1994 through 1997, the investment adviser and administrator
have
agreed to reimburse the Funds if total operating expenses exceed certain
levels.
See "Background and Expense Information" in each Fund's Prospectus.
Under the transfer agency agreement, TSSG maintains the shareholder
account
records for the Trust, handles certain communications between shareholders
and
the Trust and distributes dividends and distributions payable by the Trust
and
produces statements with respect to account activity for the Trust and
its
shareholders. For these services, TSSG receives a monthly fee based on
average
annual assets and is reimbursed for out-of-pocket expenses.
DISTRIBUTOR
Lehman Brothers acts as distributor of the Funds' shares. Each Fund's shares
are
sold on a continuous basis by Lehman Brothers as agent. The distributor pays
the
cost of printing and distributing prospectuses to
12
<PAGE>
persons who are not shareholders of the Funds (excluding preparation
and
printing expenses necessary for the continued registration of Fund shares)
and
of preparing, printing and distributing all sales literature. No compensation
is
payable by the Funds to Lehman Brothers for its distribution services.
Lehman Brothers is comprised of several major operating business
units.
Lehman Brothers Institutional Funds Group is the business group within
Lehman
Brothers that is primarily responsible for the distribution and client
service
requirements of the Trust and its shareholders. Lehman Brothers
Institutional
Funds Group has been serving institutional clients' investment needs
exclusively
for more than 20 years, emphasizing high quality individualized service
to
clients.
CUSTODIAN
Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly owned
subsidiary
of The Boston Company, Inc. is located at One Boston Place,
Boston,
Massachusetts 02108, and serves as the custodian of the Trust pursuant to
a
custody agreement. Under the custody agreement, Boston Safe holds each
Fund's
portfolio securities and keeps all necessary accounts and records. For
its
services, Boston Safe receives a monthly fee based upon the month-end
market
value of securities held in custody and also receives securities
transaction
charges, including out-of-pocket expenses. The assets of the Trust are
held
under bank custodianship in compliance with the 1940 Act.
SERVICE ORGANIZATIONS
As stated in the Funds' Prospectuses, the Funds will enter into an
agreement
with each financial institution which may purchase Class C shares. The
Funds
will enter into an agreement with each Service Organization whose
customers
("Customers") are the beneficial owners of Class C shares that requires
the
Service Organization to provide certain services to Customers in
consideration
of the Funds' payment of .35% of the average daily net asset value of Class
C
shares held by the Service Organization for the benefit of Customers.
Support
services include: (i) aggregating and processing purchase and
redemption
requests from Customers and placing net purchase and redemption orders with
a
Fund's distributor; (ii) processing dividend payments from the Funds on
behalf
of Customers; (iii) providing information periodically to Customers
showing
their positions in shares; (iv) arranging for bank wires; (v) responding
to
Customer inquiries relating to the services performed by the
Service
Organization and handling correspondence; (vi) forwarding
shareholder
communications from the Funds (such as proxies, shareholder reports, annual
and
semi-annual financial statements and dividend, distribution and tax notices)
to
Customers; (vii) acting as shareholder of record or nominee; and (viii)
other
similar account administrative services. In addition, a Service Organization
at
its option, may also provide to its Customers of Class C shares (a) a
service
that invests the assets of their accounts in shares pursuant to specific
or
pre-authorized instructions; (b) provide sub-accounting with respect to
shares
beneficially owned by Customers or the information necessary for sub-
accounting;
and (c) provide checkwriting services. Service Organizations that purchase
Class
C shares will also provide assistance in connection with the support of
the
distribution of Class C shares to its Customers, including marketing
assistance
and the forwarding to Customers of sales literature and advertising provided
by
a distributor of the shares.
Holders of Class B shares of a Fund will receive the services set forth
in
(i) and (v) and may receive one or more of the services set forth in
(ii),
(iii), (iv), (vi) and (viii) above. In consideration of the services to
be
rendered in connection with this Class of shares pursuant to an
agreement
between the Fund and the Service Organization, the Fund will pay the
Service
Organization .25% of the average daily net asset value of
the
13
<PAGE>
Class B shares held by the Service Organization. A Service Organization, at
its
option, may also provide to its Customers of Class B shares services
including:
(a) acting as shareholder of record and as nominee; (b) providing Customers
with
a service that invests the assets of their accounts in shares pursuant
to
specific or pre-authorized instruction; (c) provide sub-accounting with
respect
to shares beneficially owned by Customers or the information necessary
for
sub-accounting; (d) providing information periodically to Customers
showing
their position in shares; (e) arranging for bank wires; (f)
forwarding
shareholder communications from the Fund (such as proxies, shareholder
reports,
annual and semi-annual financial statements and dividend, distribution and
tax
notices) to Customers; (g) providing reasonable assistance in connection
with
the distribution of shares to Customers; and (h) providing such other
similar
services as the Fund may reasonably request to the extent Service
Organization
is permitted to do so under applicable statutes, rules, or regulations.
Each Fund's agreements with Service Organizations are governed by
a
Shareholder Services Plan (the "Plan") that has been adopted by the
Trust's
Board of Trustees pursuant to an exemptive order granted by the SEC. Under
this
Plan, the Board of Trustees reviews, at least quarterly, a written report of
the
amounts expended under the Fund's agreements with Service Organizations and
the
purposes for which the expenditures were made. In addition, the
Funds'
arrangements with Service Organizations must be approved annually by a
majority
of the Trust's trustees, including a majority of the trustees who are
not
"interested persons" of the Trust as defined in the 1940 Act and have no
direct
or indirect financial interest in such arrangements (the
"Disinterested
Trustees").
The Board of Trustees has approved the Funds' arrangements with
Service
Organizations based on information provided by the Funds' service
contractors
that there is a reasonable likelihood that the arrangements will benefit
the
Funds and their shareholders by affording the Funds greater flexibility
in
connection with the servicing of the accounts of the beneficial owners of
their
shares in an efficient manner. Any material amendment to the Funds'
arrangements
with Service Organizations must be approved by a majority of the Trust's
Board
of Trustees (including a majority of the Disinterested Trustees). So long as
the
Funds' arrangements with Service Organizations are in effect, the selection
and
nomination of the members of the Trust's Board of Trustees who are
not
"interested persons" (as defined in the 1940 Act) of the Trust will be
committed
to the discretion of such non-interested trustees.
For the period February 8, 1993 (commencement of operations) to January
31,
1994, the Class B shares of the Government Obligations Money Market Fund
paid
$771 in service fees, the Class B shares of the Treasury Instruments
Money
Market Fund paid $454 in service fees and the Class B shares of the
Treasury
Instruments Money Market Fund II paid $35,867 in service fees.
EXPENSES
The Funds' expenses include taxes, interest, fees and salaries of the
Trust's
trustees and officers who are not directors, officers or employees of
the
Trust's service contractors, SEC fees, state securities qualification
fees,
costs of preparing and printing prospectuses for regulatory purposes and
for
distribution to shareholders, advisory, sub-advisory and administration
fees,
charges of the custodian, transfer agent and dividend disbursing agent,
Service
Organization fees, certain insurance premiums, outside auditing and
legal
expenses, costs of shareholder reports and shareholder meetings and
any
extraordinary expenses. The Funds also pay for brokerage fees and
commissions
(if any) in connection with the purchase and sale of portfolio securities.
LBGAM
and TSSG have agreed that if, in any fiscal year, the expenses borne by a
Fund
14
<PAGE>
exceed the applicable expense limitations imposed by the securities
regulations
of any state in which shares of the particular Fund are registered or
qualified
for sale to the public, they will reimburse such Fund for any excess to
the
extent required by such regulations in the same proportion that each of
their
fees bears to the Fund's aggregate fees for investment advice, sub-
investment
advice and administrative services. Unless otherwise required by law,
such
reimbursement would be accrued and paid on the same basis that the advisory
and
administration fees are accrued and paid by such Fund. To the Funds'
knowledge,
of the expense limitations in effect on the date of this Statement of
Additional
Information, none is more restrictive than two and one-half percent (2 1/2%)
of
the first $30 million of a Fund's average annual net assets, two percent (2%)
of
the next $70 million of the average annual net assets and one and one-
half
percent (1 1/2%) of the remaining average annual net assets.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations
generally
affecting each Fund and its shareholders that are not described in each
Fund's
Prospectus. No attempt is made to present a detailed explanation of the
tax
treatment of the Funds or their shareholders or possible legislative
changes,
and the discussion here and in each Fund's Prospectus is not intended as
a
substitute for careful tax planning. Investors should consult their tax
advisors
with specific reference to their own tax situation.
Each Fund of the Trust is treated as a separate corporate entity under
the
Code and qualified as a regulated investment company under the Code and
intends
to so qualify in future years. In order to so qualify for a taxable year,
each
Fund must satisfy the distribution requirement described in its
Prospectus,
derive at least 90% of its gross income for the year from certain
qualifying
sources, comply with certain diversification tests and derive less than 30%
of
its gross income from the sale or other disposition of securities and
certain
other investments held for less than three months. Interest (including
original
issue discount and accrued market discount) received by a Fund upon maturity
or
disposition of a security held for less than three months will not be treated
as
gross income derived from the sale or other disposition of such security
within
the meaning of this requirement. However, any other income which is
attributable
to realized market appreciation will be treated as gross income from the sale
or
other disposition of securities for this purpose.
A 4% nondeductible excise tax is imposed on regulated investment
companies
that fail to distribute currently an amount equal to specified percentages
of
their ordinary taxable income and capital gain net income (excess of
capital
gains over capital losses). Each Fund intends to make sufficient
distributions
or deemed distributions of its ordinary taxable income and any capital gain
net
income each calendar year to avoid liability for this excise tax.
If for any taxable year a Fund does not qualify for tax treatment as
a
regulated investment company, all of its taxable income will be subject
to
federal income tax at regular corporate rates without any deduction
for
distributions to Fund shareholders. In such event, dividend distributions
would
be taxable as ordinary income to the Fund's shareholders to the extent of
its
current and accumulated earnings and profits, and would be eligible for
the
dividends received deduction in the case of corporate shareholders.
Each Fund will be required in certain cases to withhold and remit to the
U.S.
Treasury 31% of taxable dividends or 31% of gross proceeds realized upon
sale
paid to any shareholder who has failed to provide a correct tax
identification
number in the manner required, or who is subject to withholding by the
Internal
15
<PAGE>
Revenue Service for failure to properly include on his return payments
of
taxable interest or dividends, or who has failed to certify to the Fund that
he
is not subject to backup withholding when required to do so or that he is
an
"exempt recipient."
Depending upon the extent of the Funds' activities in states and
localities
in which their offices are maintained, in which their agents or
independent
contractors are located or in which they are otherwise deemed to be
conducting
business, the Funds may be subject to the tax laws of such states or
localities.
In addition, in those states and localities which have income tax laws,
the
treatment of the Funds and their shareholders under such laws may differ
from
their treatment under federal income tax laws. Shareholders are advised
to
consult their tax advisors concerning the application of state and local
taxes.
The foregoing discussion is based on federal tax laws and regulations
which
are in effect on the date of this Statement of Additional Information; such
laws
and regulations may be changed by legislative or administrative action.
DIVIDENDS
Net income of each of the Funds for dividend purposes consists of (i)
interest
accrued and original issue discount earned on the Fund's assets, (ii) plus
the
amortization of market discount and minus the amortization of market premium
on
such assets, (iii) less accrued expenses directly attributable to the Fund
and
the general expenses (E.G., legal, accounting and trustees' fees) of the
Trust
prorated to the Fund on the basis of its relative net assets. In addition,
Class
B and Class C shares bear exclusively the expense of fees paid to
Service
Organizations with respect to the relevant Class of shares. See "Management
of
the Funds -- Service Organizations."
As stated, the Trust uses its best efforts to maintain the net asset
value
per share of each Fund at $1.00. As a result of a significant expense
or
realized or unrealized loss incurred by either of these portfolios, it
is
possible that the portfolio's net asset value per share may fall below $1.00.
ADDITIONAL YIELD INFORMATION
The "yields" and "effective yields" are calculated separately for each class
of
shares of each Fund and in accordance with the formulas prescribed by the
SEC.
The seven-day yield for each Class of shares is calculated by determining
the
net change in the value of a hypothetical pre-existing account in the
particular
Fund which has a balance of one share of the Class involved at the beginning
of
the period, dividing the net change by the value of the account at the
beginning
of the period to obtain the base period return, and multiplying the base
period
return by 365/7. The net change in the value of an account in a Fund
includes
the value of additional shares purchased with dividends from the original
share
and dividends declared on the original share and any such additional shares,
net
of all fees charged to all shareholder accounts in proportion to the length
of
the base period and the Fund's average account size, but does not include
gains
and losses or unrealized appreciation and depreciation. In addition,
an
effective annualized yield quotation may be computed on a compounded basis
with
respect to each Class of its shares by adding 1 to the base period return
for
the Class involved (calculated as described above), raising that sum to a
power
equal to 365/7, and subtracting 1 from the result.
16
<PAGE>
Similarly, based on the calculations described above, the Funds' 30-day
(or
one-month) yields and effective yields may also be calculated. Such yields
refer
to the average daily income generated over a 30-day (or one-month) period,
as
appropriate.
For the 7-day period ended January 31, 1994 the yield for Class A shares
of
the Government Obligations Money Market Fund was 3.12% and the effective
yield
was 3.17%. For the same period, the yields for Class A, B and C shares of
the
Treasury Instruments Money Market Fund were 2.92%, 2.67% and 2.57%,
respectively
and the effective yields were 2.96%, 2.70% and 2.60%, respectively. For the
same
period, the yields for Class A, B and C shares of the Treasury Instruments
Money
Market Fund II were 3.09%, 2.84% and 2.74%, respectively and the
effective
yields were 3.13%, 2.88% and 2.77%, respectively. Without such fee waivers
or
expense reimbursements the 7-day yield and effective yield for the Class
A
shares of the Government Obligations Money Market Fund would have been 2.99%
and
3.03%, respectively. The yields and effective yields for Class A, B and C
shares
of the Treasury Instruments Money Market Fund would have been 2.79% and
2.83%,
2.54% and 2.57%, and 2.44% and 2.47%, respectively. The yields and
effective
yields for Class A, B and C shares of the Treasury Instruments Money Market
Fund
II would have been 2.96% and 3.00%, 2.71% and 2.74%, and 2.61% and 2.64%.
For the 30-day period ended January 31, 1994 the yield and effective
yield
for Class A shares of the Government Obligations Money Market Fund was 3.17%
and
___%, respectively. For the same period, the yields for Class A, B and C
shares
of the Treasury Instruments Money Market Fund were 2.98%, 2.73% and
2.63%,
respectively and the effective yields were ___%, ___% and ___%,
respectively.
For the same period, the yields for Class A, B and C shares of the
Treasury
Instruments Money Market Fund II were 3.10%, 2.85% and 2.75%, respectively
and
the effective yields were ___%, ___% and ___%, respectively. Without such
fee
waivers or expense reimbursements the 30-day yield and effective yield for
the
Class A shares of the Government Obligations Money Market Fund would have
been
3.04% and ___%, respectively. The yields for Class A, B and C shares of
the
Treasury Instruments Money Market Fund would have been 2.85%, 2.60% and
2.50%,
respectively, and the effective yields would have been ___%, ___% and
___%,
respectively. The yields for Class A, B and C shares of the Treasury
Instruments
Money Market Fund II would have been 2.97%, 2.72% and 2.62%, respectively,
and
the effective yields would have been ___%, ___% and ___%, respectively.
Class B and Class C shares bear the expenses of fees paid to
Service
Organizations. As a result, at any given time, the net yield of Class B
and
Class C shares could be up to .25% and .35% lower than the net yield of Class
A
shares, respectively. The Class B and Class C shares of the
Government
Obligations Money Market Fund did not have activity as of January 31, 1994
and
accordingly, yield information is not available with respect to such shares.
From time to time, in advertisements or in reports to shareholders,
the
performance of the Funds may be quoted and compared to that of other
money
market funds or accounts with similar investment objectives and to stock
or
other relevant indices. For example, the yields of the Funds may be compared
to
the Donoghue's MONEY FUND AVERAGE, which is an average compiled
by
IBC/Donoghue's MONEY FUND REPORT-R-, of Holliston, MA 01746, a widely
recognized
independent publication that monitors the performance of money market funds,
or
to the average yields reported by the BANK RATE MONITOR from money
market
deposit accounts offered by the 50 leading banks and thrift institutions in
the
top five standard metropolitan statistical areas.
17
<PAGE>
The Funds' yields will fluctuate and any quotation of yield should not
be
considered as representative of the future performance of the Funds.
Since
yields fluctuate, yield data cannot necessarily be used to compare an
investment
in the Funds' shares with bank deposits, savings accounts and similar
investment
alternatives which often provide an agreed or guaranteed fixed yield for
a
stated period of time. Shareholders should remember that performance and
yield
are generally functions of the kind and quality of the investments held in
a
portfolio, portfolio maturity, operating expenses net of waivers and
expense
reimbursements and market conditions. Any fees charged by Service
Organizations
or other institutional investors with respect to customer accounts in
investing
in shares of the Funds will not be included in calculations of yield; such
fees,
if charged, would reduce the actual yield from that quoted.
ADDITIONAL DESCRIPTION CONCERNING FUND SHARES
The Trust does not presently intend to hold annual meetings of
shareholders
except as required by the 1940 Act or other applicable law. The law
under
certain circumstances provides shareholders with the right to call for a
meeting
of shareholders to consider the removal of one or more trustees. To the
extent
required by law, the Trust will assist in shareholder communication in
such
matters.
As stated in the Prospectuses for the Funds, holders of each Fund's Class
B
and Class C shares, as the case may be, will vote in the aggregate and not
by
class on all matters, except where otherwise required by law and except that
for
each Fund only that Fund's Class B and Class C shares will be entitled to
vote
on matters submitted to a vote of shareholders pertaining to the
Fund's
arrangements with Service Organizations with respect to the relevant Class
of
shares. (See "Management of the Funds Service -- Organizations.")
Further,
shareholders of all of the Trust's portfolios will vote in the aggregate and
not
by portfolio except as otherwise required by law or when the Board of
Trustees
determines that the matter to be voted upon affects only the interests of
the
shareholders of a particular portfolio. Rule 18f-2 under the 1940 Act
provides
that any matter required to be submitted by the provisions of such Act
or
applicable state law, or otherwise, to the holders of the outstanding
securities
of an investment company such as the Trust shall not be deemed to have
been
effectively acted upon unless approved by the holders of a majority of
the
outstanding shares of each portfolio affected by the matter. Rule 18f-2
further
provides that a portfolio shall be deemed to be affected by a matter unless
it
is clear that the interests of each portfolio in the matter are identical
or
that the matter does not affect any interest of the portfolio. Under the
Rule
the approval of an investment advisory agreement or any change in a
fundamental
investment policy would be effectively acted upon with respect to a
portfolio
only if approved by the holders of a majority of the outstanding
voting
securities of such portfolio. However, the Rule also provides that
the
ratification of the selection of independent accountants, the approval
of
principal underwriting contracts and the election of trustees are not subject
to
the separate voting requirements and may be effectively acted upon
by
shareholders of the investment company voting without regard to portfolio.
COUNSEL
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York,
New York 10022, serves as counsel to the Trust and will pass upon the
legality
of the shares offered hereby. Willkie Farr & Gallagher also acts as counsel
to
Lehman Brothers.
18
<PAGE>
AUDITORS
Ernst & Young, independent auditors, serve as auditors to the Fund and render
an
opinion on the Fund's financial statements. Ernst & Young has offices at
200
Clarendon Street, Boston, Massachusetts 02116-5072.
FINANCIAL STATEMENTS
The Trust's Annual Report for the fiscal period ended January 31, 1994
is
incorporated into this Statement of Additional Information by reference in
its
entirety.
MISCELLANEOUS
SHAREHOLDER VOTE
As used in this Statement of Additional Information and the Prospectuses for
the
Funds, a "majority of the outstanding shares" of a Fund or of any
other
portfolio means the lesser of (1) 67% of the shares of such Fund
(irrespective
of class) or of the portfolio represented at a meeting at which the holders
of
more than 50% of the outstanding shares of such Fund or portfolio are present
in
person or by proxy, or (2) more than 50% of the outstanding shares of such
Fund
(irrespective of class) or of the portfolio.
SHAREHOLDER AND TRUSTEE LIABILITY
The Trust is organized as a "business trust" under the laws of the
Commonwealth
of Massachusetts. Shareholders of such a trust may, under certain
circumstances,
be held personally liable (as if they were partners) for the obligations of
the
trust. The Declaration of Trust of the Trust provides that shareholders of
the
Funds shall not be subject to any personal liability for the acts or
obligations
of the Trust and that every note, bond, contract, order or other
undertaking
made by the Trust shall contain a provision to the effect that the
shareholders
are not personally liable thereunder. The Declaration of Trust provides
for
indemnification out of the trust property of a Fund of any shareholder of
the
Fund held personally liable solely by reason of his being or having been
a
shareholder and not because of his acts or omissions or some other reason.
The
Declaration of Trust also provides that the Trust shall, upon request,
assume
the defense of any claim made against any shareholder for any act or
obligation
of the Trust and satisfy any judgment thereon. Thus, the risk of a
shareholder
incurring financial loss beyond its investment in a Fund on account
of
shareholder liability is limited to circumstances in which the Fund itself
would
be unable to meet its obligations.
The Trust's Declaration of Trust provides further that no trustee, officer
or
agent of the Trust shall be personally liable for or on account of any
contract,
debt, tort, claim, damage, judgment or decree arising out of or connected
with
the administration or preservation of the trust estate or the conduct of
any
business of the Trust, nor shall any trustee be personally liable to any
person
for any action or failure to act except by reason of his own bad faith,
willful
misfeasance, gross negligence in the performance of his duties or by reason
of
reckless disregard of his obligations and duties as trustee. It also
provides
that all persons having any claim against the trustees or the Trust shall
look
solely to the trust property for payment. With the exceptions stated,
the
Declaration of Trust provides that a trustee is entitled to be
indemnified
against all liabilities and expenses reasonably incurred by him in
connection
with the defense or disposition of any proceeding in which he may be involved
or
with which he may be threatened by reason of his being or having been a
trustee,
and that the trustees have the power, but not the duty, to indemnify
officers
and employees of the Trust unless such person would not be entitled
to
indemnification had he been a trustee.
19
[TEXT]
<PAGE>
MUNICIPAL MONEY MARKET FUND
TAX-FREE MONEY MARKET FUND
INVESTMENT PORTFOLIOS OFFERED BY
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
STATEMENT OF ADDITIONAL INFORMATION
MAY __,
1994
This Statement of Additional Information is meant to be read in
conjunction
with the Prospectuses for the Municipal Money Market Fund and Tax-Free
Money
Market Fund portfolios, each dated May __, 1994 as amended or supplemented
from
time to time, and is incorporated by reference in its entirety into
each
Prospectus. Because this Statement of Additional Information is not itself
a
prospectus, no investment in shares of the Municipal Money Market Fund
or
Tax-Free Money Market Fund portfolios should be made solely upon the
information
contained herein. Copies of the Prospectuses for Municipal Money Market Fund
and
Tax-Free Money Market Fund may be obtained by calling Lehman Brothers
Inc.
("Lehman Brothers"), at 1-800-368-5556. Capitalized terms used but not
defined
herein have the same meanings as in the Prospectuses.
TABLE OF CONTENTS
The Trust.................................................................
2
Investment Objective and Policies.........................................
2
Municipal Obligations.....................................................
8
Additional Purchase and Redemption Information............................
10
Management of the Funds...................................................
12
Additional Information Concerning Taxes...................................
19
Dividends.................................................................
21
Additional Yield Information..............................................
21
Additional Description Concerning Shares..................................
22
Counsel...................................................................
23
Auditors..................................................................
23
Financial Statements......................................................
23
Miscellaneous.............................................................
23
Appendix..................................................................
A-1
<PAGE>
THE TRUST
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-
load,
open-end management investment company. The Trust currently includes a family
of
money market and non-money market portfolios, two of which are Municipal
Money
Market Fund and Tax-Free Money Market Fund (the "Funds").
THIS STATEMENT OF ADDITIONAL INFORMATION AND FUNDS' PROSPECTUSES
RELATE
PRIMARILY TO THE FUNDS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND
POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUNDS. INVESTORS
WISHING
TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER PORTFOLIOS MAY
OBTAIN
SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING LEHMAN BROTHERS
AT
1-800-368-5556.
INVESTMENT OBJECTIVE AND POLICIES
As stated in the Funds' Prospectuses, the investment objective of each Fund
is
to provide as high a level of current income exempt from federal income tax
as
is consistent with relative stability of principal. The following
policies
supplement the description of each Fund's investment objective and policies
as
contained in the applicable Prospectus.
The Funds are managed to provide stability of capital while
achieving
competitive yields. The investment adviser intends to follow a value-
oriented,
research-driven and risk-averse investment strategy, engaging in a full range
of
economic, strategic, credit and market-specific analyses in
researching
potential investment opportunities.
PORTFOLIO TRANSACTIONS
Subject to the general control of the Trust's Board of Trustees and
Lehman
Brothers Global Asset Management Inc. ("LBGAM"), the Funds' investment
adviser,
is responsible for, makes decisions with respect to, and places orders for
all
purchases and sales of portfolio securities for the Funds. Purchases
of
portfolio securities are usually principal transactions without
brokerage
commissions. In making portfolio investments, LBGAM seeks to obtain the best
net
price and the most favorable execution of orders. To the extent that
the
execution and price offered by more than one dealer are comparable, LBGAM
may,
in its discretion, effect transactions in portfolio securities with dealers
who
provide the Trust with research advice or other services. Research advice
and
other services furnished by brokers through whom the Funds effect
securities
transactions may be used by LBGAM in servicing accounts in addition to
the
Funds, and not all such services will necessarily benefit the Funds.
Transactions in the over-the-counter market are generally
principal
transactions with dealers, and the costs of such transactions involve
dealer
spreads rather than brokerage commissions. With respect to over-the-
counter
transactions, the Funds, where possible, will deal directly with the dealers
who
make a market in the securities involved except in those circumstances
where
better prices and execution are available elsewhere.
Investment decisions for each Fund are made independently from those for
the
Trust's other portfolios or other investment company portfolios or
accounts
managed by LBGAM. Such other portfolios may invest in the same securities as
the
Funds. When purchases or sales of the same security are made at
substantially
2
<PAGE>
the same time on behalf of such other portfolios, transactions are averaged
as
to price, and available investments allocated as to amount, in a manner
which
LBGAM believes to be equitable to each portfolio, including the Funds. In
some
instances, this investment procedure may adversely affect the price paid
or
received by the Funds or the size of the position obtained for the Funds. To
the
extent permitted by law, LBGAM may aggregate the securities to be sold
or
purchased for the Funds with those to be sold or purchased for such
other
portfolios in order to obtain best execution.
The Funds will not execute portfolio transactions through or
acquire
portfolio securities issued by Lehman Brothers Inc. or LBGAM, or any
affiliated
person (as such term is defined in the Investment Company Act of 1940,
as
amended (the "1940 Act")) of any of them, except to the extent permitted by
the
Securities and Exchange Commission (the "SEC"). In addition, the Funds will
not
purchase "Municipal Obligations" during the existence of any underwriting
or
selling group relating thereto of which Shearson Lehman Brothers or
any
affiliate thereof is a member, except to the extent permitted by the
SEC.
"Municipal Obligations" consist of municipal obligations (as defined in
each
Fund's Prospectus) and tax-exempt derivatives such as tender option
bonds,
participations, beneficial interests in trusts and partnership interests.
Under
certain circumstances, the Funds may be at a disadvantage because of
these
limitations in comparison with other investment company portfolios which have
a
similar investment objective but are not subject to such
limitations.
Furthermore, with respect to such transactions, securities and deposits, a
Fund
will not give preference to Service Organizations with which the Fund
enters
into agreements relating to Class B or Class C shares. (See the
applicable
Prospectus, "Management of the Fund-Service Organizations.")
The Funds may participate, if and when practicable, in bidding for
the
purchase of Municipal Obligations directly from an issuer in order to
take
advantage of the lower purchase price available to members of a bidding group.
A
Fund will engage in this practice, however, only when LBGAM, in its
sole
discretion, believes such practice to be in a Fund's interest.
The Funds do not intend to seek profits through short-term trading.
Each
Fund's annual portfolio turnover will be relatively high, but a Fund's
portfolio
turnover is not expected to have a material effect on its net income.
Each
Fund's portfolio turnover rate is expected to be zero for regulatory
reporting
purposes.
ADDITIONAL INFORMATION ON INVESTMENT PRACTICES
VARIABLE AND FLOATING RATE INSTRUMENTS. Municipal Obligations purchased
by
the Funds may include variable and floating rate instruments, which provide
for
adjustments in the interest rate on certain reset dates or whenever a
specified
interest rate index changes, respectively. Variable and floating
rate
instruments are subject to the credit quality standards described in
the
Prospectuses. In some cases the Funds may require that the obligation to pay
the
principal of the instrument be backed by a letter or line of credit
or
guarantee. Such instruments may carry stated maturities in excess of 397
days
provided that the maturity-shortening provisions stated in Rule 2a-7 under
the
1940 Act are satisfied. Although a particular variable or floating rate
demand
instrument may not be actively traded in a secondary market, in some cases,
the
Funds may be entitled to principal on demand and may be able to resell
such
notes in the dealer market.
Variable and floating rate demand instruments held by a Fund may
have
maturities of more than thirteen months provided: (i) the Fund is entitled
to
the payment of principal at any time, or during specified intervals
not
exceeding 13 months, upon giving the prescribed notice (which may not exceed
30
days), and
3
<PAGE>
(ii) the rate of interest on such instruments is adjusted at periodic
intervals
which may extend up to 13 months (397 days). Variable and floating rate
notes
that do not provide for payment within seven days may be deemed illiquid
and
subject to the 10% limitation on such investments.
In determining a Fund's average weighted portfolio maturity and whether
a
variable or floating rate demand instrument has a remaining maturity of
thirteen
months or less, each instrument will be deemed by a Fund to have a
maturity
equal to the longer of the period remaining until its next interest
rate
adjustment or the period remaining until the principal amount can be
recovered
through demand. In determining whether an unrated variable or floating
rate
demand instrument is of comparable quality at the time of purchase to
securities
in which a Fund may invest, LBGAM will follow guidelines adopted by the
Trust's
Board of Trustees.
TENDER OPTION BONDS. Each Fund may invest up to 10% of the value of
its
assets in tender option bonds. A Fund will not purchase tender option
bonds
unless (a) the demand feature applicable thereto is exercisable by the
Fund
within 13 months of the date of such purchase upon no more than 30 days'
notice
and thereafter is exercisable by the Fund no less frequently than annually
upon
no more than 30 days' notice and, (b) at the time of such purchase,
LBGAM
reasonably expects that, (i) based upon its assessment of current and
historical
interest rate trends, prevailing short-term tax-exempt rates will not exceed
the
stated interest rate on the underlying Municipal Obligations at the time of
the
next tender fee adjustment, and (ii) the circumstances which might entitle
the
grantor of a tender option to terminate the tender option would not occur
prior
to the time of the next tender opportunity. At the time of each
tender
opportunity, a Fund will exercise the tender option with respect to any
tender
option bonds unless LBGAM reasonably expects that, (a) based upon its
assessment
of current and historical interest rate trends, prevailing short-term tax-
exempt
rates will not exceed the stated interest rate on the underlying
Municipal
Obligations at the time of the next tender fee adjustment, and (b)
the
circumstances which might entitle the grantor of a tender option to
terminate
the tender option would not occur prior to the time of the next
tender
opportunity. The Funds will exercise the tender feature with respect to
tender
option bonds, or otherwise dispose of their tender option bonds, prior to
the
time the tender option is scheduled to expire pursuant to the terms of
the
agreement under which the tender option is granted. The Funds otherwise
will
comply with the provisions of Rule 2a-7 under the 1940 Act in connnection
with
the purchase of tender option bonds, including, without limitation,
the
requisite determination by the Board of Trustees that the tender option bonds
in
question meet the quality standards described in Rule 2a-7. In the event of
a
default of the Municipal Obligation underlying a tender option bond, or
the
termination of the tender option agreement, a Fund would look to the
maturity
date of the underlying security for purposes of compliance with Rule 2a-7
and,
if its remaining maturity was greater than 13 months, the Fund would sell
the
security as soon as would be practicable. Each Fund will purchase tender
option
bonds only when it is satisfied that (a) the custodial and tender
option
arrangements, including the fee payment arrangements, will not adversely
affect
the tax-exempt status of the underlying Municipal Obligations and (b) payment
of
any tender fees will not have the effect of creating taxable income for
the
Fund. Based on the tender option bond arrangement, each Fund expects to
value
the tender option bond at par; however, the value of the instrument will
be
monitored to assure that it is valued at fair value.
WHEN-ISSUED SECURITIES. As stated in the Funds' Prospectuses, the Funds
may
purchase Municipal Obligations on a "when-issued" basis (I.E., for
delivery
beyond the normal settlement date at a stated price and yield). When a
Fund
agrees to purchase when-issued securities, the custodian will set aside cash
or
4
<PAGE>
liquid portfolio securities equal to the amount of the commitment in a
separate
account. Normally, the custodian will set aside portfolio securities to
satisfy
a purchase commitment, and in such a case that Fund may be required
subsequently
to place additional assets in the separate account in order to ensure that
the
value of the account remains equal to the amount of such Fund's commitment.
It
may be expected that a Fund's net assets will fluctuate to a greater degree
when
it sets aside portfolio securities to cover such purchase commitments than
when
it sets aside cash. Because that Fund will set aside cash or liquid assets
to
satisfy its purchase commitments in the manner described, such Fund's
liquidity
and ability to manage its portfolio might be affected in the event
its
commitments to purchase when-issued securities ever exceeded 25% of the value
of
its assets. When a Fund engages in when-issued transactions, it relies on
the
seller to consummate the trade. Failure of the seller to do so may result
in
such Fund's incurring a loss or missing an opportunity to obtain a
price
considered to be advantageous. The Funds do not intend to purchase when-
issued
securities for speculative purposes but only in furtherance of their
investment
objective. Each Fund reserves the right to sell the securities before
the
settlement date if it is deemed advisable.
STAND-BY COMMITMENTS. Each Fund may acquire "stand-by commitments"
with
respect to Municipal Obligations held in its portfolio. Under a stand-
by
commitment, a dealer would agree to purchase at a Fund's option
specified
Municipal Obligations at their amortized cost value to the Fund plus
accrued
interest, if any. (Stand-by commitments acquired by a Fund may also be
referred
to as "put" options.) Stand-by commitments may be exercisable by a Fund at
any
time before the maturity of the underlying Municipal Obligations and may
be
sold, transferred or assigned only with the instruments involved. A Fund's
right
to exercise stand-by commitments will be unconditional and unqualified.
The amount payable to a Fund upon its exercise of a stand-by commitment
will
normally be (i) the Fund's acquisition cost of the Municipal
Obligations
(excluding any accrued interest which the Fund paid on their acquisition),
less
any amortized market premium or plus any amortized market or original
issue
discount during the period the Fund owned the securities, plus (ii) all
interest
accrued on the securities since the last interest payment date during
that
period.
Each Fund expects that stand-by commitments will generally be
available
without the payment of any direct or indirect consideration. However,
if
necessary or advisable, a Fund may pay for a stand-by commitment
either
separately in cash or by paying a higher price for portfolio securities
which
are acquired subject to the commitment (thus reducing the yield to
maturity
otherwise available for the same securities). The total amount paid in
either
manner for outstanding stand-by commitments held by a Fund will not exceed
1/2
of 1% of the value of that Fund's total assets calculated immediately after
each
stand-by commitment is acquired.
Each Fund intends to enter into stand-by commitments only with dealers,
banks
and broker-dealers which, in the opinion of the Fund's investment
adviser,
present minimal credit risks. A Fund's reliance upon the credit of
these
dealers, banks and broker-dealers will be secured by the value of the
underlying
Municipal Obligations that are subject to the commitment.
Each Fund would acquire stand-by commitments solely to facilitate
portfolio
liquidity and does not intend to exercise its rights thereunder for
trading
purposes. The acquisition of a stand-by commitment would not affect
the
valuation or assumed maturity of the underlying Municipal Obligations,
which
would continue to be valued in accordance with the amortized cost
method.
Stand-by commitments acquired by a
5
<PAGE>
Fund would be valued at zero in determining net asset value. Where a Fund
paid
any consideration directly or indirectly for a stand-by commitment, its
cost
would be reflected as unrealized depreciation for the period during which
the
commitment was held by that Fund.
PARTICIPATIONS. Each Fund may purchase from financial
institutions
tax-exempt participation interests in Municipal Obligations. A
participation
interest gives a Fund an undivided interest in the Municipal Obligation in
the
proportion that the Fund's participation interest bears to the total amount
of
the Municipal Obligation. These instruments may have floating or variable
rates
of interest. If the participation interest is unrated, it will be backed by
an
irrevocable letter of credit or guarantee of a bank that the Trust's Board
of
Trustees has determined meets certain quality standards or the
payment
obligation otherwise will be collateralized by obligations of the
U.S.
Government and its agencies and instrumentalities. Each Fund will have
the
right, with respect to certain participation interests, to demand payment, on
a
specified number of days' notice, for all or any part of the Fund's interest
in
the Municipal Obligations, plus accrued interest. Each Fund will invest no
more
than 5% of its total assets in participation interests.
ILLIQUID SECURITIES. A Fund may not invest more than 10% of its total
net
assets in illiquid securities, including securities that are illiquid by
virtue
of the absence of a readily available market or legal or
contractual
restrictions on resale. Securities that have legal or contractual
restrictions
on resale but have a readily available market are not considered illiquid
for
purposes of this limitation. Each Fund's investment adviser will monitor on
an
ongoing basis the liquidity of such restricted securities under the
supervision
of the Board of Trustees.
The SEC has adopted Rule 144A under the Securities Act of 1933, as
amended
(the "1933 Act") which allows for a broader institutional trading market
for
securities otherwise subject to restriction on resale to the general
public.
Rule 144A establishes a "safe harbor" from the registration requirements of
the
1933 Act for resales of certain securities to qualified institutional
buyers.
The Fund's investment adviser anticipates that the market for certain
restricted
securities such as institutional municipal securities will expand further as
a
result of this regulation and the development of automated systems for
the
trading, clearance and settlement of unregistered securities of domestic
and
foreign issuers, such as the PORTAL system sponsored by the National
Association
of Securities Dealers.
Each Fund's investment adviser will monitor the liquidity of
restricted
securities under the supervision of the Board of Trustees. In reaching
liquidity
decisions with respect to Rule 144A securities, the Fund's investment
adviser
will consider, INTER ALIA, the following factors: (1) the unregistered nature
of
a Rule 144A security; (2) the frequency of trades and quotes for a Rule
144A
security; (3) the number of dealers willing to purchase or sell the Rule
144A
security and the number of other potential purchasers; (4) dealer
undertakings
to make a market in the Rule 144A security; (5) the trading markets for the
Rule
144A security; and (6) the nature of the Rule 144A security and the nature
of
marketplace trades (including the time needed to dispose of the Rule
144A
security, methods of soliciting offers and mechanics of transfer).
The Appendix to this Statement of Additional Information contains
a
description of the relevant rating symbols used by nationally
recognized
statistical rating organizations ("NRSROs") for Municipal Obligations that
may
be purchased by the Funds.
6
<PAGE>
INVESTMENT LIMITATIONS
The Funds' Prospectuses summarize certain investment limitations that may not
be
changed without the affirmative vote of the holders of a majority of a
Fund's
outstanding shares (as defined below under "Miscellaneous").
Investment
limitations numbered 1 through 7 may not be changed without such a vote
of
shareholders; investment limitations 8 through 13 may be changed by a vote
of
the Trust's Board of Trustees at any time.
A Fund may not:
1. Purchase the securities of any issuer if as a result more than 5% of
the
value of the Fund's assets would be invested in the securities of
such
issuer except that up to 25% of the value of the Fund's assets may
be
invested without regard to this 5% limitation and provided that there is
no
limitation with respect to investments in U.S. government securities.
2. Borrow money, except from banks for temporary purposes and then
in
amounts not exceeding 10% of the value of the Fund's total assets at
the
time of such borrowing; or mortgage, pledge or hypothecate any assets
except
in connection with any such borrowing and in amounts not in excess of
the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's
total
assets at the time of such borrowing. Additional investments will not be
made
when borrowings exceed 5% of the Fund's assets.
3. Make loans, except that the Fund may purchase or hold debt instruments
in
accordance with its investment objective and policies.
4. Act as an underwriter of securities, except insofar as the Fund may
be
deemed an underwriter under applicable securities laws in
selling
portfolio securities.
5. Purchase or sell real estate or real estate limited
partnerships,
provided that the Fund may purchase securities of issuers which invest
in
real estate or interests therein.
6. Purchase or sell commodities or commodity contracts, or invest in
oil,
gas or mineral exploration or development programs or in mineral
leases.
7. Purchase any securities which would cause 25% or more of the value of
its
total assets at the time of purchase to be invested in the securities
of
issuers conducting their principal business activities in the same
industry,
provided that there is no limitation with respect to investments in
U.S.
government securities.
8. Knowingly invest more than 10% of the value of the Fund's assets
in
securities that may be illiquid because of legal or
contractual
restrictions on resale or securities for which there are no readily
available
market quotations.
9. Purchase securities on margin, make short sales of securities or
maintain
a short position.
10. Write or sell puts, calls, straddles, spreads or combinations thereof.
11. Invest in securities if as a result the Fund would then have more than
5%
of its total assets in securities of companies (including
predecessors)
with less than three years of continuous operation.
7
<PAGE>
12. Purchase securities of other investment companies except as
permitted
under the 1940 Act or in connection with a merger,
consolidation,
acquisition or reorganization.
13. Invest in warrants.
In addition, without the affirmative vote of the holders of a majority of
a
Fund's outstanding shares, such Fund may not change its policy of investing
at
least 80% of its total assets (except during temporary defensive periods)
in
Municipal Obligations in the case of Municipal Money Market Fund, and
in
obligations the interest on which is exempt from federal income tax in the
case
of the Tax-Free Money Market Fund.
In order to permit the sale of Fund shares in certain states, the Funds
may
make commitments more restrictive than the investment policies and
limitations
above. Should a Fund determine that any such commitments are no longer in
its
best interests, it will revoke the commitment by terminating sales of its
shares
in the state involved.
MUNICIPAL OBLIGATIONS
Municipal Obligations include debt obligations issued by governmental
entities
to obtain funds for various public purposes, including the construction of
a
wide range of public facilities, the refunding of outstanding obligations,
the
payment of general operating expenses and the extension of loans to
public
institutions and facilities. Private activity bonds that are or were issued
by
or on behalf of public authorities to finance various privately
operated
facilities are included within the term Municipal Obligations if the
interest
paid thereon is exempt from federal income tax. Opinions relating to
the
validity of Municipal Obligations and to the exemption of interest thereon
from
federal income taxes are rendered by counsel to the issuers or bond counsel
to
the respective issuing authorities at the time of issuance. Neither the
Funds
nor the Funds' investment adviser will review independently the
underlying
proceedings relating to the issuance of Municipal Obligations or the bases
for
such opinions.
The Funds may hold tax-exempt derivatives which may be in the form of
tender
option bonds, participations, beneficial interests in a trust,
partnership
interests or other forms. A number of different structures have been used.
For
example, interests in long-term fixed rate Municipal Obligations held by a
bank
as trustee or custodian are coupled with tender option, demand and
other
features when tax-exempt derivatives are created. Together, these
features
entitle the holder of the interest to tender (or put) the underlying
Municipal
Obligation to a third party at periodic intervals and to receive the
principal
amount thereof. In some cases, Municipal Obligations are represented
by
custodial receipts evidencing rights to receive specific future
interest
payments, principal payments or both, on the underlying municipal
securities
held by the custodian. Under such arrangements, the holder of the
custodial
receipt has the option to tender the underlying municipal securities at its
face
value to the sponsor (usually a bank or broker-dealer or other
financial
institution), which is paid periodic fees equal to the difference between
the
bond's fixed coupon rate and the rate that would cause the bond, coupled
with
the tender option, to trade at par on the date of a rate adjustment. The
Funds
may hold tax-exempt derivatives, such as participation interests and
custodial
receipts, for Municipal Obligations which give the holder the right to
receive
payment of principal subject to the conditions described above. The
Internal
Revenue Service has not ruled on whether the interest received on tax-
exempt
derivatives in the form of participation interests or custodial receipts
is
tax-exempt, and accordingly, purchases of any such interests or receipts
are
based on the opinion of counsel to the sponsors
8
<PAGE>
of such derivative securities. Neither the Funds nor the Funds'
investment
adviser will review independently the underlying proceedings related to
the
creation of any tax-exempt derivatives or the bases for such opinions.
As described in the Funds' Prospectuses, the two principal classifications
of
Municipal Obligations consist of "general obligation" and "revenue" issues,
and
each Fund's portfolio may include "moral obligation" issues, which are
normally
issued by special purpose authorities. There are, of course, variations in
the
quality of Municipal Obligations both within a particular classification
and
between classifications, and the yields on Municipal Obligations depend upon
a
variety of factors, including general money market conditions, the
financial
condition of the issuer, general conditions of the municipal bond market,
the
size of a particular offering, the maturity of the obligation and the rating
of
the issue. The ratings of NRSROs represent their opinions as to the quality
of
Municipal Obligations. It should be recognized, however, that ratings
are
general and are not absolute standards of quality, and Municipal
Obligations
with the same maturity, interest rate and rating may have different yields
while
Municipal Obligations of the same maturity and interest rate with
different
ratings may have the same yield. Subsequent to its purchase by a Fund, an
issue
of Municipal Obligations may cease to be rated or its rating may be
reduced
below the minimum rating required for purchase by the Fund. The
Fund's
investment adviser will consider such an event in determining whether a
Fund
should continue to hold the obligation.
An issuer's obligations under its Municipal Obligations are subject to
the
provisions of bankruptcy, insolvency and other laws affecting the rights
and
remedies of creditors, such as the federal Bankruptcy Code, and laws, if
any,
which may be enacted by federal or state legislatures extending the time
for
payment of principal or interest or both, or imposing other constraints
upon
enforcement of such obligations or upon the ability of municipalities to
levy
taxes. The power or ability of an issuer to meet its obligations for the
payment
of interest on and principal of its Municipal Obligations may be
materially
adversely affected by litigation or other conditions.
Among other instruments, each Fund may purchase short-term General
Obligation
Notes, Tax Anticipation Notes, Bond Anticipation Notes, Revenue
Anticipation
Notes, Tax-Exempt Commercial Paper, Construction Loan Notes and other forms
of
short-term loans. Such notes are issued with a short-term maturity
in
anticipation of the receipt of tax funds, the proceeds of bond placements
or
other revenues. In addition, each Fund may invest in other types of tax-
exempt
instruments such as municipal bonds, private activity bonds and
pollution
control bonds, provided they have remaining maturities of 13 months or less
at
the time of purchase.
The payment of principal and interest on most securities purchased by a
Fund
will depend upon the ability of the issuers to meet their obligations.
The
District of Columbia, each state, each of their political
subdivisions,
agencies, instrumentalities, and authorities and each multi-state agency
of
which a state is a member is a separate "issuer" as that term is used in
this
Statement of Additional Information and the Funds' Prospectuses.
The
non-governmental user of facilities financed by private activity bonds is
also
considered to be an "issuer."
9
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
IN GENERAL
Information on how to purchase and redeem each Fund's shares is included in
the
applicable Prospectus. The issuance of a Fund's shares is recorded on a
Fund's
books, and share certificates are not issued.
The regulations of the Comptroller of the Currency (the
"Comptroller")
provide that funds held in a fiduciary capacity by a national bank approved
by
the Comptroller to exercise fiduciary powers must be invested in accordance
with
the instrument establishing the fiduciary relationship and local law. The
Trust
believes that the purchase of Municipal Money Market Fund or Tax-Free
Money
Market Fund shares by such national banks acting on behalf of their
fiduciary
accounts is not contrary to applicable regulations if consistent with
the
particular account and proper under the law governing the administration of
the
account.
Conflict of interest restrictions may apply to an institution's receipt
of
compensation paid by a Fund on fiduciary funds that are invested in a
Fund's
Class B or Class C shares. Institutions, including banks regulated by
the
Comptroller and investment advisers and other money managers subject to
the
jurisdiction of the SEC, the Department of Labor or state
securities
commissions, are urged to consult their legal advisors before
investing
fiduciary funds in a Fund's Class B or Class C shares.
Prior to effecting a redemption of shares represented by certificates,
The
Shareholder Services Group, Inc. ("TSSG"), the Trust's transfer agent, must
have
received such certificates at its principal office. All such certificates
must
be endorsed by the redeeming shareholder or accompanied by a signed stock
power,
in each instance with the signature guaranteed by a commercial bank, a member
of
a major stock exchange or other eligible guarantor institution, unless
other
arrangements satisfactory to a Fund have previously been made. A Fund
may
require any additional information reasonably necessary to evidence that
a
redemption has been duly authorized.
Under the 1940 Act, a Fund may suspend the right of redemption or
postpone
the date of payment upon redemption for any period during which the New
York
Stock Exchange ("Exchange") is closed, other than customary weekend and
holiday
closings, or during which trading on said Exchange is restricted, or
during
which (as determined by the SEC by rule or regulation) an emergency exists as
a
result of which disposal or valuation of portfolio securities is not
reasonably
practicable, or for such other periods as the SEC may permit. (A Fund may
also
suspend or postpone the recordation of the transfer of its shares upon
the
occurrence of any of the foregoing conditions.) In addition, a Fund may
redeem
shares involuntarily in certain other instances if the Board of
Trustees
determines that failure to redeem may have material adverse consequences to
that
Fund's shareholders in general. Each Fund is obligated to redeem shares
solely
in cash up to $250,000 or 1% of such Fund's net asset value, whichever is
less,
for any one shareholder within a 90-day period. Any redemption beyond
this
amount will also be in cash unless the Board of Trustees determines
that
conditions exist which make payment of redemption proceeds wholly in cash
unwise
or undesirable. In such a case, a Fund may make payment wholly or partly
in
readily marketable securities or other property, valued in the same way as
that
Fund determines net asset value. See "Net Asset Value" below for an example
of
when such redemption or form of payment might be appropriate. Redemption in
kind
is
10
<PAGE>
not as liquid as a cash redemption. Shareholders who receive a redemption
in
kind may incur transaction costs, if they sell such securities or property,
and
may receive less than the redemption value of such securities or property
upon
sale, particularly where such securities are sold prior to maturity.
Any institution purchasing shares on behalf of separate accounts will
be
required to hold the shares in a single nominee name (a "Master
Account").
Institutions investing in more than one of the Trust's portfolios or classes
of
shares must maintain a separate Master Account for each portfolio or class
of
shares. Sub-accounts may be established by name or number either when the
Master
Account is opened or later.
NET ASSET VALUE
Each Fund's net asset value per share is calculated by dividing the total
value
of the assets belonging to such Fund, less the value of any liabilities
charged
to such Fund, by the total number of that Fund's shares
outstanding
(irrespective of class or series). "Assets belonging to" a Fund consist of
the
consideration received upon the issuance of Fund shares together with
all
income, earnings, profits and proceeds derived from the investment
thereof,
including any proceeds from the sale, exchange or liquidation of
such
investments, any funds or payments derived from any reinvestment of
such
proceeds and a portion of any general assets of the Trust not belonging to
a
particular portfolio. Assets belonging to a Fund are charged with the
direct
liabilities of that Fund and with a share of the general liabilities of
the
Trust allocated on a daily basis in proportion to the relative net assets
of
that Fund and the Trust's other portfolios. Determinations made in good
faith
and in accordance with generally accepted accounting principles by the
Trust's
Board of Trustees as to the allocation of any assets or liabilities with
respect
to a Fund are conclusive.
As stated in the applicable Prospectus, in computing the net asset value
of
its shares for purposes of sales and redemptions, each Fund uses the
amortized
cost method of valuation. Under this method, a Fund values each of its
portfolio
securities at cost on the date of purchase and thereafter assumes a
constant
proportionate amortization of any discount or premium until maturity of
the
security. As a result, the value of a portfolio security for purposes
of
determining net asset value normally does not change in response to
fluctuating
interest rates. While the amortized cost method provides certainty in
portfolio
valuation, it may result in valuations of a Fund's securities which are
higher
or lower than the market value of such securities.
In connection with its use of amortized cost valuation, each Fund limits
the
dollar-weighted average maturity of its portfolio to not more than 90 days
and
does not purchase any instrument with a remaining maturity of more than
13
months (397 days) (with certain exceptions). The Trust's Board of Trustees
has
also established, pursuant to rules promulgated by the SEC, procedures that
are
intended to stabilize each Fund's net asset value per share for purposes
of
sales and redemptions at $1.00. Such procedures include the determination
at
such intervals as the Board deems appropriate, of the extent, if any, to which
a
Fund's net asset value per share calculated by using available market
quotations
deviates from $1.00 per share. In the event such deviation exceeds 1/2 of
1%,
the Board will promptly consider what action, if any, should be initiated.
If
the Board believes that the amount of any deviation from a Fund's
$1.00
amortized cost price per share may result in material dilution or other
unfair
results to investors or existing shareholders, it will take such steps as
its
considers appropriate to eliminate or reduce to the extent
reasonably
practicable any such dilution or unfair results. These steps may include
selling
portfolio instruments prior to maturity to realize capital gains or losses or
to
shorten a Fund's average portfolio maturity, redeeming shares in kind,
reducing
or withholding dividends, or utilizing a net asset value per share determined
by
using available market quotations.
11
<PAGE>
MANAGEMENT OF THE FUNDS
TRUSTEES AND OFFICERS
The Trust's trustees and executive officers, their addresses,
principal
occupations during the past five years and other affiliations are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS AND
NAME AND ADDRESS POSITION WITH THE TRUST
OTHER AFFILIATIONS
------------------------------ ------------------------------ ----------
----------------------------------------
<S> <C> <C>
Steven Spiegel(1)(2) Vice Chairman of the Board and Managing
Director, Lehman Brothers; President,
3 World Financial Center Trustee Lehman
Brothers Global Asset Management Inc.;
New York, NY 10285 formerly
Chairman, Lehman Brothers International
(Europe)
Charles F. Barber(2)(3) Trustee
Consultant; formerly Chairman of the Board, ASARCO
66 Glenwood Drive
Incorporated
Greenwich, CT 06830
Burt N. Dorsett(2)(3) Trustee Managing
Partner, Dorsett McCabe Capital
201 East 62nd Street
Management, Inc., an investment counselling firm;
New York, NY 10022 Director,
Research Corporation Technologies, a
non-profit
patent-clearing and licensing
operation;
formerly President, Westinghouse
Pension
Investments Corporation; formerly
Executive
Vice President and Trustee, College
Retirement
Equities Fund, Inc., a variable annuity
fund; and
formerly Investment Officer, University
of
Rochester
Edward J. Kaier(2)(3) Trustee Partner
with the law firm of Hepburn Willcox
1100 One Penn Center Hamilton &
Putnam
Philadelphia, PA 19103
S. Donald Wiley(2)(3) Trustee Vice
Chairman and Trustee, H.J. Heinz Company
USX Tower
Foundation; prior to October 1990, Senior Vice
Pittsburgh, PA 15219 President,
General Counsel and Secretary, H.J.
Heinz
Company
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS AND
NAME AND ADDRESS POSITION WITH THE TRUST
OTHER AFFILIATIONS
------------------------------ ------------------------------ ----------
----------------------------------------
<S> <C> <C>
Peter Meenan President Managing
Director of Lehman Brothers; President of
260 Franklin Street Lehman
Brothers Institutional Funds Group Trust;
Boston, MA 02110 formerly,
Director, Senior Vice President and
Director
of Institutional Fund Services, The
Boston
Company Advisors, Inc. from February 1984
to May
1993; Director, Funds Distributor, Inc.
(1992-
1993); Senior Vice President, The Boston
Company
Advisors, Inc. from August 1984 to May
1993
John M. Winters Vice President and Investment Senior
Vice President and Senior Money Market
3 World Financial Center Officer Portfolio
Manager, Lehman Brothers, Global Asset
New York, NY 10285 Management
Inc.; formerly Product Manager with
Lehman
Brothers Capital Markets Group
Michael C. Kardok Treasurer Vice
President, The Shareholder Services Group,
One Exchange Place Inc.;
prior to May 1994, Vice President, The
Boston, MA 02109 Boston
Company Advisors, Inc.
Patricia L. Bickimer Secretary Vice
President and Associate General Counsel, The
One Exchange Place
Shareholder Services Group, Inc.; prior to May
Boston, MA 02109 1994,
Vice President and Associate General
Counsel,
The Boston Company Advisors, Inc.
<FN>
----------
1. Considered by the Trust to be "interested persons" of the Trust as defined
in
the 1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.
</TABLE>
One of the Trust's trustees, Mr. Dorsett, serves as trustee or director
of
other investment companies for which Lehman Brothers and LBGAM serve
as
distributor and investment adviser.
No employee of Lehman Brothers, LBGAM, or TSSG receives any compensation
from
the Trust for acting as an officer or trustee of the Trust. The Trust pays
each
trustee who is not a director, officer or employee of Lehman Brothers, LBGAM,
or
TSSG or any of their affiliates, a fee of $20,000 per annum plus $1,250
per
meeting attended and reimburses them for travel and out-of-pocket expenses.
13
<PAGE>
For the fiscal period February 8, 1993 (commencement of operations)
to
January 31, 1994, such fees and expenses totalled $9,589 for the Municipal
Money
Market Fund and $8,453 for the Tax-Free Money Market Fund and $94,754 for
the
Trust in the aggregate. As of May 13, 1994, Trustees and officers of the
Trust
as a group beneficially owned less than 1% of the outstanding shares of
each
Fund.
By virtue of the responsibilities assumed by Lehman Brothers, LBGAM, TSSG
and
their affiliates under their respective agreements with the Trust, the
Trust
itself requires no employees in addition to its officers.
INVESTMENT ADVISER
LBGAM serves as the investment adviser to each of the Funds. The
investment
advisory agreements provide that LBGAM is responsible for all
investment
activities of the Fund, including executing portfolio strategy, effecting
Fund
purchase and sale transactions and employs professional portfolio managers
and
security analysts who provide research for the Funds.
The Investment Advisory Agreements with respect to each of the Funds
will
continue in effect for a period of two years from February 5, 1993
and
thereafter from year to year provided the continuance is approved annually(i)
by
the Trust's Board of Trustees or (ii) by a vote of a "majority" (as defined
in
the 1940 Act) of a Fund's outstanding voting securities, except that in
either
event the continuance is also approved by a majority of the Trustees of
the
Trust who are not "interested persons" (as defined in the 1940 Act).
Each
Investment Advisory Agreement may be terminated (i) on 60 days' written
notice
by the Trustees of the Trust, (ii) by vote of holders of a majority of a
Fund's
outstanding voting securities, or upon 90 days' written notice by
Lehman
Brothers, or (iii) automatically in the event of its assignment (as defined
in
the 1940 Act).
As compensation for LBGAM's services rendered to the Fund, the Fund pays
a
fee, computed daily and paid monthly, at the annual rate of .30% of the
average
daily net assets of the Fund. For the period February 8, 1993 (commencement
of
operations) to January 31, 1994. LBGAM received net advisory fees in
the
following amounts: the Municipal Money Market Fund, $103,318 and the Tax-
Free
Money Market Fund, $15,640. Waivers by LBGAM of advisory fees and
reimbursement
of expenses to which it was entitled amounted to: the Municipal Money
Market
Fund, $103,318 and $133,212, respectively, and the Tax-Free Money Market
Fund
$15,640 and $139,234, respectively. In order to maintain competitive
expense
ratios during 1994 through 1997, the investment adviser and administrator
have
agreed to reimburse the Funds if total operating expenses exceed certain
levels.
See "BACKGROUND AND EXPENSE INFORMATION" in each Fund's Prospectus.
PRINCIPAL HOLDERS
At May 13, 1994, the principal holders of each Fund were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES HELD OF
MUNICIPAL MONEY MARKET FUND NAME AND ADDRESS
RECORD ONLY
------------------------------ ----------------------------------- -----
---------
<S> <C> <C>
Class A Shares Nordstrom, Inc.
14.3%
P.O. Box 1170
Seattle, WA 98111
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES HELD OF
MUNICIPAL MONEY MARKET FUND NAME AND ADDRESS
RECORD ONLY
------------------------------ ----------------------------------- -----
---------
<S> <C> <C>
Hanover Insurance Company
12.1
440 Financial Group of Worcester
440 Lincoln Street
Worcester, MA 01653
Employers Reinsurance Corp.
8.85%
P.O. Box 2991
Overland Park, KS 66201
National Data Corp.
7.27%
One National Data Plaza
Atlanta, GA 30329
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE MONEY MARKET FUND
------------------------------
<S> <C> <C>
Class A Shares Lehman Brothers Inc.
41.67%
World Financial Center
New York, NY 10286
American Security Insurance Co.
14.82%
Marshall & Isley Trust Co.
1000 No. Water Street
Milwaukee, WI 53202
Troy Savings Bank
9.88%
P.O. Box 58
Troy, NY 12181
Exar Corporation
6.06%
P.O. Box 49007
2222 Qume Drive
San Jose, CA 95161
Oster & Co.
5.85%
P.O. Box 1338
Victoria, TX 77902
</TABLE>
As of May 13, 1994, the Class B and Class C shares of the Funds had not
been
offered to the public and all outstanding shares were held by Lehman Brothers.
The shareholders described above have indicated that they each hold
their
shares on behalf of various accounts and not as beneficial owners. To the
extent
that any shareholder is the beneficial owner of more than 25% of the
outstanding
shares of a Fund, such shareholder may be deemed to be a "control person"
of
that Fund for purposes of the 1940 Act.
15
<PAGE>
ADMINISTRATOR AND TRANSFER AGENT
TSSG, a subsidiary of First Data Corporation, is located at One Exchange
Place,
Boston, Massachusetts 02109, and serves as the Trust's administrator
and
transfer Agent. As the Funds' administrator, TSSG has agreed to provide
the
following services: (i) assist generally in supervising a Fund's
operations,
providing and supervising the operation of an automated data processing
system
to process purchase and redemption orders, providing information concerning
a
Fund to its shareholders of record, handling shareholder problems,
supervising
the services of employees whose principal responsibility and function is
to
preserve and strengthen shareholder relations and monitoring the
arrangements
pertaining to a Fund's agreements with Service Organizations; (ii)
prepare
reports to the Funds' shareholders and prepare tax returns and reports to
and
filings with the SEC; (iii) compute the respective net asset value per share
of
each Fund; (iv) provide the services of certain persons who may be elected
as
trustees or appointed as officers of the Trust by the Board of Trustees; and
(v)
maintain the registration or qualification of a Fund's shares for sale
under
state securities laws. TSSG receives, as compensation for its services
rendered
under an administration agreement, an administrative fee, computed daily
and
paid monthly, at the annual rate of .10% of the average daily net assets of
each
Fund. TSSG pays Boston Safe, the Fund's custodian, a portion of its
monthly
administration fee for custody services rendered to the Funds.
Prior to May 6, 1994, The Boston Company Advisors, Inc. ("TBCA"),
an
wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"), served
as
administrator of the Funds. On May 6, 1994, TSSG acquired TBCA's third
party
mutual fund administration business from Mellon, and each Fund's
administration
agreement with TBCA was assigned to TSSG. For the period February 8,
1993
(commencement of operations) to January 31, 1994, TSSG received
net
administration fees in the following amounts: the Municipal Money Market
Fund,
$103,318 and the Tax-Free Money Market Fund, $15,640. Waivers by
the
administrator of administration fees and reimbursement of expenses to which
it
was entitled amounted to the following: the Municipal Money Market
Fund,
$103,318 and $28,669, respectively, and the Tax-Free Money Market Fund,
$15,640
and $10,485, respectively. In order to maintain competitive expense
ratios
during 1994 through 1997, the investment adviser and administrator have
agreed
to reimburse the Funds if total operating expenses exceed certain levels.
See
"BACKGROUND AND EXPENSE INFORMATION" in each Fund's Prospectus.
Under the transfer agency agreement, TSSG maintains the shareholder
account
records for the Trust, handles certain communications between shareholders
and
the Trust and distributes dividends and distributions payable by the Trust
and
produces statements with respect to account activity for the Trust and
its
shareholders. For these services, TSSG receives a monthly fee based on
average
annual assets and is reimbursed for out-of-pocket expenses.
DISTRIBUTOR
Lehman Brothers acts as a distributor of each Fund's shares. Each Fund's
shares
are sold on a continuous basis by Lehman Brothers as agent. The distributor
pays
the cost of printing and distributing prospectuses to persons who are
not
shareholders of a Fund (excluding preparation and printing expenses
necessary
for the continued registration of a Fund's shares) and of preparing,
printing
and distributing all sales literature. No compensation is payable by a Fund
to
Lehman Brothers for its distribution services.
Lehman Brothers is comprised of several major operating business
units.
Lehman Brothers Institutional Funds Group is the business group within
Lehman
Brothers that is primarily responsible for the distribution
16
<PAGE>
and client service requirements of the Trust and its shareholders.
Lehman
Brothers Institutional Funds Group has been serving institutional
clients'
investment needs exclusively for more than 20 years, emphasizing high
quality
individualized service to clients.
CUSTODIAN
Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly owned
subsidiary
of The Boston Company, Inc., is located at One Boston Place,
Boston,
Massachusetts 02108, and serves as the custodian of the Trust pursuant to
a
custody agreement. Under the custody agreement, Boston Safe holds each
Fund's
portfolio securities and keeps all necessary accounts and records. For
its
services, Boston Safe receives a monthly fee based upon the month-end
market
value of securities held in custody and also receives securities
transaction
charges, including out-of-pocket expenses. The assets of the Trust are
held
under bank custodianship in compliance with the 1940 Act.
SERVICE ORGANIZATIONS
As stated in the Funds' Prospectuses, a Fund will enter into an agreement
with
each financial institution which may purchases Class C shares. The Funds
will
enter into an agreement with each Service Organization whose
customers
("Customers") are the beneficial owners of Class C shares that requires
the
Service Organization to provide certain services to customers in
consideration
of such Fund's payment of .35% of the average daily net asset value of
that
Fund's Class C shares held by the Service Organization for the benefit
of
Customers. Such services include: (i) aggregating and processing purchase
and
redemption requests from Customers and placing net purchase and
redemption
orders with a Fund's distributor; (ii) processing dividend payments from a
Fund
on behalf of Customers; (iii) providing information periodically to
Customers
showing their positions in a Fund's shares; (iv) arranging for bank wires;
(v)
responding to Customer inquiries relating to the services performed by
the
Service Organization and handling correspondence; (vi) forwarding
shareholder
communications from a Fund (such as proxies, shareholder reports, annual
and
semi-annual financial statements, and dividend, distribution and tax notices)
to
Customers; (vii) acting as shareholder of record or nominee; and (viii)
other
similar account administrative services. In addition, a Service Organization,
at
its option, may also provide to its Customers of Class C shares (a) a
service
that invests the assets of their accounts in shares pursuant to specific
or
pre-authorized instructions; (b) provide sub-accounting with respect to
shares
beneficially owned by Customers or the information necessary for sub-
accounting;
and (c) provide checkwriting services. Service Organizations that purchase
Class
C shares will also provide assistance in connection with the support of
the
distribution of Class C shares to its Customers, including marketing
assistance
and the forwarding to Customers of sales literature and advertising provided
by
a distributor of the shares.
Holders of Class B shares of a Fund will receive the services set forth
in
(i) and (v) and may receive one or more of the services set forth in
(ii),
(iii), (iv), (vi) and (viii) above. In consideration of the services to
be
rendered in connection with this Class of shares pursuant to an
agreement
between the Fund and the Service Organization, the Fund will pay the
Service
Organization .25% of the average daily net asset value of the Class B
shares
held by the Service Organization. A Service Organization, at its option,
may
also provide to its Customers of Class B shares services including: (a)
acting
as shareholder of record and as nominee; (b) providing Customers with a
service
that invests the assets of their accounts in shares pursuant to specific
or
pre-authorized instruction; (c) provide sub-accounting with respect to
shares
beneficially owned by Customers or the information necessary for sub-
accounting;
(d) providing information periodically to Customers showing their positions
in
shares; (e) arranging for bank wires; (f) forwarding
shareholder
17
<PAGE>
communications from the Fund (such as proxies, shareholder reports, annual
and
semi-annual financial statements and dividend, distribution, and tax notices)
to
Customers; (g) providing reasonable assistance in connection with
the
distribution of shares to Customers; and (h) providing such other
similar
services as the Fund may reasonably request to the extent Service
Organization
is permitted to do so under applicable statutes, rules, or regulations.
Each Fund's agreements with Service Organizations are governed by
a
Shareholder Services Plan (the "Plan") that has been adopted by the
Trust's
Board of Trustees pursuant to an exemptive order granted by the SEC. Under
this
Plan, the Board of Trustees reviews, at least quarterly, a written report of
the
amounts expended under each Fund's agreements with Service Organizations and
the
purposes for which the expenditures were made. In addition, a
Fund's
arrangements with Service Organizations must be approved annually by a
majority
of the Trust's trustees, including a majority of the trustees who are
not
"interested persons" of the Trust as defined in the 1940 Act and have no
direct
or indirect financial interest in such arrangements (the
"Disinterested
Trustees").
The Board of Trustees has approved each Fund's arrangements with
Service
Organizations based on information provided by the Trust's service
contractors
that there is a reasonable likelihood that the arrangements will benefit
such
Fund and its shareholders by affording the Fund greater flexibility
in
connection with the servicing of the accounts of the beneficial owners of
its
shares in an efficient manner. Any material amendment to a Fund's
arrangements
with Service Organizations must be approved by a majority of the Trust's
Board
of Trustees (including a majority of the Disinterested Trustees). So long as
a
Fund's arrangements with Service Organizations are in effect, the selection
and
nomination of the members of the Trust's Board of Trustees who are
not
"interested persons" (as defined in the 1940 Act) of the Trust will be
committed
to the discretion of such non-interested trustees.
For the period February 8, 1993 (commencement of operations) to January
31,
1994, neither Fund paid any service fees.
EXPENSES
A Fund's expenses include taxes, interest, fees and salaries of the
Trust's
trustees and officers who are not directors, officers or employees of
the
Trust's service contractors, SEC fees, state securities qualification
fees,
costs of preparing and printing prospectuses for regulatory purposes and
for
distribution to shareholders, advisory, sub-advisory and administration
fees,
charges of the custodian and of the transfer and dividend disbursing
agent,
Service Organization fees, certain insurance premiums, outside auditing
and
legal expenses, costs of shareholder reports and shareholder meetings and
any
extraordinary expenses. The Funds also pay for brokerage fees and
commissions
(if any) in connection with the purchase and sale of portfolio
securities.
LBGAM, and TSSG have agreed that if, in any fiscal year, the expenses borne by
a
Fund exceed the applicable expense limitations imposed by the
securities
regulations of any state in which shares of that Fund are registered
or
qualified for sale to the public, they will reimburse the Fund for any excess
to
the extent required by such regulations. Unless otherwise required by law,
such
reimbursement would be accrued and paid on the same basis that the advisory
and
administration fees are accrued and paid by that Fund. To each Fund's
knowledge,
of the expense limitations in effect on the date of this Statement of
Additional
Information, none is more restrictive than two and one-half percent (2 1/2%)
of
the first $30 million of a Fund's average annual net assets, two percent (2%)
of
the next $70 million of the average annual net assets and one and one-
half
percent (1 1/2%) of the remaining average annual net assets.
18
<PAGE>
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations
generally
affecting a Fund and its shareholders that are not described in the
Funds'
Prospectuses. No attempt is made to present a detailed explanation of the
tax
treatment of a Fund or its shareholders or possible legislative changes, and
the
discussion here and in the applicable Prospectus is not intended as a
substitute
for careful tax planning. Investors should consult their tax advisors
with
specific reference to their own tax situation.
As stated in each Prospectus, each Fund is treated as a separate
corporate
entity under the Code and qualified as a regulated investment company under
the
Code and intends to so qualify in future years. In order to so qualify for
a
taxable year, a Fund must satisfy the distribution requirement described in
the
Prospectuses, derive at least 90% of its gross income for the year from
certain
qualifying sources, comply with certain diversification requirements and
derive
less than 30% of its gross income for the year from the sale or
other
disposition of securities and certain other investments held for less than
three
months. Interest (including original issue discount and, with respect to
taxable
debt securities, accrued market discount) received by a Fund at maturity
or
disposition of a security held for less than three months will not be treated
as
gross income derived from the sale or other disposition of such security
within
the meaning of the 30% requirement. However, any other income which
is
attributable to realized market appreciation will be treated as gross
income
from the sale or other disposition of securities for this purpose.
As described above and in each Fund's Prospectus, each Fund is designed
to
provide institutions with current tax-exempt interest income. A Fund is
not
intended to constitute a balanced investment program and is not designed
for
investors seeking capital appreciation or maximum tax-exempt income
irrespective
of fluctuations in principal. Shares of a Fund would not be suitable
for
tax-exempt institutions and may not be suitable for retirement plans
qualified
under Section 401 of the Code, H.R. 10 plans and individual retirement
accounts
since such plans and accounts are generally tax-exempt and, therefore, not
only
would not gain any additional benefit from such Fund's dividends
being
tax-exempt but also such dividends would be taxable when distributed to
the
beneficiary. In addition, a Fund may not be an appropriate investment
for
entities which are "substantial users" of facilities financed by
private
activity bonds or "related persons" thereof. "Substantial user" is defined
under
U.S. Treasury Regulations to include a non-exempt person who regularly uses
a
part of such facilities in his or her trade or business and whose gross
revenues
derived with respect to the facilities financed by the issuance of bonds
are
more than 5% of the total revenues derived by all users of such facilities,
or
who occupies more than 5% of the usable area of such facilities or for whom
such
facilities or a part thereof were specifically constructed, reconstructed
or
acquired. "Related persons" include certain related natural persons,
affiliated
corporations, a partnership and its partners and an S Corporation and
its
shareholders.
In order for a Fund to pay exempt-interest dividends for any taxable year,
at
the close of each quarter of its taxable year at least 50% of the
aggregate
value of such Fund's assets must consist of exempt-interest obligations.
After
the close of its taxable year, a Fund will notify its shareholders of
the
portion of the dividends paid by such Fund which constitutes an exempt-
interest
dividend with respect to such taxable year. However, the aggregate amount
of
dividends so designated by a Fund cannot exceed the excess of the amount
of
interest exempt from tax under Section 103 of the Code received by that Fund
for
the taxable year over any amounts disallowed as deductions under Sections
265
and 171(a)(2) of the Code. The
19
<PAGE>
percentage of total dividends paid by a Fund with respect to any taxable
year
which qualifies as federal exempt-interest dividends will be the same for
all
shareholders of that Fund receiving dividends for
such year.
Interest on indebtedness incurred by a shareholder to purchase or carry
a
Fund's shares is not deductible for federal income tax purposes if that
Fund
distributes exempt-interest dividends during the shareholder's taxable year.
While the Funds do not expect to realize long-term capital gains, any
net
realized long-term capital gains will be distributed at least annually.
Each
Fund will generally have no tax liability with respect to such gains, and
the
distributions will be taxable to each Fund's shareholders as long-term
capital
gains, regardless of how long a shareholder has held such Fund's shares.
Such
distributions will be designated as a capital gain dividend in a written
notice
mailed by the Fund to its shareholders not later than 60 days after the close
of
a Fund's taxable year.
Similarly, while the Funds do not expect to earn any investment
company
taxable income, taxable income earned by each Fund will be distributed to
its
shareholders. In general, a Fund's investment company taxable income will be
its
taxable income (for example, any short-term capital gains) subject to
certain
adjustments and excluding the excess of any net long-term capital gain for
the
taxable year over the net short-term capital loss, if any, for such year. A
Fund
will be taxed on any undistributed investment company taxable income of
such
Fund. To the extent such income is distributed by a Fund (whether in cash
or
additional shares), it will be taxable to that Fund's shareholders as
ordinary
income.
A 4% nondeductible excise tax is imposed on regulated investment
companies
that fail currently to distribute an amount equal to specified percentages
of
their ordinary taxable income and capital gain net income (excess of
capital
gains over capital losses). Each Fund intends to make sufficient
distributions
or deemed distributions of any ordinary taxable income and any capital gain
net
income prior to the end of each calendar year to avoid liability for this
excise
tax.
If for any taxable year a Fund does not qualify for tax treatment as
a
regulated investment company, all of that Fund's taxable income will be
subject
to tax at regular corporate rates without any deduction for distributions
to
Fund shareholders. In such event, dividend distributions to shareholders
would
be taxable to shareholders to the extent of that Fund's earnings and
profits,
and would be eligible for the dividends received deduction for corporations.
Each Fund will be required in certain cases to withhold and remit to the
U.S.
Treasury 31% of taxable dividends or 31% of gross proceeds realized upon
sale
paid to its shareholders who have failed to provide a correct tax
identification
number in the manner required, or who are subject to withholding by the
Internal
Revenue Service for failure properly to include on their return payments
of
taxable interest or dividends, or who have failed to certify to a Fund that
they
are not subject to backup withholding when required to do so or that they
are
"exempt recipients."
Although each Fund expects to qualify each year as a "regulated
investment
company" and to be relieved of all or substantially all federal income
taxes,
depending upon the extent of its activities in states and localities in
which
its offices are maintained, in which its agents or independent contractors
are
located or in which they are otherwise deemed to be conducting business, a
Fund
may be subject to the tax laws of such states or localities.
20
<PAGE>
DIVIDENDS
Each Fund's net investment income for dividend purposes consists of (i)
interest
accrued and discount earned on that Fund's assets, (ii) less amortization
of
market premium on such assets, accrued expenses directly attributable to
that
Fund, and the general expenses (E.G., legal, accounting and trustees' fees)
of
the Trust prorated to such Fund on the basis of its relative net assets.
The
amortization of market discount on a Fund's assets is not included in
the
calculation of net income.
Realized and unrealized gains and losses on portfolio securities
are
reflected in net asset value. In addition, the Fund's Class B and Class C
shares
bear exclusively the expense of fees paid to Service Organizations with
respect
to the relevant Class of shares. See "Management of the Funds --
Service
Organizations."
As stated, the Trust uses its best efforts to maintain the net asset
value
per share of each Fund at $1.00. As a result of a significant expense
or
realized or unrealized loss incurred by a Fund, it is possible that a Fund's
net
asset value per share may fall below $1.00.
ADDITIONAL YIELD INFORMATION
The "yields," "effective yields" and "tax-equivalent yields" are
calculated
separately for each class of shares of each Fund. The seven-day yield for
each
series of shares in a Fund is calculated by determining the net change in
the
value of a hypothetical preexisting account in such Fund which has a balance
of
one share of the Class involved at the beginning of the period, dividing the
net
change by the value of the account at the beginning of the period to obtain
the
base period return, and multiplying the base period return by 365/7. The
net
change in the value of an account in a Fund includes the value of
additional
shares purchased with dividends from the original share and dividends
declared
on the original share and any such additional shares, net of all fees charged
to
all shareholder accounts in proportion to the length of the base period and
the
Fund's average account size, but does not include gains and losses or
unrealized
appreciation and depreciation. In addition, the effective yield quotations
may
be computed on a compounded basis (calculated as described above) by adding 1
to
the base period return for the Class involved, raising that sum to a power
equal
to 365/7, and subtracting 1 from the result. A tax-equivalent yield for
each
Class of a Fund's shares is computed by dividing the portion of the
yield
(calculated as above) that is exempt from federal income tax by one minus
a
stated federal income tax rate and adding that figure to that portion, if
any,
of the yield that is not exempt from federal income tax. Similarly, based on
the
calculations described above, 30-day (or one-month) yields, effective yields
and
tax-equivalent yields may also be calculated.
For the 7-day period ended January 31, 1994 the yield for Class A shares
of
the Municipal Money Market Fund was 2.40%, the effective yield was 2.43% and
the
tax equivalent yield was 3.52%. For the same period, the yield for the Class
A
shares of the Tax-Free Money Market Fund was 2.27%, the effective yield
was
2.29% and the tax equivalent yield was 3.32%. Without such fee waivers
or
expense reimbursements the 7-day yield, effective yield and tax equivalent
yield
for the Class A shares of the Municipal Money Market Fund would have been
2.27%,
2.29% and 3.32%, respectively. The 7-day yield, effective yield and
tax
equivalent yield for the Class a shares of the Tax-Free Money Market Fund
would
have been 2.14%, 2.16% and 3.13%, respectively.
21
<PAGE>
For the 30-day period ended January 31, 1994 the yield for Class A shares
of
the Municipal Money Market Fund was 2.32%, the effective yield was ___% and
the
tax-equivalent yield was 3.36%. For the same period, the yield for Class
A
shares of the Tax-Free Money Market Fund was 2.24%, the effective yield was
___%
and the tax equivalent yield was 3.25%. Without such fee waivers or
expense
reimbursements the 30-day yield, effective yield and tax equivalent yield
for
the Class A shares of the Municipal Money Market Fund would have been
2.19%,
___% and 3.17%, respectively. The 30-day yield, effective yield and
tax
equivalent yield for the Class A shares of the Tax-Free Money Market Fund
would
have been 2.11%, ___% and 3.06%, respectively.
Class B and Class C shares bear the expenses of fees paid to
Service
Organizations. As a result, at any given time, the net yield of Class B
and
Class C shares could be up to .25% and .35% lower than the net yield of Class
A
shares, respectively. The Class B and Class C shares of the Funds did not
have
any activity as of January 31, 1994 and, accordingly, yield information is
not
available with respect to such classes of shares.
Yields will fluctuate, and any quotation of yield should not be considered
as
representative of the future performance of a Fund. Since yields
fluctuate,
yield data for a Fund cannot necessarily be used to compare an investment
in
that Fund's shares with bank deposits, savings accounts and similar
investment
alternatives which often provide an agreed or guaranteed fixed yield for
a
stated period of time. Shareholders should remember that performance and
yield
are generally functions of the kind and quality of the investments held in
a
portfolio, portfolio maturity, operating expenses and market conditions.
Any
fees charged by banks with respect to customer accounts investing in shares of
a
Fund will not be included in yield calculations; such fees, if charged,
would
reduce the actual yield from that quoted.
ADDITIONAL DESCRIPTION CONCERNING SHARES
The Trust does not presently intend to hold annual meetings of
shareholders
except as required by the 1940 Act or other applicable law. The law
under
certain circumstances provides shareholders with the right to call for a
meeting
of shareholders to consider the removal of one or more trustees. To the
extent
required by law, the Trust will assist in shareholder communication in
such
matters.
As stated in the Funds' Prospectuses, holders of shares in a Fund will
vote
in the aggregate and not by class or series on all matters, except
where
otherwise required by law and except that only a Fund's Class B and Class
C
shares, as the case may be, will be entitled to vote on matters submitted to
a
vote of shareholders pertaining to that Fund's arrangements with
Service
Organizations with respect to the relevant Class of shares. (See "Management
of
the Funds -- Service Organizations.") Further, shareholders of all of
the
Trust's portfolios will vote in the aggregate and not by portfolio except
as
otherwise required by law or when the Board of Trustees determines that
the
matter to be voted upon affects only the interests of the shareholders of
a
particular portfolio. Rule 18f-2 under the 1940 Act provides that any
matter
required to be submitted by the provisions of such Act or applicable state
law,
or otherwise, to the holders of the outstanding securities of an
investment
company such as the Trust shall not be deemed to have been effectively
acted
upon unless approved by the holders of a majority of the outstanding shares
of
each portfolio affected by the matter. Rule 18f-2 further provides that
a
portfolio shall be deemed to be affected by a matter unless it is clear that
the
interests of each portfolio in the matter are identical or that the matter
does
not affect any interest of the portfolio. Under the Rule the approval of
an
investment advisory
22
<PAGE>
agreement or any change in a fundamental investment policy would be
effectively
acted upon with respect to a portfolio only if approved by the holders of
a
majority of the outstanding voting securities of such portfolio. However,
the
Rule also provides that the ratification of the selection of
independent
certified public accountants, the approval of principal underwriting
contracts
and the election of trustees are not subject to the separate voting
requirements
and may be effectively acted upon by shareholders of the investment
company
voting without regard to portfolio.
COUNSEL
Willkie Farr & Gallagher, One Citicorp Center, New York, New York 10022,
serves
as counsel of the Trust and will pass upon the legality of the shares
offered
hereby. Willkie Farr & Gallagher also serves as counsel to Lehman Brothers.
AUDITORS
Ernst & Young, independent auditors, serve as auditors to the Fund and render
an
opinion on the Fund's financial statements.
FINANCIAL STATEMENTS
The Trust's Annual Report for the fiscal period ended January 31, 1994
is
incorporated into this Statement of Additional Information by reference in
its
entirety.
MISCELLANEOUS
SHAREHOLDER VOTE
As used in this Statement of Additional Information and the Funds'
Prospectuses,
a "majority of the outstanding shares" of a Fund or of any other portfolio
means
the lesser of (1) 67% of that Fund's shares (irrespective of class) or of
the
portfolio represented at a meeting at which the holders of more than 50% of
the
outstanding shares of that Fund or such portfolio are present in person or
by
proxy, or (2) more than 50% of the outstanding shares of a Fund (irrespective
of
class) or of the portfolio.
SHAREHOLDER AND TRUSTEE LIABILITY
The Trust is organized as a trust under the laws of the Commonwealth
of
Massachusetts. Shareholders of such a trust may, under certain circumstances,
be
held personally liable (as if they were partners) for the obligations of
the
Trust.The Declaration of Trust of the Trust provides that shareholders shall
not
be subject to any personal liability for the acts or obligations of the
Trust
and that every note, bond, contract, order or other undertaking made by
the
Trust shall contain a provision to the effect that the shareholders are
not
personally liable thereunder. The Declaration of Trust provides
for
indemnification out of the trust property a Fund of any shareholder of the
Fund
held personally liable solely by reason of being or having been a
shareholder
and not because of any acts or omissions or some other reason. The
Declaration
of Trust also provides that the Trust shall, upon request, assume the defense
of
any claim made against any shareholder
23
<PAGE>
for any act or obligation of the Trust and satisfy any judgment thereon.
Thus,
the risk of a shareholder incurring financial loss beyond the amount invested
in
a Fund on account of shareholder liability is limited to circumstances in
which
the Fund itself would be unable to meet its obligations.
The Trust's Declaration of Trust provides further that no trustee of
the
Trust shall be personally liable for or on account of any contract, debt,
tort,
claim, damage, judgment or decree arising out of or connected with
the
administration or preservation of the trust estate or the conduct of
any
business of the Trust, nor shall any trustee be personally liable to any
person
for any action or failure to act except by reason of bad faith,
willful
misfeasance, gross negligence in performing duties, or by reason of
reckless
disregard for the obligations and duties as trustee. It also provides that
all
persons having any claim against the trustees or the Trust shall look solely
to
the trust property for payment. With the exceptions stated, the Declaration
of
Trust provides that a trustee is entitled to be indemnified against
all
liabilities and expenses reasonably incurred in connection with the defense
or
disposition of any proceeding in which the trustee may be involved or may
be
threatened with by reason of being or having been a trustee, and that
the
trustees have the power, but not the duty, to indemnify officers and
employees
of the Trust unless such persons would not be entitled to indemnification
if
they were in the position of trustee.
24
<PAGE>
APPENDIX
DESCRIPTION OF MUNICIPAL OBLIGATION RATINGS
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of
the
likelihood of timely payment of debt having an original maturity of no more
than
365 days. The following summarizes the two highest rating categories used
by
Standard & Poor's for commercial paper:
A-1 -- Issue's degree of safety regarding timely payment is strong.
Those
issues determined to possess extremely strong safety characteristics are
denoted
"A-1+."
A-2 -- Issue's capacity for timely payment is satisfactory. However,
the
relative degree of safety is not as high as for issues designated "A-1."
Moody's commercial paper ratings are opinions of the ability of issuers
to
repay punctually promissory obligations not having an original maturity
in
excess of 9 months. The following summarizes the two highest rating
categories
used by Moody's for commercial paper:
PRIME-1 -- Issuer or related supporting institutions are considered to have
a
superior capacity for repayment of short-term promissory obligations.
Principal
repayment capacity will normally be evidenced by the following
characteristics:
leading market positions in well-established industries; high rates of return
on
funds employed; conservative capitalization structures with moderate reliance
on
debt and ample asset protection; broad margins in earning coverage of
fixed
financial charges and high internal cash generation; and well-established
access
to a range of financial markets and assured sources of alternate liquidity.
PRIME-2 -- Issuer or related supporting institutions are considered to have
a
strong capacity for repayment of short-term promissory obligations. This
will
normally be evidenced by many of the characteristics cited above but to a
lesser
degree. Earnings trends and coverage ratios, while sound, will be more
subject
to variation. Capitalization characteristics, while still appropriate, may
be
more affected by external conditions. Ample alternative liquidity is
maintained.
The two highest rating categories of Duff & Phelps for investment
grade
commercial paper are "Duff 1" and "Duff 2." Duff & Phelps employs
three
designations, "Duff 1+," "Duff 1" and "Duff 1-," within the highest
rating
category. The following summarizes the two highest rating categories used
by
Duff & Phelps for commercial paper:
DUFF 1+ -- Debt possesses highest certainty of timely payment. Short-
term
liquidity, including internal operating factors and/or access to
alternative
sources of funds, is outstanding, and safety is just below risk-free
U.S.
Treasury short-term obligations.
DUFF 1 -- Debt possesses very high certainty of timely payment.
Liquidity
factors are excellent and supported by good fundamental protection factors.
Risk
factors are minor.
DUFF 1- -- Debt possesses high certainty of timely payment. Liquidity
factors
are strong and supported by good fundamental protection factors. Risk
factors
are very small.
A-1
<PAGE>
DUFF 2 -- Debt possesses good certainty of timely payment. Liquidity
factors
and company fundamentals are sound. Although ongoing funding needs may
enlarge
total financing requirements, access to capital markets is good. Risk
factors
are small.
Fitch short-term ratings apply to debt obligations that are payable on
demand
or have original maturities of up to three years. The two highest
rating
categories of Fitch for short-term obligations are "F-1" and "F-2."
Fitch
employs two designations, "F-1+" and "F-1," within the highest rating
category.
The following summarizes the two highest rating categories used by Fitch
for
short-term obligations:
F-1+ -- Securities possess exceptionally strong credit quality.
Issues
assigned this rating are regarded as having the strongest degree of
assurance
for timely payment.
F-1 -- Securities possess very strong credit quality. Issues assigned
this
rating reflect an assurance of timely payment only slightly less in degree
than
issues rated "F-1+."
F-2 --Securities possess good credit quality. Issues carrying this
rating
have a satisfactory degree of assurance for timely payment, but the margin
of
safety is not as great as the "F-1+" and "F-1" categories.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate
that the rating is based upon a letter of credit issued by a commercial bank.
Thomson BankWatch commercial paper ratings assess the likelihood of
an
untimely payment of principal or interest of debt having a maturity of one
year
or less which is issued by a bank holding company or an entity within
the
holding company structure. The following summarizes the two highest ratings
used
by Thomson BankWatch:
TBW-1 -- This designation represents Thomson BankWatch's highest
rating
category and indicates a very high degree of likelihood that principal
and
interest will be paid on a timely basis.
TBW-2 -- This designation indicates that while the degree of safety
regarding
timely payment of principal and interest is strong, the relative degree
of
safety is not as high as for issues rated "TBW-1."
IBCA assesses the investment quality of unsecured debt with an
original
maturity of less than one year which is issued by bank holding companies
and
their principal bank subsidiaries. The highest rating category of IBCA
for
short-term debt is "A." IBCA employs two designations, "A1+" and "A1,"
within
the highest rating category. The following summarizes the two highest
rating
categories used by IBCA for short-term debt ratings:
A1+ -- Obligations are supported by the highest capacity for
timely
repayment.
A1 -- Obligations are supported by a strong capacity for timely repayment.
A2 -- Obligations are supported by a satisfactory capacity for
timely
repayment, although such capacity may be susceptible to adverse changes
in
business, economic, or financial conditions.
A-2
<PAGE>
MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the two highest ratings used by Standard & Poor's
for
municipal long-term debt:
AAA -- This designation represents the highest rating assigned by Standard
&
Poor's to a debt obligation and indicates an extremely strong capacity to
pay
interest and repay principal.
AA -- Debt is considered to have a very strong capacity to pay interest
and
repay principal and differs from AAA issues only in small degree.
PLUS (+) OR MINUS (-) -- The rating of "AA" may be modified by the
addition
of a plus or minus sign to show relative standing within this rating category.
The following summarizes the two highest ratings used by Moody's
for
municipal long-term debt:
AAA -- Bonds are judged to be of the best quality. They carry the
smallest
degree of investment risk and are generally referred to as "gilt edge."
Interest
payments are protected by a large or by an exceptionally stable margin
and
principal is secure. While the various protective elements are likely to
change,
such changes as can be visualized are most unlikely to impair the
fundamentally
strong position of such issues.
AA -- Bonds are judged to be of high quality by all standards. Together
with
the "Aaa" group they comprise what are generally known as high grade bonds.
They
are rated lower than the best bonds because margins of protection may not be
as
large as in "Aaa" securities or fluctuation of protective elements may be
of
greater amplitude or there may be other elements present which make
the
long-term risks appear somewhat larger than in "Aaa" securities.
Moody's applies numerical modifiers 1, 2 and 3 in generic classification
of
"Aa" in its bond rating system. The modifier 1 indicates that the security
ranks
in the higher end of its generic rating category; the modifier 2 indicates
a
mid-range ranking; and the modifier 3 indicates that the issue ranks at
the
lower end of its generic rating category.
The following summarizes the two highest ratings used by Duff & Phelps
for
municipal long-term debt:
AAA -- Debt is considered to be of the highest credit quality. The
risk
factors are negligible, being only slightly more than for risk-free
U.S.
Treasury debt.
AA -- Debt is considered of high credit quality. Protection factors
are
strong. Risk is modest but may vary slightly from time to time because
of
economic conditions.
To provide more detailed indications of credit quality, the "AA" rating
may
be modified by the addition of a plus (+) or minus (-) sign to show
relative
standing within this rating category.
CON. (---) -- Bonds for which the security depends upon the completion
of
some act or the fulfillment of some condition are rated conditionally. These
are
bonds secured by (a) earnings of projects under construction, (b) earnings
of
projects unseasoned in operation experience, (c) rentals which begin
when
facilities are completed, or (d) payments to which some other limiting
condition
attaches. Parenthetical rating denotes probable credit stature upon
completion
of construction or elimination of basis of condition.
A-3
<PAGE>
The following summarizes the two highest ratings used by Fitch for
municipal
bonds:
AAA -- Bonds considered to be investment grade and of the highest
credit
quality. The obligor has an exceptionally strong ability to pay interest
and
repay principal, which is unlikely to be affected by reasonably
foreseeable
events.
AA -- Bonds considered to be investment grade and of very high
credit
quality. The obligor's ability to pay interest and repay principal is
very
strong, although not quite as strong as bonds rated "AAA." Because bonds
rated
in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable
future developments, short-term debt of these issuers is generally rated "F-
1+."
To provide more detailed indications of credit quality, the Fitch rating
of
"AA" may be modified by the addition of a plus (+) or minus (-) sign to
show
relative standing within this rating category.
Thomson BankWatch assesses the likelihood of an untimely repayment
of
principal or interest over the term to maturity of long-term debt and
preferred
stock which are issued by United States commercial banks, thrifts and non-
bank
banks; non-United States banks; and broker-dealers. The following summarizes
the
two highest rating categories used by Thomson BankWatch for long-term
debt
ratings:
AAA -- This designation represents the highest category assigned by
Thomson
BankWatch to long-term debt and indicates that the ability to repay
principal
and interest on a timely basis is very high.
AA -- This designation indicates a superior ability to repay principal
and
interest on a timely basis with limited incremental risk versus issues rated
in
the highest category.
PLUS (+) OR MINUS (-) -- The ratings may include a plus or minus
sign
designation which indicates where within the respective category the issue
is
placed.
IBCA assesses the investment quality of unsecured debt with an
original
maturity of more than one year which is issued by bank holding companies
and
their principal bank subsidiaries. The following summarizes the two
highest
rating categories used by IBCA for long-term debt ratings:
AAA -- Obligations for which there is the lowest expectation of
investment
risk. Capacity for timely repayment of principal and interest is
substantial
such that adverse changes in business, economic or financial conditions
are
unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of
investment
risk. Capacity for timely repayment of principal and interest is
substantial.
Adverse changes in business, economic or financial conditions may
increase
investment risk albeit not very significantly.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote
relative status within these rating categories.
A-4
<PAGE>
MUNICIPAL NOTE RATINGS
A Standard & Poor's rating reflects the liquidity concerns and market
access
risks unique to notes due in three years or less. The following summarizes
the
two highest rating categories used by Standard & Poor's Corporation
for
municipal notes:
SP-1 -- The issuers of these municipal notes exhibit very strong or
strong
capacity to pay principal and interest. Those issues determined to
possess
overwhelming safety characteristics are given a plus (+) designation.
SP-2 -- The issuers of these municipal notes exhibit satisfactory capacity
to
pay principal and interest.
Moody's ratings for state and municipal notes and other short-term loans
are
designated Moody's Investment Grade ("MIG") and variable rate demand
obligations
are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings
recognize the differences between short-term credit risk and long-term risk.
The
following summarizes the two highest ratings used by Moody's Investors
Service,
Inc. for short-term notes:
MIG-1/VMIG-1 -- Loans bearing this designation are of the best
quality,
enjoying strong protection by established cash flows, superior liquidity
support
or demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2 -- Loans bearing this designation are of high quality,
with
margins of protection ample although not so large as in the preceding group.
Duff & Phelps and Fitch use the short-term ratings described under
Commercial
Paper Ratings for municipal notes.
A-5
[/TEXT]
[/DOCUMENT]
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
NEW YORK MUNICIPAL MONEY MARKET FUND
<TABLE>
<S> <C>
STATEMENT OF ADDITIONAL
INFORMATION
</TABLE>
MAY _,
1994
This Statement of Additional Information is meant to be read in
conjunction
with the Prospectus for the New York Municipal Money Market Fund
portfolio,
dated May _, 1994 as amended or supplemented from time to time, and
is
incorporated by reference in its entirety into the Prospectus. Because
this
Statement of Additional Information is not itself a prospectus, no investment
in
shares of the New York Municipal Money Market Fund portfolio should be
made
solely upon the information contained herein. Copies of the Prospectus
for
shares may be obtained by calling Lehman Brothers Inc. ("Lehman Brothers"),
at
1-800-368-5556. Capitalized terms used but not defined herein have the
same
meanings as in the Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S>
<C>
The
Trust.........................................................................
... 2
Investment Objective and
Policies.................................................... 2
Municipal
Obligations................................................................
7
Additional Purchase and Redemption
Information....................................... 19
Management of the
Fund............................................................... 21
Additional Information Concerning
Taxes.............................................. 26
Dividends.....................................................................
....... 28
Additional Yield
Information.........................................................
28
Additional Description Concerning
Shares............................................. 29
Counsel.......................................................................
....... 30
Auditors......................................................................
....... 30
Financial
Statements.................................................................
30
Miscellaneous.................................................................
....... 30
Appendix......................................................................
....... A-1
</TABLE>
<PAGE>
THE TRUST
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-
load,
open-end investment company. The Trust currently includes a family of
money
market and non-money market portfolios, one of which is New York Municipal
Money
Market Fund (the "Fund"). The Fund is currently authorized to offer
three
classes of shares. Each class represents an equal, PRO RATA interest in
the
Fund. Each share accrues daily dividends in the same manner, except that Class
B
and Class C Shares bear fees payable by the Fund to Lehman Brothers
or
institutional investors for services they provide to the beneficial owners
of
such shares.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE FUND'S PROSPECTUS
RELATE
PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND. INVESTORS
WISHING
TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER PORTFOLIOS MAY
OBTAIN
SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING LEHMAN BROTHERS
AT
1-800-368-5556.
INVESTMENT OBJECTIVE AND POLICIES
As stated in the Fund's Prospectus, the investment objective of the Fund is
to
provide as high a level of current income exempt from federal income tax and,
to
the extent possible, from New York State and New York City personal
income
taxes, as is consistent with the preservation of capital and relative
stability
of principal. The following policies supplement the description of the
Fund's
investment objective and policies in the Prospectus.
The Fund is managed to provide stability of capital while
achieving
competitive yields. The investment adviser intends to follow a value-
oriented,
research-driven and risk-averse investment strategy, engaging in a full range
of
economic, strategic, credit and market-specific analyses in
researching
potential investment opportunities.
PORTFOLIO TRANSACTIONS
Subject to the general control of the Trust's Board of Trustees and
Lehman
Brothers Global Asset Management Inc. ("LBGAM"), the Fund's investment
adviser,
is responsible for, makes decisions with respect to and places orders for
all
purchases and sales of portfolio securities. Purchases are usually
principal
transactions without brokerage commissions. Purchases, if any, from
underwriters
may include a commission or concession paid by the issuer to the underwriter
and
purchases from dealers serving as market markers may include the spread
between
the bid and asked prices. In making portfolio investments, LBGAM seeks to
obtain
the best net price and the most favorable execution of orders. To the
extent
that the execution and price offered by more than one dealer are
comparable,
LBGAM may, in its discretion, effect transactions in portfolio securities
with
dealers who provide the Trust with research advice or other services.
Investment decisions for the Fund are made independently from those for
the
Trust's other portfolios or other investment company portfolios or
accounts
advised by LBGAM. Such other investment company portfolios may invest in
the
same securities as the Fund. When purchases or sales of the same security
are
made at substantially the same time on behalf of such other investment
company
portfolios, transactions are averaged as to price, and available
investments
allocated as to amount, in a manner which LBGAM
believes
2
<PAGE>
to be equitable to each investment company portfolio, including the Fund.
In
some instances, this investment procedure may adversely affect the price paid
or
received by the Fund or the size of the position obtained for the Fund. To
the
extent permitted by law, LBGAM may aggregate the securities to be sold
or
purchased for the Fund with those to be sold or purchased for such
other
investment companies in order to obtain best execution.
Portfolio securities will not be purchased from or sold to and the Fund
will
not enter into repurchase agreements with Lehman Brothers, LBGAM or
any
affiliated person of any of them (as such term is defined in the
Investment
Company Act of 1940, as amended (the "1940 Act")) except to the extent
permitted
by the Securities and Exchange Commission ("SEC"). In addition, the Fund
will
not purchase Municipal Obligations during the existence of any underwriting
or
selling group relating thereto of which Lehman Brothers or any affiliate
thereof
is a member, except to the extent permitted by the SEC. Under
certain
circumstances, the Fund may be at a disadvantage because of these limitations
in
comparison with other investment company portfolios which have a
similar
investment objective but are not subject to such limitations. Furthermore,
with
respect to such transactions, securities and deposits, the Fund will not
give
preference to Service Organizations with whom the Fund enters into
agreements
relating to Class B or Class C shares. (See the Prospectus, "Management of
the
Fund -- Service Organizations.")
The Fund may participate, if and when practicable, in bidding for
the
purchase of Municipal Obligations directly from an issuer in order to
take
advantage of the lower purchase price available to members of such a group.
The
Fund will engage in this practice, however, only when LBGAM, in its
sole
discretion, believes such practice to be otherwise in the Fund's interest.
The Fund does not intend to seek profits through short-term trading.
The
Fund's annual portfolio turnover will be relatively high because of
the
short-term nature of the instruments in which it invests, but the
Fund's
portfolio turnover is not expected to have a material effect on its net
income.
The Fund's portfolio turnover is expected to be zero for regulatory
reporting
purposes.
ADDITIONAL INFORMATION ON INVESTMENT PRACTICES
VARIABLE AND FLOATING RATE INSTRUMENTS. Municipal Obligations purchased
by
the Fund may include variable and floating rate instruments, which provide
for
adjustments in the interest rate on certain reset dates or whenever a
specified
interest rate index changes, respectively. Variable and floating
rate
instruments are subject to the credit quality standards described in
the
Prospectus. In some cases the Fund may require that the obligation to pay
the
principal of the instrument be backed by a letter or line of credit
or
guarantee. Such instruments may carry stated maturities in excess of 397
days
provided that the maturity-shortening provisions stated in Rule 2a-7 under
the
1940 Act are satisfied. Although a particular variable or floating rate
demand
instrument may not be actively traded in a secondary market, in some cases,
the
Fund may be entitled to principal on demand and may be able to resell such
notes
in the dealer market.
Variable and floating rate demand instruments held by the Fund may
have
maturities of more than 13 months provided: (i) the Fund is entitled to
the
payment of principal at any time or during specified intervals not exceeding
13
months, subject to notice of no more than 30 days, and (ii) the rate of
interest
on such instruments is adjusted (based upon a pre-selected market
sensitive
index such as the prime rate of a major commercial bank) at periodic
intervals
not exceeding 13 months. In determining the Fund's average weighted
portfolio
maturity and whether a variable or floating rate demand instrument has
a
remaining
3
<PAGE>
maturity of 13 months or less, the maturity of each instrument will be
computed
in accordance with guidelines established by the SEC. In determining whether
an
unrated variable or floating rate demand instrument is of comparable quality
at
the time of purchase to instruments with minimal credit risk, the
Fund's
investment adviser will follow guidelines adopted by the Trust's Board
of
Trustees.
TENDER OPTION BONDS. The Fund may invest up to 10% of the value of
its
assets in tender option bonds. The Fund will not purchase tender option
bonds
unless (a) the demand feature applicable thereto is exercisable by the
Fund
within 13 months of the date of such purchase upon no more than 30 days'
notice
and thereafter is exercisable by the Fund no less frequently than annually
upon
no more than 30 days' notice and, (b) at the time of such purchase,
LBGAM
reasonably expects that (i) based upon its assessment of current and
historical
interest rate trends, prevailing short-term tax-exempt rates will not exceed
the
stated interest rate on the underlying Municipal Obligations at the time of
the
next tender fee adjustment, and (ii) the circumstances which might entitle
the
grantor of a tender option to terminate the tender option would not occur
prior
to the time of the next tender opportunity. At the time of each
tender
opportunity, the Fund will exercise the tender option with respect to any
tender
option bonds unless LBGAM reasonably expects that, (a) based upon its
assessment
of current and historical interest rate trends, prevailing short-term tax-
exempt
rates will not exceed the stated interest rate on the underlying
Municipal
Obligations at the time of the next tender fee adjustment, and (b)
the
circumstances which might entitle the grantor of a tender option to
terminate
the tender option would not occur prior to the time of the next
tender
opportunity. The Fund will exercise the tender feature with respect to
tender
option bonds, or otherwise dispose of its tender option bonds, prior to the
time
the tender option is scheduled to expire pursuant to the terms of the
agreement
under which the tender option is granted. The Fund otherwise will comply
with
the provisions of Rule 2a-7 under the 1940 Act in connection with the
purchase
of tender option bonds, including, without limitation, the
requisite
determination by the Board of Trustees that the tender option bonds in
question
meet the quality standards described in Rule 2a-7. In the event of a default
of
the Municipal Obligation underlying a tender option bond, or the termination
of
the tender option agreement, the Fund would look to the maturity date of
the
underlying security for purposes of compliance with Rule 2a-7 and, if
its
remaining maturity was greater than 13 months, the Fund would sell the
security
as soon as would be practicable. The Fund will purchase tender option bonds
only
when it is satisfied that (a) the custodial and tender option
arrangements,
including the fee payment arrangements, will not adversely affect the tax-
exempt
status of the underlying Municipal Obligations and (b) payment of any
tender
fees will not have the effect of creating taxable income for the Fund. Based
on
the tender option bond arrangement, the Fund expects to value the tender
option
bond at par; however, the value of the instrument will be monitored to
assure
that it is valued at fair value.
WHEN-ISSUED SECURITIES. As stated in the Prospectus, the Fund may
purchase
Municipal Obligations on a "when-issued" basis (I.E., for delivery beyond
the
normal settlement date at a stated price and yield). When the Fund agrees
to
purchase when-issued securities, its custodian will set aside cash or
liquid
portfolio securities equal to the amount of the commitment in a
separate
account. Normally, the custodian will set aside portfolio securities to
satisfy
a purchase commitment, and in such a case the Fund may be required
subsequently
to place additional assets in the separate account in order to ensure that
the
value of the account remains equal to the amount of the Fund's commitment.
It
may be expected that the Fund's net assets will fluctuate to a greater
degree
when it sets aside portfolio securities to cover such purchase commitments
than
when it sets aside cash. Because the Fund will set aside cash or liquid
assets
to satisfy its purchase commitments in the manner described, the
Fund's
liquidity and ability to manage its portfolio
4
<PAGE>
might be affected in the event its commitments to purchase when-
issued
securities ever exceeded 25% of the value of its assets. When the Fund
engages
in when-issued transactions, it relies on the seller to consummate the
trade.
Failure of the seller to do so may result in the Fund's incurring a loss
or
missing an opportunity to obtain a price considered to be advantageous. The
Fund
does not intend to purchase when-issued securities for speculative purposes
but
only in furtherance of its investment objective. The Fund reserves the right
to
sell the securities before the settlement date if it is deemed advisable.
STAND-BY COMMITMENTS. The Fund may acquire "stand-by commitments"
with
respect to Municipal Obligations held in its portfolio. Under a stand-
by
commitment, a dealer agrees to purchase, at the Fund's option,
specified
Municipal Obligations at their amortized cost value to the Fund plus
accrued
interest, if any. (Stand-by commitments acquired by the Fund may also
be
referred to as "put" options.) Stand-by commitments may be sold, transferred
or
assigned only with the underlying instruments.
The Fund expects that stand-by commitments will generally be
available
without the payment of any direct or indirect consideration. However,
if
necessary or advisable, the Fund may pay for a stand-by commitment
either
separately in cash or by paying a higher price for portfolio securities
which
are acquired subject to the commitment (thus reducing the yield to
maturity
otherwise available for the same securities). The total amount paid in
either
manner for outstanding stand-by commitments held in the Fund's portfolio is
not
expected to exceed 1/2 of 1% of the value of the Fund's total assets
calculated
immediately after each stand-by commitment is acquired.
The Fund intends to enter into stand-by commitments only with dealers,
banks
and broker-dealers which, in the opinion of the investment adviser,
present
minimal credit risks. In evaluating the creditworthiness of the issuer of
a
stand-by commitment, the investment adviser will review periodically
the
issuer's assets, liabilities, contingent claims and other relevant
financial
information.
The Fund would acquire stand-by commitments solely to facilitate
portfolio
liquidity and does not intend to exercise its rights thereunder for
trading
purposes. Stand-by commitments acquired by the Fund would be valued at zero
in
determining net asset value. Where the Fund paid any consideration directly
or
indirectly for a stand-by commitment, its cost would be reflected as
unrealized
depreciation for the period during which the commitment was held by the Fund.
PARTICIPATIONS. The Fund may purchase from financial
institutions
tax-exempt participation interests in Municipal Obligations. A
participation
interest gives the Fund an undivided interest in the Municipal Obligation in
the
proportion that the Fund's participation interest bears to the total amount
of
the Municipal Obligation. These instruments may have floating or variable
rates
of interest. If the participation interest is unrated, it will be backed by
an
irrevocable letter of credit or guarantee of a bank that the Trust's Board
of
Trustees has determined meets certain quality standards or the
payment
obligation otherwise will be collateralized by obligations of the
U.S.
Government and its agencies and instrumentalities ("U.S.
Government
securities"). The Fund will have the right, with respect to
certain
participation interests, to demand payment, on a specified number of
days'
notice, for all or any part of the Fund's interest in the Municipal
Obligations,
plus accrued interest. The Fund will invest no more than 5% of its total
assets
in participation interests.
ILLIQUID SECURITIES. The Fund may not invest more than 10% of its total
net
assets in illiquid securities, including securities that are illiquid by
virtue
of the absence of a readily available market or legal or
contractual
restrictions on resale. Securities that have legal or contractual
restrictions
on resale but have a
5
<PAGE>
readily available market are not considered illiquid for purposes of
this
limitation. The Fund's investment adviser will monitor on an ongoing basis
the
liquidity of such restricted securities under the supervision of the Board
of
Trustees.
The SEC has adopted Rule 144A under the Securities Act of 1933, as
amended
(the "1933 Act") which allows for a broader institutional trading market
for
securities otherwise subject to restriction on resale to the general
public.
Rule 144A establishes a "safe harbor" from the registration requirements of
the
1933 Act for resales of certain securities to qualified institutional
buyers.
The Fund's investment adviser anticipates that the market for certain
restricted
securities such as institutional municipal securities will expand further as
a
result of this regulation and the development of automated systems for
the
trading, clearance and settlement of unregistered securities of domestic
and
foreign issuers, such as the PORTAL system sponsored by the National
Association
of Securities Dealers.
The investment adviser will monitor the liquidity of restricted
securities
under the supervision of the Board of Trustees. In reaching liquidity
decisions
with respect to Rule 144A securities, the Fund's investment adviser
will
consider, INTER ALIA, the following factors: (1) the unregistered nature of
a
Rule 144A security; (2) the frequency of trades and quotes for a Rule
144A
security; (3) the number of dealers willing to purchase or sell the Rule
144A
security and the number of other potential purchasers; (4) dealer
undertakings
to make a market in the Rule 144A security; (5) the trading markets for the
Rule
144A security; and (6) the nature of the Rule 144A security and the nature
of
marketplace trades (including, the time needed to dispose of the Rule
144A
security, methods of soliciting offers and mechanics of transfer).
The Appendix to this Statement of Additional Information contains
a
description of the relevant rating symbols used by nationally
recognized
statistical rating organizations ("NRSROs") for Municipal Obligations that
may
be purchased by the Fund.
INVESTMENT LIMITATIONS
The Fund's Prospectus sets forth certain investment limitations that may not
be
changed without the affirmative vote of the holders of a majority of the
Fund's
outstanding shares (as defined below under "Miscellaneous").
Investment
limitations numbered 1 through 6 may not be changed without such a vote
of
shareholders; investment limitations 7 through 12 may be changed by a vote
of
the Trust's Board of Trustees at any time.
The Fund may not:
1. Borrow money, except from banks for temporary purposes and then
in
amounts not exceeding 10% of the value of the Fund's total assets at
the
time of such borrowing; or mortgage, pledge or hypothecate any assets
except
in connection with any such borrowing and in amounts not in excess of
the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's
total
assets at the time of such borrowing. Additional investments will not be
made
when borrowings exceed 5% of the Fund's assets.
2. Make loans, except that the Fund may purchase or hold debt instruments
in
accordance with its investment objective and policies.
3. Act as an underwriter of securities, except insofar as the Fund may
be
deemed an underwriter under applicable securities laws in
selling
portfolio securities.
6
<PAGE>
4. Purchase or sell real estate or real estate limited
partnerships,
provided that the Fund may purchase securities of issuers which invest
in
real estate or interests therein.
5. Purchase or sell commodities or commodity contracts, or invest in
oil,
gas or mineral exploration or development programs or in mineral
leases.
6. Purchase any securities which would cause 25% or more of the value of
its
total assets at the time of purchase to be invested in the securities
of
issuers conducting their principal business activities in the same
industry,
provided that there is no limitation with respect to investments in
U.S.
Government securities.
7. Knowingly invest more than 10% of the value of the Fund's assets
in
securities that may be illiquid because of legal or
contractual
restrictions on resale or securities for which there are no readily
available
market quotations.
8. Purchase securities on margin, make short sales of securities or
maintain
a short position.
9. Write or sell puts, calls, straddles, spreads or combinations thereof.
10. Invest in securities if as a result the Fund would then have more than
5%
of its total assets in securities of companies (including
predecessors)
with less than three years of continuous operation.
11. Purchase securities of other investment companies except as
permitted
under the 1940 Act or in connection with a merger,
consolidation,
acquisition or reorganization.
12. Invest in warrants.
In addition, without the affirmative vote of the holders of a majority of
a
Fund's outstanding shares, such Fund may not change its policy of investing
at
least 80% of its total assets (except during temporary defensive periods)
in
Municipal Obligations.
MUNICIPAL OBLIGATIONS
IN GENERAL
Municipal Obligations include debt obligations issued by governmental
entities
to obtain funds for various public purposes, including the construction of
a
wide range of public facilities, the refunding of outstanding obligations,
the
payment of general operating expenses and the extension of loans to
public
institutions and facilities. Private activity bonds that are issued by or
on
behalf of public authorities to finance various privately-operated
facilities
are included within the term Municipal Obligations if the interest paid
thereon
is (subject to the federal alternative minimum tax) exempt from regular
federal
income tax. Opinions relating to the validity of Municipal Obligations and
to
the exemption of interest thereon from federal income taxes are rendered
by
counsel to the issuers or bond counsel to the respective issuing authorities
at
the time of issuance. Neither the Fund nor the investment adviser will
review
independently the underlying proceedings relating to the issuance of
Municipal
Obligations or the bases for such opinions.
The Fund may hold tax-exempt derivatives which may be in the form of
tender
option bonds, participations, beneficial interests in a trust,
partnership
interests or other forms. A number of different structures have been used.
For
example, interests in long-term fixed-rate Municipal Obligations, held by a
bank
as trustee or custodian, are coupled with tender option, demand and
other
features when the tax-exempt
7
<PAGE>
derivatives are created. Together, these features entitle the holder of
the
interest to tender (or put) the underlying Municipal Obligation to a third
party
at periodic intervals and to receive the principal amount thereof. In
some
cases, Municipal Obligations are represented by custodial receipts
evidencing
rights to receive specific future interest payments, principal payments,
or
both, on the underlying municipal securities held by the custodian. Under
such
arrangements, the holder of the custodial receipt has the option to tender
the
underlying municipal securities at its face value to the sponsor (usually a
bank
or broker/dealer or other financial institution), which is paid periodic
fees
equal to the difference between the bond's fixed coupon rate and the rate
that
would cause the bond, coupled with the tender option, to trade at par on
the
date of a rate adjustment. The Fund may hold tax-exempt derivatives, such
as
participation interests and custodial receipts, for Municipal Obligations
which
give the holder the right to receive payment of principal subject to
the
conditions described above. The Internal Revenue Service has not ruled
on
whether the interest received on tax-exempt derivatives in the form
of
participation interests or custodial receipts is tax-exempt, and
accordingly,
purchases of any such interests or receipts are based on the opinion of
counsel
to the sponsors of such derivative securities. Neither the Fund nor
its
investment adviser will independently review the underlying proceedings
related
to the creation of any tax-exempt derivatives or the bases for such opinions.
As described in the Fund's Prospectus, the two principal classifications
of
Municipal Obligations consist of "general obligation" and "revenue" issues,
and
the Fund's portfolio may include "moral obligation" issues, which are
normally
issued by special purpose authorities. There are, of course, variations in
the
quality of Municipal Obligations, both within a particular classification
and
between classifications, and the yields on Municipal Obligations depend upon
a
variety of factors, including general money market conditions, the
financial
condition of the issuer, general conditions of the municipal bond market,
the
size of a particular offering, the maturity of the obligation and the rating
of
the issue. The ratings of statistical rating organizations represent
their
opinions as to the quality of Municipal Obligations. It should be
emphasized,
however, that ratings are general and are not absolute standards of quality,
and
Municipal Obligations with the same maturity, interest rate and rating may
have
different yields while Municipal Obligations of the same maturity and
interest
rate with different ratings may have the same yield. Subsequent to its
purchase
by the Fund, an issue of Municipal Obligations may cease to be rated or
its
rating may be reduced below the minimum rating required for purchase by
the
Fund. The investment adviser will consider such an event in determining
whether
the Fund should continue to hold the obligation.
An issuer's obligations under its Municipal Obligations are subject to
the
provisions of bankruptcy, insolvency and other laws affecting the rights
and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any,
which may be enacted by federal or state legislatures extending the time
for
payment of principal or interest, or both, or imposing other constraints
upon
enforcement of such obligations or upon the ability of municipalities to
levy
taxes. The power or ability of an issuer to meet its obligations for the
payment
of interest on and principal of its Municipal Obligations may be
adversely
affected by litigation or other conditions.
Among other types of Municipal Obligations, the Fund may purchase short-
term
General Obligation Notes, Tax Anticipation Notes, Bond Anticipation
Notes,
Revenue Anticipation Notes, Tax-Exempt Commercial Paper, Construction Loan
Notes
and other forms of short-term loans. Such instruments are issued with
a
short-term maturity in anticipation of the receipt of tax funds, the proceeds
of
bond placements or
8
<PAGE>
other revenues. In addition, the Fund may invest in other types of tax-
exempt
instruments, including general obligation and private activity bonds,
provided
they have remaining maturities of 13 months or less at the time of purchase.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS
STATE ECONOMY. New York State (the "State") is the second most
populous
state in the nation and has a relatively high level of personal wealth.
The
State's economy is diverse with a comparatively large share of the
nation's
finance, insurance, transportation, communications and services employment,
and
a comparatively small share of the nation's farming and mining activity.
The
State has a declining proportion of its workforce engaged in manufacturing,
and
an increasing proportion engaged in service industries. New York City
(the
"City"), which is the most populous city in the State and nation and is
the
center of the nation's largest metropolitan area, accounts for approximately
41%
of both the State's population and personal income.
The State has historically been one of the wealthiest states in the
nation.
For decades, however, the State has grown more slowly than the nation as
a
whole, gradually eroding its relative economic affluence. The recession has
been
more severe in the State, owing to a significant retrenchment in the
financial
services industry, cutbacks in defense spending, and an overbuilt real
estate
market. There can be no assurance that the State economy will not
experience
worse-than-predicted results in the 1993-94 and 1994-95 fiscal years,
with
corresponding material and adverse effects on the State's projections
of
receipts and disbursements.
The unemployment rate in the State dipped below the national rate in
the
second half of 1981 and remained lower until 1991. The total employment
growth
rate in the State has been below the national average since 1984, and in
1992
the unemployment rate rose to 8.5%. State per capita personal income
remains
above the national average. State per capita income for 1992 was $23,534,
which
is 18.5% above the 1992 national average of $20,114. Between 1970 and 1980,
the
percentage by which the State's per capita income exceeded that of the
national
average fell from 19.8% to 8.1%, and the State dropped from fifth to eleventh
in
the nation in terms of per capita income. However, since 1980, the State's
rate
of per capita income growth was greater than that of the nation generally
and
the State's rank improved to fourth in 1990 and remained fourth in 1991
and
1992. Some analysts believe that the decline in jobs in both the City and
New
York State is the result of State and local taxation, which is among the
highest
in the nation, and which may cause corporations to locate outside New
York
State. The current high level of taxes limit the ability of New York State
and
the City to impose higher taxes in the event of future difficulties.
STATE BUDGET. The State Constitution requires the Governor to submit to
the
Legislature a balanced Executive Budget which contains a complete plan
of
expenditures for the ensuing fiscal year and all moneys and revenues
estimated
to be available therefor, accompanied by bills containing all
proposed
appropriations or reappropriations and any new or modified revenue measures
to
be enacted in connection with the Executive Budget. The entire plan
constitutes
the proposed State financial plan for that fiscal year. The Governor submits
to
the Legislature, on at least a quarterly basis, reports of actual
receipts,
revenues, disbursements, expenditures, tax refunds and reimbursements,
and
repayment of advances in form suitable for comparison with the State
financial
plan, together with explanations of deviations from the State financial plan.
At
such time, the Governor is required to submit any amendments to the
State
financial plan necessitated by such deviations.
9
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The Governor released the recommended Executive Budget for the 1994-95
fiscal
year on January 18, 1994. The Recommended 1994-95 State Financial Plan
projected
a balanced General Fund, with receipts and transfers from other funds
projected
at $33.442 billion, including $299 million carried over from the
surplus
anticipated for the State's 1993-94 fiscal year. Disbursements and transfers
to
other funds are projected at $33.399 billion and, in addition, the
financial
plan includes a $23 million repayment to the State's Tax Stabilization
Reserve
Fund. The Division of the Budget projects that at the close of the
State's
1994-95 fiscal year, the balance in the Tax Stabilization Reserve Fund will
be
$157 million. The balance available in the Contingency Reserve Fund on April
1,
1994 is projected by the Division of the Budget at $311 million.
The Revised 1993-94 State Financial Plan is based on a number of
assumptions
and projections. Because it is not possible to predict accurately the
occurrence
of all factors that may affect the Revised 1993-94 State Financial Plan,
actual
results may differ and have differed materially in recent years,
from
projections made at the outset of a fiscal year. There can be no assurance
that
the State will not face substantial potential budget gaps in future
years
resulting from a significant disparity between tax revenues projected from
a
lower recurring receipts base and the spending required to maintain
State
programs at current levels. To address any potential budgetary imbalance,
the
State may need to take significant actions to align recurring receipts
and
disbursements in future fiscal years.
RECENT FINANCIAL RESULTS. During its 1989-90, 1990-91 and 1991-92
fiscal
years, the State incurred cash-basis operating deficits, prior to the
issuance
of short-term tax and revenue anticipation notes, owing to lower-than-
projected
receipts, which it believes to have been principally the result of a
significant
slowdown in the New York and regional economy, and with respect to the 1989-
90
fiscal year, changes in taxpayer behavior caused by the Federal Tax Reform
Act
of 1986.
The General Fund is the principal operating fund of the State. It
receives
all State income that is not required by law to be deposited in another
fund
which for the State's 1993-94 fiscal year, comprises approximately 53% of
total
projected governmental fund receipts.
General Fund receipts, excluding transfers from other funds, totalled
$28.818
billion in the State's 1991-92 fiscal year (before repayment of $1.081
billion
in deficit notes issued in its 1990-91 fiscal year and before issuance of
$531
million in deficit notes to close the 1991-92 fiscal year General
Fund
cash-basis operating deficit) and $29.950 billion in the State's 1992-93
fiscal
year (before repayment of $531 million in deficit notes issued to close
the
State's 1991-92 fiscal year General Fund cash-basis deficit). General
Fund
receipts in the State's 1993-94 fiscal year are projected in the Revised 1993-
94
State Financial Plan to total $30.200 billion. Taxes account for 96%
of
estimated fiscal year 1993-94 and 1994-95 General Fund receipts, with
the
balance comprised of miscellaneous receipts.
General Fund disbursements, exclusive of transfers to other funds,
totalled
$28.058 billion in the State's 1991-92 fiscal year and $29.068 billion in
the
State's 1992-93 fiscal year and are projected to total $30.421 billion
and
$31.453 billion in the State's 1993-94 fiscal years, respectively.
The State's financial position as shown in its Combined Balance Sheet as
of
March 31, 1993 included an accumulated deficit in its combined
governmental
funds of $681 million represented by liabilities of $12.864 billion and
assets
of $12.183 billion available to liquidate such liabilities.
10
<PAGE>
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by
which
the State of New York may incur debt. Under the State Constitution, the
State
may not, with limited exceptions for emergencies, undertake long-term
borrowing
(I.E., borrowing for more than one year) unless the borrowing is authorized in
a
specific amount for a single work or purpose by the Legislature and approved
by
the voters. There is no limitation on the amount of long-term debt that may
be
so authorized and subsequently incurred by the State. The total amount
of
long-term State general obligation debt authorized but not issued as of
December
31, 1993 was approximately $2.273 billion.
The State may undertake short-term borrowings without voter approval (i)
in
anticipation of the receipt of taxes and revenues, by issuing tax and
revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from
the
sale of duly authorized but unissued bonds, by issuing bond anticipation
notes.
The State may also, pursuant to specific constitutional authorization,
directly
guarantee certain obligations of the State of New York's authorities and
public
benefit corporations ("Authorities"). Payments of debt service on New York
State
general obligation and New York State-guaranteed bonds and notes are
legally
enforceable obligations of the State of New York.
The State of New York also employs two other types of long-term
financing
mechanisms which are State-supported but are not general obligations of
the
State: moral obligation and lease-purchase or contractual-obligation
financing.
In 1990, as part of a State fiscal reform program, legislation was
enacted
creating the New York Local Government Assistance Corporation ("LGAC"), a
public
benefit corporation empowered to issue long-term obligations to fund
certain
payments to local governments traditionally funded through New York
State's
annual seasonal borrowing. The Legislation empowered LGAC to issue its bonds
and
notes in an amount not in excess of $4.7 billion (exclusive of certain
refunding
bonds) plus amounts to fund a capital reserve fund, to pay costs of
issuance,
and to provide for certain capitalized interest costs. Over a period of
years,
the issuance of those long-term obligations, which will be amortized over
no
more than 30 years, is expected to result in eliminating the need for
continuing
short-term seasonal borrowing for those purposes. The legislation also imposed
a
cap on the annual seasonal borrowing of the State at $4.7 billion, less
net
proceeds of bonds issued by LGAC and bonds issued to provide for
capitalized
interest, except in cases where the Governor and the legislative leaders
have
certified both the need for additional borrowing and a schedule for reducing
it
to the cap. If borrowing above the cap is thus permitted in any fiscal year,
it
is required by law to be reduced to the cap by the fourth fiscal year after
the
limit was first exceeded. As of December 31, 1993, LGAC had issued its bonds
to
provide net proceeds of $3.581 billion and has been authorized to issue
its
bonds to provide net proceeds of up to an additional $275 million during
the
State's 1993-94 fiscal year. The Governor has recommended up to $315 million
in
additional bond issuances in the 1994-95 fiscal year. In April 1993,
legislation
was also enacted providing for significant changes in the long-term
financing
practices of the State and the Authorities.
On March 26, 1990, Standard & Poor's Corporation ("S&P") downgraded New
York
State's (1) general obligation bonds from "AA-" to "A" and (2) commercial
paper
from "A-1+" to "A-1". Also downgraded was certain of New York State's
variously
rated moral obligation, lease-purchase, guaranteed and contractual-
obligation
debt, including debt issued by certain New York State agencies. On August
27,
1990, S&P affirmed these ratings without change. On June 6, 1990,
Moody's
Investors Services, Inc. ("Moody's) changed its ratings on all the
State's
outstanding general obligation bonds from "A1" to "A". On March 26, 1990,
S&P
changed its ratings of all the State's outstanding general obligations
bonds
from "AA-" to "A".
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<PAGE>
On January 6, 1992, Moody's lowered from "A" to "Baa1" the ratings on
certain
appropriation-backed debt of the State of New York and its
agencies.
Approximately two-thirds of the State's tax-supported debt is affected
by
Moody's rating action. Moody's stated that the more secure general
obligation,
state-guaranteed and LGAC bonds continue to be rated "A", but are placed
under
review for possible downgrade over the coming months. On January 13, 1992,
S&P
lowered its rating on $4.8 billion of New York State general obligation bonds
to
"A-" from "A". Various agency debt, state moral obligations,
contractual
obligations, lease-purchase obligations and state guarantees are also
affected
by S&P's action. Additionally, under S&P's minimum-rating approach, New
York
local school district debt will now carry a minimum rating of "A-" rather
than
"A" and school districts currently rated "A" are placed on CreditWatch
with
negative implications. In taking these rating actions, Moody's and S&P
variously
cited continued economic deterioration, chronic operating deficits,
mounting
GAAP fund balance deficits and the legislative stalemate in seeking
permanent
and structurally sound fiscal operations. On January 15, 1992, S&P took
further
action by lowering the rating on the claims-paying ability of the State of
New
York Mortgage Agency Mortgage Insurance Fund to "BBB+" from "A-" following
the
January 13, 1992 downgrade of New York State's general obligation bond rating
to
"A-".
The State anticipates that its borrowings for capital purposes in 1993-
94
will consist of approximately $456 million in general obligation bonds.
The
State also expects to issue approximately $140 million in general
obligation
bonds for the purpose of redeeming outstanding bond anticipation notes.
The
Legislature has also authorized the issuance of up to $85 million
in
certificates of participation during the State's 1993-94 fiscal year
for
equipment purchases and real property purposes. The Governor has recommended
the
issuance of $413 million in bonds and new commercial paper issuances for
capital
purposes during the State's 1994-95 fiscal year. In addition, the State
expects
to issue $154 million in bonds for the purpose of redeeming outstanding
bond
anticipation notes. The Governor has also recommended authorization for
the
issuance of up to $67.8 million in certificates of participation during
the
State's 1994-95 fiscal year for personal property acquisitions. The
projection
of the State regarding its borrowings for the 1993-94 fiscal year may change
if
actual receipts fall short of State projections or if other
circumstances
require.
Payments for principal and interest due on general obligation bonds,
interest
due on bond anticipation notes and on tax and revenue anticipation notes,
and
contractual-obligation and lease-purchase commitments were $1.783 billion
and
$2.045 billion in the aggregate, for New York State's 1991-92 and 1992-93
fiscal
years, respectively, and are projected to be $2.167 billion and $2.459
billion
for the State's 1993-94 and 1994-95 fiscal years, respectively. These figures
do
not include interest payable on either New York State General
Obligation
Refunding Bonds issued on July 30, 1992, to the extent that such interest is
to
be paid from an escrow fund established with the proceeds of such bonds or
New
York State's installment payments relating to the issuance of certificates
of
participation.
New York State has never defaulted on any of its general
obligation
indebtedness or its obligations under lease-purchase or contractual-
obligation
financing arrangements and has never been called upon to make any
direct
payments pursuant to its guarantees. There has never been a default on any
moral
obligation debt of any Authority.
LITIGATION. Certain litigation pending against New York State or
its
officers or employees could have a substantial or long-term adverse effect
on
New York State finances. Among the more significant of these cases are
those
that involve (a) the validity of agreements and treaties by which various
Indian
tribes transferred title to the State of certain land in central and upstate
New
York; (b) certain aspects of New York
12
<PAGE>
State's Medicaid policies and its rates and regulations,
including
reimbursements to providers of mandatory and optional Medicaid services;
(c)
contamination in the Love Canal area of Niagara Falls; (d) an action against
the
State and City officials alleging inadequate shelter allowances to
maintain
proper housing; (e) challenges to the practice of reimbursing certain Office
of
Mental Health patient care expenses from the client's Social Security
benefits;
(f) alleged responsibility of the State's officials to assist in
remedying
racial segregation in the City of Yonkers; (g) a challenge to the methods
by
which the State reimburses localities for the administrative costs of food
stamp
programs; (h) an action in which the State is a third party defendant,
for
injunctive or other appropriate relief, concerning liability for the
maintenance
of stone groins constructed along certain areas of Long Island's shoreline;
(i)
action by school districts and their employees challenging the
constitutionality
of Chapter 175 of the Laws of 1990 which deferred school district
contributions
to the public retirement system and reduced by like amount state aid to
the
school districts; (j) challenges to portions of Public Health Law, which
imposed
a 13% surcharge on inpatient hospital bills paid by commercial insurers
and
employee welfare benefit plans and portions of Chapter 55 of the Laws of
1992
requiring hospitals to impose and remit to the State an 11% surcharge
on
hospital bills paid by commercial insurers, and which required
health
maintenance organizations to remit to the State a surcharge of up to 9%; and
(k)
a challenge to provisions of the Public Health Law and implementing
regulations
that imposed a bad debt and charity care allowance on all hospital bills and
a
13% surcharge on inpatient bills paid by employee welfare benefit plans.
A number of cases have also been instituted against the State challenging
the
constitutionality of various public authority financing programs.
In a proceeding commenced on August 6, 1991 (SCHULZ, ET AL. V. STATE OF
NEW
YORK, ET AL., Supreme Court, Albany County), petitioners challenge
the
constitutionality of two bonding programs of the New York State
Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991. In
addition,
petitioners challenge the fiscal year 1991-92 judiciary budget as having
been
enacted in violation of Sections 1 and 2 of Article VII of the
State
Constitution. The defendants' motion to dismiss the action on procedural
grounds
was denied by order of the Supreme Court dated January 2, 1992. By order
dated
November 5, 1992, the Appellate Division, Third Department, reversed the
order
of the Supreme Court and granted defendants' motion to dismiss on grounds
of
standing and mootness. By order dated September 16, 1993, on motion
to
reconsider, the Appellate Division, Third Department, ruled that plaintiffs
have
standing to challenge the bonding program authorized by Chapter 166 of the
Laws
of 1991. The proceeding is presently pending in Supreme Court, Albany County.
In SCHULZ, ET AL. V. STATE OF NEW YORK, ET AL., commenced May 24,
1993,
Supreme Court, Albany County, petitioners challenge, among other things,
the
constitutionality of, and seek to enjoin certain highway, bridge and
mass
transportation bonding programs of the New York State Thruway Authority and
the
Metropolitan Transportation Authority authorized by Chapter 56 of the Laws
of
1993. Petitioners contend that the application of State tax receipts held
in
dedicated transportation funds to pay debt service on bonds of the
Thruway
Authority and of the Metropolitan Transportation Authority violates Sections
8
and 11 of Article VII and Section 5 of Article X of the State Constitution
and
due process provisions of the State and Federal Constitutions. By order
dated
July 27, 1993, the Supreme Court granted defendants' motions for
summary
judgment, dismissed the complaint, and vacated the temporary restraining
order
previously
13
<PAGE>
issued. By decision dated October 21, 1993, the Appellate Division,
Third
Department, affirmed the judgment of the Supreme Court. Plaintiffs' appeal
of
the decision of the Appellate Division is pending in the Court of Appeals.
Several actions challenging the constitutionality of legislation
enacted
during the 1990 legislative sessions which changed actuarial funding methods
for
determining state and local contributions to state employee retirement
systems
have been decided against the State. The U.S. Supreme Court's decision in a
case
challenging the State's possession of certain property taken pursuant to
the
State's Abandoned Property Law may result in the State having to make
certain
significant payments during the 1993-94 fiscal year or thereafter.
The legal proceedings noted above involve State finances, State programs
and
miscellaneous tort, real property and contract claims in which the State is
a
defendant and the monetary damages sought are substantial. These
proceedings
could affect adversely the financial condition of the State in the 1993-94
and
1994-95 fiscal years or thereafter. Adverse developments in these proceedings
or
the initiation of new proceedings could affect the ability of the State
to
maintain a balanced Revised 1993-94 State Financial Plan. An adverse decision
in
any of these proceedings could exceed the amount of the revised 1993-94
State
Financial Plan reserve for the payment of judgments and, therefore, could
affect
the ability of the State to maintain a balanced Revised 1993-94 State
Financial
Plan. In its audited financial statements for the 1992-93 fiscal year, the
State
has reported its estimate for awarded and anticipated unfavorable judgments
to
be $721 million. Although other litigation is pending against New York
State,
except as described above, no current litigation involves New York
State's
authority, as a matter of law, to contract indebtedness, issue its
obligations,
or pay such indebtedness when it matures, or affects New York State's power
or
ability, as a matter of law, to impose or collect significant amounts of
taxes
and revenues.
AUTHORITIES. The fiscal stability of New York State is related to
the
fiscal stability of its Authorities, which generally have responsibility
for
financing, constructing and operating revenue-producing public
benefit
facilities. Authorities are not subject to the constitutional restrictions
on
the incurrence of debt which apply to the State itself, and may issue bonds
and
notes within the amounts of, and as otherwise restricted by, their
legislative
authorization. As of September 30, 1993, the latest data available, there
were
18 Authorities that had outstanding debt of $100 million or more. The
aggregate
outstanding debt, including refunding bonds, of these 18 Authorities was
$63.5
billion as of September 30, 1993, of which approximately $7.7 billion was
moral
obligation debt and approximately $19.3 billion was financed
under
lease-purchase or contractual-obligation financing arrangements.
Authorities are generally supported by revenues generated by the
projects
financed or operated, such as fares, user fees on bridges, highway tolls
and
rentals for dormitory rooms and housing. In recent years, however, New
York
State has provided financial assistance through appropriations, in some cases
of
a recurring nature, to certain of the 18 Authorities for operating and
other
expenses and, in fulfillment of its commitments on moral obligation
indebtedness
or otherwise, for debt service. This operating assistance is expected
to
continue to be required in future years. New York State provided $947.4
million
and $955.5 million in financial assistance to the 18 Authorities during New
York
State's 1991-92 and 1992-93 fiscal years, respectively, and expects to
provide
approximately $1,171.3 million and $1,387.8 million in financial assistance
to
these Authorities in its 1993-94 and 1994-95 fiscal years, respectively.
The
amounts set forth above exclude, however, amounts provided for
capital
construction and pursuant to lease-purchase or contractual-obligation
(including
service contract debt) financing arrangements.
14
<PAGE>
Experience has shown that if an Authority suffers serious
financial
difficulties, both the ability of the State and the Authorities to
obtain
financing in the public credit markets and the market price of the
State's
outstanding bonds and notes may be adversely affected. The New York
State
Housing Finance Agency and the New York State Urban Development Corporation
have
in the past required substantial amounts of assistance from the State to
meet
debt service costs or to pay operating expenses. Further assistance, possibly
in
increasing amounts, may be required for these Authorities in the future.
In
addition, certain statutory arrangements provide for State local
assistance
payments otherwise payable to localities to be made under certain
circumstances
to certain Authorities. The State has no obligation to provide
additional
assistance to localities whose local assistance payments have been paid
to
Authorities under these arrangements. However, in the event that such
local
assistance payments are so diverted, the affected localities could
seek
additional State funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State of
New
York is closely related to the fiscal health of its localities, particularly
the
City of New York, which has required and continues to require
significant
financial assistance from New York State. The City's independently
audited
operating results for each of its 1981 through 1993 fiscal years, which end
on
June 30, show a General Fund surplus reported in accordance with GAAP. The
City
has eliminated the cumulative deficit in its net General Fund position.
In
addition, the City's financial statements for the 1993 fiscal year received
an
unqualified opinion from the City's independent auditors, the tenth
consecutive
year the City has received such an opinion.
In 1975, New York City suffered a fiscal crisis that impaired the
borrowing
ability of both the City and New York State. In that year the City lost
access
to public credit markets. The City was not able to sell short-term notes to
the
public again until 1979.
On February 11, 1991, Moody's lowered their rating on the City's
general
obligation bonds to "Baa1" from "A". Moody's expressed doubts about whether
the
City's January 16, 1991 financial plan presents a "reasonable program to
achieve
budget balance in fiscal 1991 and 1992 and assure long-term
structural
integrity." Moody's stated "the enormity of the current problem, the severity
of
required expenditure cuts, the substantial revenue enhancements that will
be
required to achieve balance, the vulnerability to exogenous factors, and
the
extremely short time frame within which all this must be accomplished
introduce
substantial new risk to the City's short-and long-term credit outlook."
On
November 6, 1991, commenting on New York City's 1992-1996 Financial Plan,
S&P
stated that "at first glance, the proposals fall short of a structural change
in
[C]ity finances and operations, and represent only a timetable for
potential
balancing actions, dependent on future decisions by [C]ity and [S]tate
officials
for implementation." S&P noted that "without early commitments to the
longer
term actions in the plan, the use of debt refinancing by [the
Municipal
Assistance Corporation] for a two-year tax freeze would be little more
than
deficit financing, and negative for the City's current single 'A' minus
rating."
On April 29, 1991, S&P downgraded New York City's outstanding $1.3 billion
of
general obligation revenue and anticipation notes from "SP-1" to "SP-2".
S&P
also announced a rating of "SP-2" for the City's offering of $1.25 billion
of
general obligation revenue anticipation notes. The lower ratings of S&P
"reflect
the City's aggravated short-term cash position for fiscal 1991, the
unusually
high level of total revenue anticipation note exposure resulting from
the
State's delay in passing its budget and distributing fiscal aid, and
continued
pressure on revenues and expenditures due to prevailing economic conditions."
On
April 30, 1991, Moody's assigned a rating of "MIG-2" to the same offering
of
$1.25 billion of general obligation revenue anticipation notes. Moody's
stated
that "although an increasingly strained financial outlook for both the City
and
the State complicates the State
15
<PAGE>
budget adoption process, this rating on revenue anticipation notes
relies
explicitly on the expectation that the State is fully cognizant of
the
consequences of further untimely delays in state budget adoption and will
act
responsibly. Failure of the State to find a timely resolution to the
budget
process will have severe implications for the normal financial performance
of
New York City and other local governments in New York State." On October
7,
1991, Moody's again assigned a "MIG-2" rating to New York City's $1.25
billion
of revenue anticipation notes, fiscal 1992, Series A.
Moody's stated in its January 6, 1992 downgrade of certain New York
State
obligations that while such action did not directly affect the bond ratings
of
local governments in New York State, the impact of the State's fiscal
stringency
on local government bond ratings will be assessed on a case-by-case basis.
On
June 22, 1992, Moody's gave its "MIG-1" rating to the City's $1.4
billion
revenue anticipation notes and tax anticipation notes citing New York
City's
"markedly improved" short-term credit position.
On July 6, 1993, S&P reaffirmed the City's "A-" rating on $20.4 billion
of
general obligation bonds stating that "[t]he City has identified
additional
gap-closing measures that have recurring value and will reduce next
year's
budget gap . . . by approximately $400 million." Officials at Moody's
also
indicated that there were no plans to alter its "Baa1" rating on the
City's
general obligation bonds.
New York City is heavily dependent on New York State and federal
assistance
to cover insufficiencies in its revenues. There can be no assurance that in
the
future federal and State assistance will enable the City to make up its
budget
deficits. To help alleviate the City's financial difficulties, the
Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. MAC is
authorized
to issue bonds and notes payable from certain stock transfer tax revenues,
from
the City's portion of the State sales tax derived in the City and from State
per
capita aid otherwise payable by the State to the City. Failure by the State
to
continue the imposition of such taxes, the reduction of the rate of such
taxes
to rates less than those in effect on July 2, 1975, failure by the State to
pay
such aid revenues and the reduction of such aid revenues below a specified
level
are included among the events of default in the resolutions authorizing
MAC's
long-term debt. The occurrence of an event of default may result in
the
acceleration of the maturity of all or a portion of MAC's debt. As of
September
30, 1993, MAC had outstanding an aggregate of approximately $5.304 billion
of
its bonds. MAC bonds and notes constitute general obligations of MAC and do
not
constitute an enforceable obligation or debt of either the State or the
City.
Under its enabling legislation, MAC's authority to issue bonds and notes
(other
than refunding bonds and notes) expired on December 31, 1984. Legislation
has
been passed by the legislature which would, under certain conditions, permit
MAC
to issue up to $1.465 billion of additional bonds, which are not subject to
a
moral obligation provision.
Since 1975, the City's financial condition has been subject to oversight
and
review by the New York State Financial Control Board (the "Control Board")
and
since 1978 the City's financial statements have been audited by
independent
accounting firms. To be eligible for guarantees and assistance, the City
is
required during a "control period" to submit annually for Control
Board
approval, and when a control period is not in effect for Control Board review,
a
financial plan for the next four fiscal years covering the City and
certain
agencies showing balanced budgets determined in accordance with GAAP. New
York
State also established the Office of the State Deputy Comptroller for New
York
City ("OSDC") to assist the Control Board in exercising its powers
and
responsibilities. On June 30, 1986, the City satisfied the
statutory
requirements for termination of the control period. This means that the
Control
Board's powers of approval are suspended, but the Board continues to
have
oversight responsibilities.
16
<PAGE>
On November 23, 1993, the City adopted and submitted to the Control Board
a
modification to its 1994-1997 Financial Plan (the "November
Modification")
incorporating various re-estimates of revenues and expenditures. For fiscal
year
1994, the November Modification includes additional resources stemming
primarily
from the City comptroller's fiscal year 1993 annual audit, savings from
a
reduction in prior years' accrued expenditures, and higher State and federal
aid
resulting from claims by the City for reimbursement of various social
services
costs. These resources were used to fund new needs in the November
Modification
including higher costs in the uniformed agencies, at the Board of
Education
("BOE") and for certain social services, the unlikelihood of the sale of
certain
City assets, and lower estimates of miscellaneous and other revenues.
After
taking these adjustments into account, the November Modification projected
a
balanced budget for fiscal year 1994, based upon revenues of $31.585
billion.
For fiscal years 1995, 1996 and 1997, the November Modification projected
budget
gaps of $1.730 billion, $2,513 billion and $2.699 billion, respectively.
These
gaps are higher by about $450 million in fiscal year 1995 and by about
$700
million in each of fiscal years 1996 and 1997 than in the 1994-97
Financial
Plan, primarily on account of the non-recurring value of the fiscal year
1994
revenue adjustments, the loss of certain one-time resources funding BOE
fiscal
year 1994 spending needs, and the reclassification of anticipated State aid
from
the baseline revenue estimates to the gap-closing program. To offset
these
larger gaps, the November Modification relies on additional City, State
and
other actions.
On December 21, 1993, the staff of the Control Board issued its report on
the
November Modification. The report stated that the plan was now more realistic
in
terms of the gaps it portrayed and the solutions it offered. However,
the
solutions were mostly limited to fiscal year 1994 while the gap for fiscal
year
1995 has been increased by $450 million. Beginning in fiscal year 1995,
budget
gaps will average over $2 billion annually. Therefore, the staff
recommended
that prompt action to replace many current-year one-shots with recurring
savings
was critical. The staff advocated a vigorous and effective strategy
to
restructure revenues and expenditures, accompanied by a convincingly
detailed
plan of implementation. The report focused attention on the need for the City
to
closely examine its capital spending priorities, including appropriate
funding
for ongoing maintenance, implementation of a stretch-out of capital
commitments,
and development of a written debt policy. In addition, the report noted
that
administrative other-than-personal-service expenditures have not shared in
past
spending reduction and must begin to do so, and that the City must assemble
a
coherent labor policy that integrates productivity initiatives with
wage
increases and headcount reductions. The report concluded that actions taken
in
the next few months are critical to reverse the expansion that has
occurred
since the fiscal year 1994 budget was adopted.
On December 1, 1993, a three-member panel appointed by then Mayor
David
Dinkins to address the City's structural budget imbalance released a
report
setting forth its findings and recommendations. In its report, the panel
noted
that budget imbalance is likely to be greater than the City now projects by
$255
million in fiscal year 1995, rising to nearly $1.5 billion in fiscal year
1997.
The report provided a number of options that the City should consider
in
addressing the structural balance issue such as cuts in City-funded
personnel
levels, increases in residential property taxes and the sales tax, and
the
imposition of bridge tolls and solid waste collection fees. The report
also
noted that additional State action will be required in many instances to
allow
the City to cut its budget without grave damage to basic services.
OSDC issued a report on the City's economy on November 23, 1993. The
report
concluded that the four-year-old recession in New York City was ending, and
that
Wall Street industries were leading the turn-around with increased levels
of
activity, profits, compensation and employment. The report indicated
that
17
<PAGE>
the slow process of ending the local recession has been influenced by the
slow
rate of expansion in the nation and the recessions in Europe and Japan,
which
have hurt the City's key export industries of finance,
advertising,
communications, law and medicine. However, the report noted that
improvements
are now evident in these areas. In addition, the report noted that the
local
rate of inflation has dropped below that of the nation, leasing activity
for
primary office space has increased, the rate of decline in retail sales
has
slowed and unemployment, while still high, has declined two percentage
points
over the last year. The report projected that overall employment levels in
the
City's private sector industries would be higher by early 1994. However, it
also
indicated that the recovery in the local economy would likely be a slow
process,
in many ways mirroring the recent experience on the national level.
Estimates of the City's revenues and expenditures are based on
numerous
assumptions and are subject to various uncertainties. If expected federal or
New
York State aid is not forthcoming, if unforeseen developments in the
economy
significantly reduce revenues derived from economically sensitive taxes
or
necessitate increased expenditures for public assistance, if the City
should
negotiate wage increases for its employees greater than the amounts provided
for
in the City's financial plan or if other uncertainties materialize that
reduce
expected revenues or increase projected expenditures, then, to avoid
operating
deficits, the City may be required to implement additional actions,
including
increases in taxes and reductions in essential City services. The City
might
also seek additional assistance from New York State.
The City required certain amounts of financing for seasonal and
capital
spending purposes. The City has issued $1.75 billion of notes for
seasonal
financing purposes during its 1994 fiscal year. The City's capital
financing
program projects long-term financing requirements of approximately $18.5
billion
for the City's fiscal years 1994 through 1997 and other fixed assets. The
major
capital requirements include expenditures for the City's water supply and
sewage
disposal systems, roads, bridges, mass transit, schools, hospitals and
housing.
In addition to financing for new purposes, the City and the New York
City
Municipal Water Finance Authority have issued refunding bonds totalling
$1.5
billion in fiscal year 1994.
Certain localities, in addition to the City, could have financial
problems
leading to requests for additional New York State assistance during the
State's
1993-94 and 1994-95 fiscal years and thereafter. The potential impact on
New
York State of such actions by localities is not included in the projections
of
the State receipts and disbursements in New York State's 1993-94 and 1994-
95
fiscal years.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted
in the creation of the Financial Control Board for the City of Yonkers
(the
"Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with
oversight of the fiscal affairs of Yonkers. Future actions taken by the
Governor
or the Legislature to assist Yonkers could result in allocation of New
York
State resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial short-
term
and long-term borrowings. In 1992, the total indebtedness of all localities
in
New York State was approximately $35.2 billion, of which $19.5 billion was
debt
of New York City (excluding $5.9 billion in MAC debt); a small
portion
(approximately $71.6 million) of this indebtedness represented borrowing
to
finance budgetary deficits and was issued pursuant to enabling New York
State
legislation. State law requires the Comptroller to review and
make
recommendations concerning the budgets of those local government units
other
than New York City
18
<PAGE>
authorized by State law to issue debt to finance deficits during the period
that
such deficit financing is outstanding. Seventeen localities had
outstanding
indebtedness for deficit financing at the close of their fiscal year ending
in
1992.
In 1992, an unusually large number of local government units
requested
authorization for deficit financings. According to the State's comptroller,
ten
local government units have been authorized to issue deficit financing in
the
aggregate amount of $131.1 million. The current session of the Legislature
may
receive as many or more requests for deficit-financing authorizations as
a
result of deficits previously incurred by local governments. Although
the
comptroller has indicated that the level of deficit financing requests
is
unprecedented, such developments are not expected to have a material
adverse
effect on the financial condition of the State.
Certain proposed federal expenditure reductions would reduce, or in
some
cases eliminate, federal funding of some local programs and accordingly
might
impose substantial increased expenditure requirements on affected localities
to
increase local revenues to sustain those expenditures. If New York State,
New
York City or any of the Authorities were to suffer serious
financial
difficulties jeopardizing their respective access to the public credit
markets,
the marketability of notes and bonds issued by localities within New York
State
could be adversely affected. Localities also face anticipated and
potential
problems resulting from certain pending litigation, judicial decisions
and
long-range economic trends. The longer-range potential problems of
declining
urban population, increasing expenditures and other economic trends
could
adversely affect certain localities and require increasing New York
State
assistance in the future.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
IN GENERAL
Information on how to purchase and redeem Fund shares, and how such shares
are
priced, is included in the Prospectus. The issuance of shares is recorded on
the
books of the Fund, and share certificates are not issued.
The regulations of the Comptroller of the Currency (the
"Comptroller")
provide that funds held in a fiduciary capacity by a national bank approved
by
the Comptroller to exercise fiduciary powers must be invested in accordance
with
the instrument establishing the fiduciary relationship and local law. The
Trust
believes that the purchase of Fund shares by such national banks acting
on
behalf of their fiduciary accounts is not contrary to applicable regulations
if
consistent with the particular account and proper under the law governing
the
administration of the account.
Conflict of interest restrictions may apply to an institution's receipt
of
compensation paid by the Fund on fiduciary funds that are invested in the
Fund's
Class B or Class C shares. Institutions, including banks regulated by
the
Comptroller and investment advisers and other money managers subject to
the
jurisdiction of the SEC, the Department of Labor or state
securities
commissions, should consult their legal advisers before investing
fiduciary
funds in the Fund's Class B or Class C shares.
Prior to effecting a redemption of shares represented by certificates,
The
Shareholder Services Group, Inc. ("TSSG"), the Trust's transfer agent, must
have
received such certificates at its principal office. All such certificates
must
be endorsed by the redeeming shareholder or accompanied by a signed stock
power,
in each instance with the signature guaranteed by a commercial bank or a
member
of a major stock
19
<PAGE>
exchange, unless other arrangements satisfactory to the Fund have
previously
been made. The Fund may require any additional information reasonably
necessary
to evidence that a redemption has been duly authorized.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone
the date of payment upon redemption for any period during which the New
York
Stock Exchange ("Exchange") is closed, other than customary weekend and
holiday
closings, or during which trading on the Exchange is restricted, or during
which
(as determined by the SEC by rule or regulation) an emergency exists as a
result
of which disposal or valuation of portfolio securities is not
reasonably
practicable, or for such other periods as the SEC may permit. (The Fund may
also
suspend or postpone the recordation of the transfer of its shares upon
the
occurrence of any of the foregoing conditions.) In addition, the Fund may
redeem
shares involuntarily in certain other instances if the Board of
Trustees
determines that failure to redeem may have material adverse consequences to
the
Fund's shareholders in general. If the Board of Trustees determines
that
conditions exist which make payment of redemption proceeds wholly in cash
unwise
or undesirable, the Fund may make payment wholly or partly in readily
marketable
securities or other property. In certain instances, the Fund may redeem
shares
pro rata from each shareholder of record without payment of
monetary
consideration. See "Net Asset Value" below.
Any institution purchasing shares on behalf of separate accounts will
be
required to hold the shares in a single nominee name (a "Master
Account").
Institutions investing in more than one class of the Fund's shares must
maintain
a separate Master Account for each class. Sub-accounts may be established
by
name or number either when the Master Account is opened or later.
NET ASSET VALUE
The Fund's net asset value per share is calculated by adding the value of all
of
the Fund's portfolio securities and other assets belonging to the
Fund,
subtracting the liabilities charged to the Fund including dividends that
have
been declared but not paid, and dividing the result by the number of the
Fund's
shares outstanding (irrespective of class or series). "Assets belonging to"
the
Fund consist of the consideration received upon the issuance of the
Fund's
shares together with all income, earnings, profits and proceeds derived from
the
investment thereof, including any proceeds from the sale of such investments
and
any funds or payments derived from any reinvestment of such proceeds and
a
portion of any general assets of the Trust not belonging to a
particular
portfolio. Assets belonging to the Fund are charged with the direct
liabilities
of the Fund and with a share of the general liabilities of the Trust
allocated
on a daily basis in proportion to the relative net assets of the Fund and
the
Trust's other portfolios. Determinations made in good faith and in
accordance
with generally accepted accounting principles of the Trust's Board of
Trustees
as to the allocation of any assets or liabilities with respect to the Fund
are
conclusive.
As stated in the Prospectus, in computing the net asset value of its
shares
for purposes of sales and redemptions, the Fund uses the amortized cost
method
of valuation. Under this method, the Fund values each of its
portfolio
securities at cost on the date of purchase and thereafter assumes a
constant
proportionate amortization of any discount or premium until maturity of
the
security. As a result, the value of a portfolio security for purposes
of
determining net asset value normally does not change in response to
fluctuating
interest rates. While the amortized cost method provides certainty in
portfolio
valuation, it may result in valuations of the Fund's securities which are
higher
or lower than the market value of such securities.
20
<PAGE>
In connection with its use of amortized cost valuation, the Fund limits
the
dollar-weighted average maturity of its portfolio to not more than 90 days
and
does not purchase any instrument with a remaining maturity of more than
13
months (397 days) (with certain exceptions). The Trust's Board of Trustees
has
also established, pursuant to rules promulgated by the SEC, procedures that
are
intended to stabilize the Fund's net asset value per share for purposes of
sales
and redemptions at $1.00. Such procedures include the determination at
such
intervals as the Board deems appropriate, of the extent, if any, to which
the
Fund's net asset value per share calculated by using available market
quotations
deviates from $1.00 per share. In the event such deviation exceeds 1/2 of
1%,
the Board will promptly consider what action, if any, should be initiated.
If
the Board believes that the amount of any deviation from the Fund's
$1.00
amortized cost price per share may result in material dilution or other
unfair
results to investors or existing shareholders, it will take such steps as
it
considers appropriate to eliminate or reduce to the extent
reasonably
practicable any such dilution or unfair results. These steps may include
selling
portfolio instruments prior to maturity to realize capital gains or losses or
to
shorten the Fund's average portfolio maturity, redeeming shares in
kind,
reducing or withholding dividends, or utilizing a net asset value per
share
determined by using available market quotations.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Trust's trustees and executive officers, their addresses,
principal
occupations during the past 5 years and other affiliations are as follows:
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATIONS DURING PAST 5 YEARS
NAME AND ADDRESS POSITION WITH THE TRUST
AND OTHER AFFILIATIONS
---------------------------- -------------------------- --------------------
---------------------------------------
<S> <C> <C>
Steven Spiegel(1)(2) Vice Chairman of the Board Managing Director,
Lehman Brothers; President, Lehman
3 World Financial Center and Trustee Brothers Global
Asset Management Inc.; formerly Chairman,
New York, NY 10285 Lehman Brothers
International (Europe).
Charles F. Barber(2)(3) Trustee Consultant; formerly
Chairman of the Board, ASARCO
66 Glenwood Drive Incorporated.
Greenwich, CT 06830
Burt N. Dorsett(2)(3) Trustee Managing Partner,
Dorsett McCabe Capital Management, Inc.,
201 East 62nd Street an investment
counselling firm; Director, Research
New York, NY 10022 Corporation
Technologies, a non-profit patent-clearing and
licensing operation;
formerly President, Westinghouse
Pension Investments
Corporation; formerly Executive Vice
President and
Trustee, College Retirement Equities Fund,
Inc., a variable
annuity fund; and formerly Investment
Officer, University
of Rochester.
Edward J. Kaier(2)(3) Trustee Partner with the law
firm of Hepburn Willcox Hamilton &
1100 One Penn Center Putnam.
Philadelphia, PA 19103
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATIONS DURING PAST 5 YEARS
NAME AND ADDRESS POSITION WITH THE TRUST
AND OTHER AFFILIATIONS
---------------------------- -------------------------- --------------------
---------------------------------------
<S> <C> <C>
S. Donald Wiley(2)(3) Trustee Vice-Chairman and
Trustee, H.J. Heinz Company Foundation;
USX Tower prior to October
1990, Senior Vice President, General
Pittsburgh, PA 15219 Counsel and
Secretary, H.J. Heinz Company.
Peter Meenan President Managing Director of
Lehman Brothers; President of Lehman
260 Franklin Street Brothers
Institutional Funds Group Trust; formerly,
Boston, MA 02110 Director, Senior
Vice President and Director of
Institutional Fund
Services, The Boston Company Advisors,
Inc. from February
1984 to May 1993; Director, Funds
Distributor, Inc.
(1992-1993); Senior Vice President, The
Boston Company
Advisors, Inc. from August 1984 to May 1993.
John M. Winters Vice President and Senior Vice
President and Senior Money Market Portfolio
3 World Financial Center Investment Officer Manager, Lehman
Brothers Global Asset Management Inc.;
New York, NY 10285 formerly Product
Manager with Lehman Brothers Capital
Markets Group.
Michael C. Kardok Treasurer Vice President, The
Shareholder Services Group, Inc.; prior
One Exchange Place to May 1994, Vice
President, The Boston Company Advisors,
Boston, MA 02109 Inc.
Patricia L. Bickimer Secretary Vice President and
Associate General Counsel, The
One Exchange Place Shareholder Services
Group, Inc.; prior to May 1994, Vice
Boston, MA 02109 President and
Associate General Counsel, The Boston Company
Advisors, Inc.
<FN>
------------------------
1. Considered by the Trust to be "interested persons" of the Trust as defined
in
the 1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.
</TABLE>
Two trustees of the Trust, Messrs. Barber and Dorsett, serve as trustees
or
directors of other investment companies for which Lehman Brothers, LBGAM or
one
of their affiliates serves as distributor or investment adviser.
No employee of Lehman Brothers, LBGAM or TSSG receives any compensation
from
the Trust for acting as an officer or trustee of the Trust. The Trust pays
each
trustee who is not a director, officer or employee of Lehman Brothers, LBGAM
or
TSSG or any of their affiliates, a fee of $20,000 per annum plus $1,250
per
meeting attended and reimburses them for travel and out-of-pocket expenses.
By virtue of the responsibilities assumed by Lehman Brothers, LBGAM, TSSG
and
their affiliates under their respective agreements with the Trust, the
Trust
itself requires no employees in addition to its officers.
22
<PAGE>
INVESTMENT ADVISER
LBGAM serves as the investment adviser to the Fund. The investment
advisory
agreement provides that LBGAM is responsible for all investment activities
of
the Fund, including executing portfolio strategy, Fund purchase and
sale
transactions and employs professional portfolio managers and security
analysts
who provide research for the Fund.
The Investment Advisory Agreement with respect to the Funds will continue
in
effect for a period of two years from February 5, 1993 and thereafter from
year
to year provided the continuance is approved annually (i) by the Trust's
Board
of Trustees or (ii) by a vote of a "majority" (as defined in the 1940 Act)
of
the Fund's outstanding voting securities, except that in either event
the
continuance is also approved by a majority of the Trustees of the Trust who
are
not "interested persons" (as defined in the 1940 Act). The Investment
Advisory
Agreement may be terminated (i) on 60 days' written notice by the Trustees
of
the Trust, (ii) by vote of holders of a majority of the Fund's
outstanding
voting securities, or upon 90 days' written notice by Lehman Brothers, or
(iii)
automatically in the event of its assignment (as defined in the 1940 Act).
As compensation for LBGAM's services rendered to the Fund, the Fund pays
a
fee, computed daily and paid monthly, at the annual rate of .30% of the
average
daily net assets of the Fund. As of January 31, 1994, the Fund had not
commenced
operations and, accordingly, no advisory fees were paid by the Fund. In order
to
maintain a competitive expense ratio during 1994 through 1997, the
investment
adviser and administrator have agreed to reimburse the Fund if total
operating
expenses exceed certain levels. See "BACKGROUND AND EXPENSE INFORMATION" in
the
Prospectus.
ADMINISTRATOR AND TRANSFER AGENT
TSSG, a subsidiary of First Data Corporation, is located at One Exchange
Place,
Boston, Massachusetts 02109, and serves as the Trust's administrator
and
transfer agent. As the Fund's administrator, TSSG has agreed to provide
the
following services: (i) assist generally in supervising the Fund's
operations,
providing and supervising the operation of an automated data processing
system
to process purchase and redemption orders, providing information concerning
the
Fund to its shareholders of record, handling shareholder problems,
supervising
the services of employees whose principal responsibility and function is
to
preserve and strengthen shareholder relations and monitoring the
arrangements
pertaining to the Fund's agreements with Service Organizations; (ii)
accumulate
information for and coordinate the preparation of reports to the
Fund's
shareholders and the SEC; (iii) compute the net asset value per share of
the
Fund; (iv) provide the services of certain persons who may be elected
as
trustees or appointed as officers of the Trust by the Board of Trustees; and
(v)
maintain the registration or qualification of the Fund's shares for sale
under
state securities laws. TSSG receives, as compensation for its services
rendered
under an administration agreement, an administrative fee, computed daily
and
paid monthly, at the annual rate of .10% of the average daily net assets of
each
Fund. TSSG pays Boston Safe, the Fund's custodian, a portion of its
monthly
administration fee for custody services rendered to the Fund. As of January
31,
1994, the Fund had not commenced operations and, accordingly, no
administration
fees were paid by the Fund. In order to maintain a competitive expense
ratio
during 1994 through 1997, the investment adviser and administrator have
agreed
to reimburse the Fund if total operating expenses exceed certain levels.
See
"BACKGROUND AND EXPENSE INFORMATION" in the Prospectus.
23
<PAGE>
Under the transfer agency agreement, TSSG maintains the shareholder
account
records for the Trust, handles certain communications between shareholders
and
the Trust and distributes dividends and distributions payable by the Trust
and
produces statements with respect to account activity for the Trust and
its
shareholders. For these services, TSSG receives a monthly fee based on
average
annual assets and is reimbursed for out-of-pocket expenses.
DISTRIBUTORS
Lehman Brothers acts as distributor of the Fund's shares. The Fund's shares
are
sold on a continuous basis by Lehman Brothers as agent. The distributor pays
the
cost of printing and distributing prospectuses to persons who are
not
shareholders of the Fund (excluding preparation and printing expenses
necessary
for the continued registration of the Fund's shares) and of preparing,
printing,
and distributing all sales literature. No compensation is payable by the Fund
to
Lehman Brothers for its distribution services.
Lehman Brothers is comprised of several major operating business
units.
Lehman Brothers Institutional Funds Group is the business group within
Lehman
Brothers that is primarily responsible for the distribution and client
service
requirements of the Trust and its shareholders. Lehman Brothers
Institutional
Funds Group has been serving institutional clients' investment needs
exclusively
for more than 20 years, emphasizing high quality individualized service
to
clients.
CUSTODIAN
Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly owned
subsidiary
of The Boston Company, Inc., is located at One Boston Place,
Boston,
Massachusetts 02108, and serves as the custodian of the Trust pursuant to
a
custody agreement. Under the custody agreement, Boston Safe holds the
Fund's
portfolio securities and keeps all necessary accounts and records. For
its
services, Boston Safe receives a monthly fee based upon the month-end
market
value of securities held in custody and also receives securities
transaction
charges, including out-of-pocket expenses. The assets of the Trust are
held
under bank custodianship in compliance with the 1940 Act.
SERVICE ORGANIZATIONS
As stated in the Fund's Prospectus, the Fund will enter into an agreement
with
each financial institution which may purchase Class C shares. The Fund
will
enter into an agreement with each Service Organization whose
customers
("Customers") are the beneficial owners of Class C shares that requires
the
Service Organization to provide certain services to Customers. In
consideration
of the Fund's payment of .35% of the average daily net asset value of Class
C
shares held by the Service Organization for the benefit of its Customers.
Such
services include: (i) aggregating and processing purchase and
redemption
requests from Customers and placing net purchase and redemption orders with
one
of the Fund's distributors; (ii) processing dividend payments from the Fund
on
behalf of Customers; (iii) providing information periodically to
Customers
showing their positions in shares; (iv) arranging for bank wires; (v)
responding
to Customer inquiries relating to the services performed by the
Service
Organization and handling correspondence; (vi) forwarding
shareholder
communications from the Fund (such as proxies, shareholder reports, annual
and
semi-annual financial statements and dividend, distribution and tax notices)
to
Customers; (vii) acting as a shareholder of record or nominee; and (viii)
other
similar account administrative services, a Service Organization at its
option,
may also provide to its Customers of Class C shares (a) a service that
invests
the assets of their accounts in shares pursuant to specific or pre-
authorized
instructions; (b) provide sub-accounting with respect to shares
beneficially
owned by Customers or the information necessary for
24
<PAGE>
sub-accounting; and (c) provide checkwriting services. In addition,
Service
Organizations that purchase Class C shares will also provide assistance
in
connection with the support of the distribution of Class C shares to
its
Customers, including marketing assistance and the forwarding to Customers
of
sales literature and advertising provided by a distributor of the shares.
Holders of Class B shares of the Fund will receive the services set forth
in
(i) and (v) and may receive one or more of the services set forth in
(ii),
(iii), (iv), (vi) and (viii) above. In consideration of the services to
be
rendered in connection with this Class of shares, the Fund will pay the
Service
Organization .25% of the average daily net asset value of the Class B
shares
held by the Service Organization. A Service Organization, at its option,
may
also provide to its Customers of Class B shares services including: (a)
acting
as shareholder of record and as nominee; (b) providing Customers with a
service
that invests the assets of their accounts in shares pursuant to specific
or
pre-authorized instruction; (c) provide sub-accounting with respect to
shares
beneficially owned by Customers or the information necessary for sub-
accounting;
(d) providing information periodically to Customers showing their position
in
shares; (e) arranging for bank wires; (f) forwarding shareholder
communications
from the Fund (such as proxies, shareholder reports, annual and semi-
annual
financial statements and dividend, distribution and tax notices) to
Customers;
(g) providing reasonable assistance in connection with the distribution
of
shares to Customers; and (h) providing such other similar services as the
Fund
may reasonably request to the extent Service Organization is permitted to do
so
under applicable statutes, rules, or regulations.
The Fund's agreements with Service Organizations are governed by a plan
(the
"Plan") which has been adopted by the Board of Trustees pursuant to
applicable
rules and regulations of the SEC and an exemptive order granted by the
SEC.
Under the Plan, the Board of Trustees reviews, at least quarterly, a
written
report of the amounts expended under the Fund's agreements with
Service
Organizations and the purposes for which the expenditures were made.
In
addition, the Fund's arrangements with Service Organizations must be
approved
annually by a majority of the Trust's trustees, including a majority of
the
trustees who are not "interested persons" of the Trust as defined in the
1940
Act and have no direct or indirect financial interest in such arrangements
(the
"Disinterested Trustees").
The Board of Trustees has approved the Fund's arrangements with
Service
Organizations based on information provided by the Fund's service
contractors
that there is a reasonable likelihood that the arrangements will benefit
the
Fund and its shareholders by affording the Fund greater flexibility
in
connection with the servicing of the accounts of the beneficial owners of
its
shares in an efficient manner. Any material amendment to the
Trust's
arrangements with Service Organizations must be approved by a majority of
the
Trust's Board of Trustees (including a majority of the Disinterested
Trustees),
and any amendment to increase materially the costs under the Plan adopted by
the
Board with respect to the Class B or Class C shares must be approved by
the
holders of a majority of the outstanding shares of the relevant class. So
long
as the Fund's arrangements with Service Organizations are in effect,
the
selection and nomination of the members of the Trust's Board of Trustees who
are
not "interested persons" (as defined in the 1940 Act) of the Trust will
be
committed to the discretion of such non-interested trustees.
EXPENSES
The Fund's expenses include taxes, interest, fees and salaries of the
Trust's
trustees and officers who are not directors, officers or employees of the
Fund's
service contractors, SEC fees, state securities qualification fees, costs
of
preparing and printing prospectuses for regulatory purposes and for
distribution
to shareholders,
25
<PAGE>
advisory, sub-advisory and administration fees, charges of the
custodian,
transfer agent and dividend disbursing agent, Service Organization fees,
certain
insurance premiums, outside auditing and legal expenses, costs of
independent
pricing service, costs of shareholder reports and shareholder meetings and
any
extraordinary expenses. The Fund also pays for brokerage fees and
commissions
(if any) in connection with the purchase and sale of portfolio
securities.
LBGAM, and TSSG have agreed, that if, in any fiscal year, the expenses borne
by
the Fund exceed the applicable expense limitations imposed by the
securities
regulations of any state in which shares of the Fund are registered or
qualified
for sale to the public, they will reimburse the Fund any excess to the
extent
required by such regulations. Unless otherwise required by law,
such
reimbursement would be accrued and paid on the same basis that the advisory
and
administration fees are accrued and paid by the Fund. To the Fund's
knowledge,
of the expense limitations in effect on the date of this Statement of
Additional
Information, none is more restrictive than 2 1/2% of the first $30 million
of
the Fund's average annual net assets, 2% of the next $70 million of the
average
annual net assets and 1 1/2% of the remaining average annual net assets.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional federal tax considerations
generally
affecting the Fund and its shareholders that are not described in the
Fund's
Prospectus. No attempt is made to present a detailed explanation of the
tax
treatment of the Fund or its shareholders, and the discussion here and in
the
Fund's Prospectus is not intended as a substitute for careful tax
planning.
Investors should consult their tax advisers with specific reference to their
own
tax situations.
The Fund is treated as a separate corporate entity under the Internal
Revenue
Code of 1986, as amended (the "Code") and intends to qualify as a
regulated
investment company under the Code.
As described above and in the Fund's Prospectus, the Fund is designed
to
provide New York institutional investors and their customers with
current
tax-exempt interest income. The Fund is not intended to constitute a
balanced
investment program and is not designed for investors seeking
capital
appreciation or maximum tax-exempt income irrespective of fluctuations
in
principal. Shares of the Fund would not be suitable for tax-exempt
institutions
and may not be suitable for retirement plans qualified under Section 401 of
the
Code, H.R. 10 plans and individual retirement accounts since such plans
and
accounts are generally tax-exempt and, therefore, not only would not gain
any
additional benefit from the Fund's dividends being tax-exempt, but
such
dividends would be ultimately taxable to the beneficiaries when distributed
to
them. In addition, the Fund may not be an appropriate investment for
entities
which are "substantial users" of facilities financed by private activity
bonds
or "related persons" thereof. "Substantial user" is defined under U.S.
Treasury
Regulations to include a non-exempt person who regularly uses a part of
such
facilities in his trade or business and whose gross revenues derived
with
respect to the facilities financed by the issuance of bonds are more than 5%
of
the total revenues derived by all users of such facilities, or who occupies
more
than 5% of the usable area of such facilities or for whom such facilities or
a
part thereof were specifically constructed, reconstructed or acquired.
"Related
persons" include certain related natural persons, affiliated corporations,
a
partnership and its partners and an S corporation and its shareholders.
The percentage of total dividends paid by the Fund with respect to
any
taxable year which qualify as federal exempt-interest dividends will be the
same
for all shareholders receiving dividends during such year. In order for the
Fund
to pay exempt-interest dividends during any taxable year, at the close of
each
fiscal
26
<PAGE>
quarter at least 50% of the aggregate value of the Fund's portfolio must
consist
of federal tax-exempt interest obligations. In addition, the Fund
must
distribute an amount that is equal to at least the sum of 90% of its
net
exempt-interest income and 90% of its investment company taxable income
with
respect to each taxable year. After the close of its taxable year, the Fund
will
notify each shareholder of the portion of the dividends paid by the Fund to
the
shareholder with respect to such taxable year which constitutes
an
exempt-interest dividend. However, the aggregate amount of dividends
so
designated cannot exceed the excess of the amount of interest exempt from
tax
under Section 103 of the Code received by the Fund during the taxable year
over
any amounts disallowed as deductions under Sections 265 and 171(a)(2) of
the
Code.
Interest on indebtedness incurred by a shareholder to purchase or carry
Fund
shares is not deductible for federal and New York State and City personal
income
tax purposes if the Fund distributes exempt-interest dividends during
the
shareholder's taxable year.
While the Fund does not expect to earn any investment company taxable
income,
any such income earned by the Fund will be distributed. In general, the
Fund's
investment company taxable income will be its taxable income (for example,
its
short-term capital gains) subject to certain adjustments and excluding
the
excess of any net long-term capital gain for the taxable year over the
net
short-term capital loss, if any, for such year. To the extent such income
is
distributed, it will be taxable to shareholders as ordinary income (whether
paid
in cash or additional shares).
The Fund does not expect to realize long-term capital gains and
therefore
does not expect to distribute any capital gain dividends.
Dividends declared in October, November or December of any year payable
to
shareholders of record on a specified date in such months will be deemed
for
federal income tax purposes to have been received by the shareholders and
paid
by the Fund on December 31 of such year in the event such dividends are
actually
paid during January of the following year.
A 4% non-deductible excise tax is imposed on regulated investment
companies
that fail to currently distribute an amount equal to specified percentages
of
their ordinary taxable income and capital gain net income (excess of
capital
gains over capital losses). The Fund intends to make sufficient distributions
or
deemed distributions of its ordinary taxable income and any capital gain
net
income prior to the end of each calendar year to avoid liability for this
excise
tax.
Although the Fund expects to qualify each year as a "regulated
investment
company" and to be relieved of all or substantially all federal income
taxes,
depending upon the extent of its activities in states and localities in
which
its offices are maintained, in which its agents or independent contractors
are
located or in which it is otherwise deemed to be conducting business, the
Fund
may be subject to the tax laws of such states or localities.
If for any taxable year the Fund does not qualify for the special
federal
income tax treatment afforded regulated investment companies, all of its
taxable
income will be subject to federal income tax at regular corporate rates
(without
any deduction for distributions to its shareholders). In such event,
dividend
distributions, including amounts derived from interest on tax-
exempt
obligations, would be taxable to shareholders to the extent of current
and
accumulated earnings and profits, and would be eligible for the
dividends
received deduction for corporations.
27
<PAGE>
The Fund will be required in certain cases to withhold and remit to the
U.S.
Treasury 31% of taxable dividends or 31% of gross proceeds realized upon
sale
paid to shareholders who have failed to provide a correct tax
identification
number in the manner required, or who are subject to withholding by the
Internal
Revenue Service for failure properly to include on their return payments
of
taxable interest or dividends, or who have failed to certify to the Fund
that
they are not subject to backup withholding when required to do so or that
they
are "exempt recipients."
The foregoing discussion is based on federal tax laws and regulations
which
are in effect on the date of this Statement of Additional Information; such
laws
and regulations may be changed by legislative or administrative
action.
Shareholders are advised to consult their tax advisers concerning
the
application of state and local taxes.
DIVIDENDS
Net income for dividend purposes consists of (i) interest accrued and
original
discount earned on the Fund's assets for the applicable dividend period,
less
(ii) amortization of market premium on such assets, accrued expenses
directly
attributable to the Fund, and the general expenses (E.G., legal, accounting
and
trustees' fees) of the Trust prorated to the Fund on the basis of its
relative
net assets. The amortization of market discount on the Fund's assets is
not
included in the calculation of net income.
Realized and unrealized gains and losses on portfolio securities
are
reflected in net asset value. In addition, the Fund's Class B and Class C
shares
bear exclusively the expense of fees paid to Service Organizations with
respect
to each such Class of shares. See "MANAGEMENT OF THE
FUND--
SERVICE ORGANIZATIONS".
As stated, the Trust uses its best efforts to maintain the net asset
value
per share of the Fund at $1.00 As a result of a significant expense or
realized
or unrealized loss incurred by the Fund, it is possible that the Fund's
net
asset value per share may fall below $1.00.
ADDITIONAL YIELD INFORMATION
The "yields," "effective yields" and "tax-equivalent yields" are
calculated
separately for each Class of the Fund's shares. The seven-day yield for
each
Class of shares in the Fund is calculated by determining the net change in
the
value of a hypothetical preexisting account in the Fund having a balance of
one
share of the Class involved at the beginning of the period, dividing the
net
change by the value of the account at the beginning of the period to obtain
the
base period return, and multiplying the base period return by 365/7. The
net
change in the value of an account in the Fund includes the value of
additional
shares purchased with dividends from the original share and dividends
declared
on the original share and any such additional shares, net of all fees charged
to
all shareholder accounts in proportion to the length of the base period and
the
Fund's average account size, but does not include gains and losses or
unrealized
appreciation and depreciation. In addition, the effective yield is calculated
by
compounding the unannualized base period return for each Class (calculated
as
described above) by adding one to the base period return for the Fund
involved,
raising that sum to a power equal to 365/7, and subtracting one from the
result.
A tax-equivalent yield for each Class of the Fund's shares is computed by:
(a)
dividing the portion of the Fund's yield (calculated as above) that is
exempt
from both federal and New York State income taxes by one minus a stated
combined
federal and New York State income tax rate; (b) dividing the portion of
the
Fund's yield
28
<PAGE>
(calculated as above) that is exempt from federal income tax only by one minus
a
stated federal income tax rate; and (c) adding the figures resulting from
(a)
and (b) above to that portion, if any, of the Fund's yield that is not
exempt
from federal income tax. Similarly, based on the calculations described
above,
30-day (or one month) yields, effective yields and tax-equivalent yields
may
also be calculated.
From time to time, in advertisements or in reports to shareholders,
the
yields of the Fund may be quoted and compared to those of other mutual
funds
with similar investment objectives and to stock or other relevant indices.
For
example, the yields of the Fund may be compared to Donoghue's MONEY
FUND
AVERAGE, which is an average compiled by Donoghue's MONEY FUND REPORT7
of
Holliston, MA 01746, a widely recognized independent publication that
monitors
the performance of money market funds, or to the data prepared by
Lipper
Analytical Services, Inc. ("Lippers"), a widely-recognized independent
service
that monitors the performance of mutual funds.
Yields will fluctuate, and any quotation of yield should not be considered
as
representative of the future performance of the Fund. Since yields
fluctuate,
yield data cannot necessarily be used to compare an investment in the
Fund's
shares with bank deposits, savings accounts and similar investment
alternatives
which often provide an agreed or guaranteed fixed yield for a stated period
of
time. Shareholders should remember that yield is generally a function of
the
kind and quality of the investments held in a portfolio, portfolio
maturity,
operating expenses and market conditions. Any fees charged by banks or
other
financial institutions to customer accounts investing in shares of the Fund
will
not be included in calculations of yield; such fees would reduce the
actual
yield from that quoted.
ADDITIONAL DESCRIPTION CONCERNING SHARES
The Trust does not presently intend to hold annual meetings of
shareholders
except as required by the 1940 Act or other applicable law. The law
under
certain circumstances provides shareholders with the right to call for a
meeting
of shareholders to consider the removal of one or more trustees. To the
extent
required by the law, the Trust will assist in shareholder communication in
such
matters.
As stated in the Fund's Prospectus, holders of shares in the Fund will
vote
in the aggregate and not by class or series on all matters, except
where
otherwise required by law and except that only the Fund's Class B shares will
be
entitled to vote on matters submitted to a vote of shareholders pertaining
to
the Fund's arrangements with Service Organizations with respect to Class
B
shares and only Class C shares will be entitled to vote on matters submitted
to
a vote of shareholders pertaining to the Fund's arrangements with
Service
Organizations with respect to Class C shares. (See "Management of the Fund
--
Service Organizations.") Further, shareholders of all of the Trust's
portfolios
will vote in the aggregate and not by portfolio except as otherwise required
by
law or when the Board of Trustees determines that the matter to be voted
upon
affects only the interests of the shareholders of a particular portfolio.
Rule
18f-2 under the 1940 Act provides that any matter required to be submitted
by
the provisions of such Act or applicable state law, or otherwise, to the
holders
of the outstanding securities of an investment company such as the Trust
shall
not be deemed to have been effectively acted upon unless approved by the
holders
of a majority of the outstanding shares of each portfolio affected by
the
matter. Rule 18f-2 further provides that a portfolio shall be deemed to
be
affected by a matter unless it is clear that the interests of each portfolio
in
the matter are identical or that the matter does not affect any interest of
the
portfolio. Under the Rule the approval of an investment advisory agreement
or
any change in a fundamental investment policy would be effectively acted
upon
with respect to a portfolio only if approved by the holders of a majority of
the
outstanding voting
29
<PAGE>
securities of such portfolio. However, the Rule also provides that
the
ratification of the selection of independent certified public accountants,
the
approval of principal underwriting contracts and the election of trustees
are
not subject to the separate voting requirements and may be effectively
acted
upon by shareholders of the investment company voting without regard
to
portfolio.
COUNSEL
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York,
New York 10022, serves as counsel for the Trust and will pass upon the
legality
of the shares offered hereby. Willkie Farr & Gallagher also serves as counsel
to
Lehman Brothers.
AUDITORS
Ernst & Young, independent auditors, serve as auditors to the Fund and render
an
opinion on the Fund's financial statements annually. Ernst & Young has
offices
at 200 Claredon Street, Boston, Massachusetts 02116-5072.
FINANCIAL STATEMENTS
The Trust's Annual Report for the fiscal period ended January 31, 1994
is
incorporated into this Statement of Additional Information by reference in
its
entirety.
MISCELLANEOUS
SHAREHOLDER VOTE
As used in this Statement of Additional Information and the Fund's Prospectus,
a
"majority of the outstanding shares" of the Fund or of any other portfolio
means
the lesser of (1) 67% of the Fund's share, (irrespective of class), or of
the
portfolio represented at a meeting at which the holders of more than 50% of
the
outstanding shares of the Fund or such portfolio are present in person or
by
proxy, or (2) more than 50% of the Fund's outstanding shares (irrespective
of
class) or of the portfolio.
SHAREHOLDER AND TRUSTEE LIABILITY
The Trust is organized as a trust under the laws of the Commonwealth
of
Massachusetts. Shareholders of such a trust may, under certain circumstances,
be
held personally liable (as if they were partners) for the obligations of
the
trust. The Declaration of Trust of the Trust provides that shareholders
shall
not be subject to any personal liability for the acts or obligations of
the
Trust and that every note, bond, contract, order or other undertaking made
by
the Trust shall contain a provision to the effect that the shareholders are
not
personally liable thereunder. The Declaration of Trust provides
for
indemnification out of the trust property of the Fund of any shareholder of
the
Fund held personally liable solely by reason of being or having been
a
shareholder and not because of any acts or omissions or some other reason.
The
Declaration of Trust also provides that the Trust shall, upon request,
assume
the defense of any claim made against any shareholder for any act or
obligation
of the Trust and satisfy any judgment thereon. Thus, the risk of a
Fund
shareholder's incurring financial loss beyond the amount invested on account
of
shareholder liability is limited to circumstances in which the Fund itself
would
be unable to meet its obligations.
30
<PAGE>
The Trust's Declaration of Trust provides further that no trustee of
the
Trust shall be personally liable for or on account of any contract, debt,
tort,
claim, damage, judgment or decree arising out of or connected with
the
administration or preservation of the trust estate or the conduct of
any
business of the Trust, nor shall any trustee be personally liable to any
person
for any action or failure to act except by reason of bad faith,
willful
misfeasance, gross negligence in performing duties, or by reason of
reckless
disregard for the obligations and duties as trustee. It also provides that
all
persons having any claim against the trustees or the Trust shall look solely
to
the trust property for payment. With the exceptions stated, the Declaration
of
Trust provides that a trustee is entitled to be indemnified against
all
liabilities and expenses reasonably incurred in connection with the defense
or
disposition of any proceeding in which the trustee may be involved or may
be
threatened with by reason of being or having been a trustee, and that
the
trustees have the power, but not the duty, to indemnify officers and
employees
of the Trust unless such persons would not be entitled to indemnification
if
they were in the position of trustee.
31
<PAGE>
APPENDIX
DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of
the
likelihood of timely payment of debt having an original maturity of no more
than
365 days. The following summarizes the rating categories used by Standard
and
Poor's for commercial paper:
"A-1" -- Issue's degree of safety regarding timely payment is strong.
Those
issues determined to possess extremely strong safety characteristics are
denoted
"A-1+."
"A-2" -- Issue's capacity for timely payment is satisfactory. However,
the
relative degree of safety is not as high as for issues designated "A-1."
"A-3" -- Issue has an adequate capacity for timely payment. It is,
however,
somewhat more vulnerable to the adverse effects of changes and
circumstances
than an obligation carrying a higher designation.
"B" -- Issue has only a speculative capacity for timely payment.
"C" -- Issue has a doubtful capacity for payment.
"D" -- Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of issuers
to
repay punctually promissory obligations not having an original maturity
in
excess of 9 months. The following summarizes the rating categories used
by
Moody's for commercial paper:
"PRIME-1" -- Issuer or related supporting institutions are considered to
have
a superior capacity for repayment of short-term promissory
obligations.
Principal repayment capacity will normally be evidenced by the
following
characteristics: leading market positions in well established industries;
high
rates of return on funds employed; conservative capitalization structures
with
moderate reliance on debt and ample asset protection; broad margins in
earning
coverage of fixed financial charges and high internal cash generation; and
well
established access to a range of financial markets and assured sources
of
alternate liquidity.
"PRIME-2" -- Issuer or related supporting institutions are considered to
have
a strong capacity for repayment of short-term promissory obligations. This
will
normally be evidenced by many of the characteristics cited above but to a
lesser
degree. Earnings trends and coverage ratios, while sound, will be more
subject
to variation. Capitalization characteristics, while still appropriate, may
be
more affected by external conditions. Ample alternative liquidity is
maintained.
"PRIME-3" -- Issuer or related supporting institutions have an
acceptable
capacity for repayment of short-term promissory obligations. The effects
of
industry characteristics and market composition may be more
pronounced.
Variability in earnings and profitability may result in changes in the level
of
debt protection measurements and the requirement for relatively high
financial
leverage. Adequate alternate liquidity is maintained.
A-1
<PAGE>
"NOT PRIME" -- Issuer does not fall within any of the Prime
rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial
paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps employs
three
designations, "Duff 1+," "Duff 1" and "Duff 1-," within the highest
rating
category. The following summarizes the rating categories used by Duff &
Phelps
for commercial paper:
"DUFF 1+" -- Debt possesses highest certainty of timely payment. Short-
term
liquidity, including internal operating factors and/or access to
alternative
sources of funds, is outstanding, and safety is just below risk-free
U.S.
Treasury short-term obligations.
"DUFF 1" -- Debt possesses very high certainty of timely payment.
Liquidity
factors are excellent and supported by good fundamental protection factors.
Risk
factors are minor.
"DUFF 1-" -- Debt possesses high certainty of timely payment.
Liquidity
factors are strong and supported by good fundamental protection factors.
Risk
factors are very small.
"DUFF 2" -- Debt possesses good certainty of timely payment.
Liquidity
factors and company fundamentals are sound. Although ongoing funding needs
may
enlarge total financing requirements, access to capital markets is good.
Risk
factors are small.
"DUFF 3" -- Debt possesses satisfactory liquidity, and other
protection
factors qualify issue as investment grade. Risk factors are larger and
subject
to more variation. Nevertheless, timely payment is expected.
"DUFF 4" -- Debt possesses speculative investment characteristics.
"DUFF 5" -- Issuer has failed to meet scheduled principal and/or
interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand
or have original maturities of up to three years. The following summarizes
the
rating categories used by Fitch for short-term obligations:
"F-1+" -- Securities possess exceptionally strong credit quality.
Issues
assigned this rating are regarded as having the strongest degree of
assurance
for timely payment.
"F-1" -- Securities possess very strong credit quality. Issues assigned
this
rating reflect an assurance of timely payment only slightly less in degree
than
issues rated "F-1+."
"F-2" -- Securities possess good credit quality. Issues carrying this
rating
have a satisfactory degree of assurance for timely payment, but the margin
of
safety is not as great as the "F-1+" and "F-1" categories.
"F-3" -- Securities possess fair credit quality. Issues assigned this
rating
have characteristics suggesting that the degree of assurance for timely
payment
is adequate; however, near-term adverse changes could cause those securities
to
be rated below investment grade.
"F-S" -- Securities possess weak credit quality. Issues assigned this
rating
have characteristics suggesting a minimal degree of assurance for timely
payment
and are vulnerable to near-term adverse changes in financial and
economic
conditions.
"D" -- Securities are in actual or imminent payment default.
A-2
<PAGE>
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate
that the rating is based upon a letter of credit issued by a commercial bank.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for corporate
and
municipal debt:
AAA -- This designation represents the highest rating assigned by Standard
&
Poor's to a debt obligation and indicates an extremely strong capacity to
pay
interest and repay principal.
AA -- Debt is considered to have a very strong capacity to pay interest
and
repay principal and differs from AAA issues only in small degree.
A -- Debt is considered to have a strong capacity to pay interest and
repay
principal although such issues are somewhat more susceptible to the
adverse
effects of changes in circumstances and economic conditions than debt
in
higher-rated categories.
BBB -- Debt is regarded as having an adequate capacity to pay interest
and
repay principal. Whereas such issues normally exhibit adequate
protection
parameters, adverse economic conditions or changing circumstances are
more
likely to lead to a weakened capacity to pay interest and repay principal
for
debt in this category than in higher-rated categories.
BB, B, CCC, CC, AND C -- Debt that possesses one of these ratings
is
regarded, on balance, as predominantly speculative with respect to capacity
to
pay interest and repay principal in accordance with the terms of the
obligation.
"BB" indicates the lowest degree of speculation and "C" the highest degree
of
speculation. While such debt will likely have some quality and
protective
characteristics, these are outweighed by large uncertainties or major
risk
exposures to adverse conditions.
CI -- This rating is reserved for income bonds on which no interest is
being
paid.
D -- Debt is in default, and payment of interest and/or repayment
of
principal is in arrears.
PLUS (+) OR MINUS (-) -- The ratings from "AA" through "CCC" may be
modified
by the addition of a plus or minus sign to show relative standing within
the
major rating categories.
The following summarizes the ratings used by Moody's for corporate
and
municipal long-term debt:
AAA -- Bonds are judged to be of the best quality. They carry the
smallest
degree of investment risk and are generally referred to as "gilt edge."
Interest
payments are protected by a large or by an exceptionally stable margin
and
principal is secure. While the various protective elements are likely to
change,
such changes as can be visualized are most unlikely to impair the
fundamentally
strong position of such issues.
AA -- Bonds are judged to be of high quality by all standards. Together
with
the "Aaa" group they comprise what are generally known as high grade bonds.
They
are rated lower than the best bonds because margins of protection may not be
as
large as in "Aaa" securities or fluctuation of protective elements may be
of
greater amplitude or there may be other elements present which make
the
long-term risks appear somewhat larger than in "Aaa" securities.
A-3
<PAGE>
A -- Bonds possess many favorable investment attributes and are to
be
considered as upper medium grade obligations. Factors giving security
to
principal and interest are considered adequate but elements may be present
which
suggest a susceptibility to impairment sometime in the future.
BAA -- Bonds considered medium-grade obligations, I.E., they are
neither
highly protected nor poorly secured. Interest payments and principal
security
appear adequate for the present but certain protective elements may be
lacking
or may be characteristically unreliable over any great length of time.
Such
bonds lack outstanding investment characteristics and in fact have
speculative
characteristics as well.
BA, B, CAA, CA, AND C -- Bonds that possess one of these ratings
provide
questionable protection of interest and principal ("Ba" indicates
some
speculative elements; "B" indicates a general lack of characteristics
of
desirable investment; "Caa" represents a poor standing; "Ca"
represents
obligations which are speculative in a high degree; and "C" represents
the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
CON. (---) -- Bonds for which the security depends upon the completion
of
some act or the fulfillment of some condition are rated conditionally. These
are
bonds secured by (a) earnings of projects under construction, (b) earnings
of
projects unseasoned in operation experience, (c) rentals which begin
when
facilities are completed, or (d) payments to which some other limiting
condition
attaches. Parenthetical rating denotes probable credit stature upon
completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification
from "Aa" to "B" in its bond rating system. The modifier 1 indicates that
the
security ranks in the higher end of its generic rating category; the modifier
2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks
at the lower end of its generic rating category.
The following summarizes the ratings used by Duff & Phelps for corporate
and
municipal long-term debt:
AAA -- Debt is considered to be of the highest credit quality. The
risk
factors are negligible, being only slightly more than for risk-free
U.S.
Treasury debt.
AA -- Debt is considered of high credit quality. Protection factors
are
strong. Risk is modest but may vary slightly from time to time because
of
economic conditions.
A -- Debt possesses protection factors which are average but
adequate.
However, risk factors are more variable and greater in periods of
economic
stress.
BBB -- Debt possesses below average Protection factors but such
protection
factors are still considered sufficient for prudent investment.
Considerable
variability in risk is present during economic cycles.
BB, B, CCC, DD, AND DP -- Debt that possesses one of these ratings
is
considered to be below investment grade. Although below investment grade,
debt
rated "BB" is deemed likely to meet obligations when due. Debt rated
"B"
possesses the risk that obligations will not be met when due. Debt rated
"CCC"
is well below investment grade and has considerable uncertainty as to
timely
payment of principal, interest or preferred dividends. Debt rated "DD" is
a
defaulted debt obligation, and the rating "DP" represents preferred stock
with
dividend arrearages.
A-4
<PAGE>
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB,"
"BB" and "B" ratings may be modified by the addition of a plus (+) or minus
(-)
sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate
and municipal bonds:
AAA -- Bonds considered to be investment grade and of the highest
credit
quality. The obligor has an exceptionally strong ability to pay interest
and
repay principal, which is unlikely to be affected by reasonably
foreseeable
events.
AA -- Bonds considered to be investment grade and of very high
credit
quality. The obligor's ability to pay interest and repay principal is
very
strong, although not quite as strong as bonds rated "AAA." Because bonds
rated
in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable
future developments, short-term debt of these issuers is generally rated "F-
1+."
A -- Bonds considered to be investment grade and of high credit quality.
The
obligor's ability to pay interest and repay principal is considered to
be
strong, but may be more vulnerable to adverse changes in economic conditions
and
circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory
credit
quality. The obligor's ability to pay interest and repay principal is
considered
to be adequate. Adverse changes in economic conditions and
circumstances,
however, are more likely to have an adverse impact on these bonds,
and
therefore, impair timely payment. The likelihood that the ratings of these
bonds
will fall below investment grade is higher than for bonds with higher ratings.
BB, B, CCC, CC, C, DDD, DD, AND D -- Bonds that possess one of these
ratings
are considered by Fitch to be speculative investments. The ratings "BB" to
"C"
represent Fitch's assessment of the likelihood of timely payment of
principal
and interest in accordance with the terms of obligation for bond issues not
in
default. For defaulted bonds, the rating "DDD" to "D" is an assessment of
the
ultimate recovery value through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings
from and including "AA" to "C" may be modified by the addition of a plus (+)
or
minus (-) sign to show relative standing within these major rating categories.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and market
access
risks unique to notes due in three years or less. The following summarizes
the
ratings used by Standard & Poor's Corporation for municipal notes:
SP-1 -- The issuers of these municipal notes exhibit very strong or
strong
capacity to pay principal and interest. Those issues determined to
possess
overwhelming safety characteristics are given a plus (+) designation.
SP-2 -- The issuers of these municipal notes exhibit satisfactory capacity
to
pay principal and interest.
SP-3 -- The issuers of these municipal notes exhibit speculative capacity
to
pay principal and interest.
A-5
<PAGE>
Moody's ratings for state and municipal notes and other short-term loans
are
designated Moody's Investment Grade ("MIG") and variable rate demand
obligations
are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings
recognize the differences between short-term credit risk and long-term risk.
The
following summarizes the ratings by Moody's Investors Service, Inc.
for
short-term notes:
MIG-1/VMIG-1 -- Loans bearing this designation are of the best
quality,
enjoying strong protection by established cash flows, superior liquidity
support
or demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2 -- Loans bearing this designation are of high quality,
with
margins of protection ample although not so large as in the preceding group.
MIG-3/VMIG-3 -- Loans bearing this designation are of favorable quality,
with
all security elements accounted for but lacking the undeniable strength of
the
preceding grades. Liquidity and cash flow protection may be narrow and
market
access for refinancing is likely to be less well established.
MIG-4/VMIG-4 -- Loans bearing this designation are of adequate
quality,
carrying specific risk but having protection commonly regarded as required of
an
investment security and not distinctly or predominantly speculative.
SG -- Loans bearing this designation are of speculative quality and
lack
margins of protection.
Fitch uses the short-term ratings described under Commercial Paper
Ratings
for municipal notes.
A-6
<PAGE>
CALIFORNIA MUNICIPAL MONEY MARKET FUND
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
<TABLE>
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION
</TABLE>
MAY __,
1994
This Statement of Additional Information is meant to be read in
conjunction
with the Prospectus for the California Municipal Money Market Fund
portfolio,
dated May __, 1994 as amended or supplemented from time to time, and
is
incorporated by reference in its entirety into the Prospectus. Because
this
Statement of Additional Information is not itself a prospectus, no investment
in
shares of the California Municipal Money Market Fund portfolio should be
made
solely upon the information contained herein. Copies of the Prospectus
for
shares may be obtained by calling Lehman Brothers Inc. ("Lehman Brothers"),
at
1-800-368-5556. Capitalized terms used but not defined herein have the
same
meanings as in the Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S>
<C>
The
Trust.........................................................................
......................... 2
Investment Objective and
Policies......................................................................
.... 2
Municipal
Obligations...................................................................
................... 7
Additional Purchase and Redemption
Information.............................................................
18
Management of the
Fund..........................................................................
........... 20
Additional Information Concerning
Taxes....................................................................
26
Dividends.....................................................................
............................. 29
Additional Yield
Information...................................................................
............ 29
Additional Description Concerning
Shares...................................................................
31
Counsel.......................................................................
............................. 31
Auditors......................................................................
............................. 31
Financial
Statements....................................................................
................... 32
Miscellaneous.................................................................
............................. 32
Appendix......................................................................
............................. A-1
</TABLE>
<PAGE>
THE TRUST
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-
load,
open-end management investment company. The Trust currently includes a family
of
money market and non-money market portfolios, one of which is
California
Municipal Money Market Fund (the "Fund"). The Fund is currently authorized
to
offer three classes of shares. Each class represents an equal, PRO RATA
interest
in the Fund. Each share accrues daily dividends in the same manner, except
that
Class B and Class C Shares bear fees payable by the Fund to Lehman Brothers
or
institutional investors for services they provide to the beneficial owners
of
such shares.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE FUND'S PROSPECTUS
RELATE
PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND. INVESTORS
WISHING
TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER PORTFOLIOS MAY
OBTAIN
SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING LEHMAN BROTHERS
AT
1-800-368-5556.
INVESTMENT OBJECTIVE AND POLICIES
As stated in the Fund's Prospectus, the investment objective of the Fund is
to
provide as high a level of current income exempt from federal income tax and,
to
the extent possible, from California state personal income tax as is
consistent
with the preservation of capital and relative stability of principal.
The
following policies supplement the description of the Fund's investment
objective
and policies in the Prospectus.
The Fund is managed to provide stability of capital while
achieving
competitive yields. The investment adviser intends to follow a value-
oriented,
research-driven and risk-averse investment strategy, engaging in a full range
of
economic, strategic, credit and market-specific analyses in
researching
potential investment opportunities.
PORTFOLIO TRANSACTIONS
Subject to the general control of the Trust's Board of Trustees and
Lehman
Brothers Global Asset Management Inc. ("LBGAM"), the Fund's investment
adviser,
is responsible for, makes decisions with respect to and places orders for
all
purchases and sales of portfolio securities for the Fund. Purchases are
usually
principal transactions without brokerage commissions. In making
portfolio
investments, LBGAM seeks to obtain the best net price and the most
favorable
execution of orders. To the extent that the execution and price offered by
more
than one dealer are comparable, LBGAM may, in its discretion,
effect
transactions in portfolio securities with dealers who provide the Trust
with
research advice or other services.
Investment decisions for the Fund are made independently from those for
the
Trust's other portfolios or other investment company portfolios or
accounts
advised by LBGAM. Such other investment company portfolios may invest in
the
same securities as the Fund. When purchases or sales of the same security
are
made at substantially the same time on behalf of such other investment
company
portfolios, transactions are averaged as to price, and available
investments
allocated as to amount, in a manner which LBGAM believes to be equitable to
each
investment company portfolio, including the Fund. In some instances,
this
investment procedure may adversely affect the price paid or received by the
Fund
or the size of the position
2
<PAGE>
obtained for the Fund. To the extent permitted by law, LBGAM may aggregate
the
securities to be sold or purchased for the Fund with those to be sold
or
purchased for such other investment companies in order to obtain best
execution.
Portfolio securities will not be purchased from or sold to and the Fund
will
not enter into repurchase agreements with Lehman Brothers Inc.
("Lehman
Brothers"), LBGAM, or any affiliated person (as such term is defined in
the
Investment Company Act of 1940, as amended (the "1940 Act")), except to
the
extent permitted by the Securities and Exchange Commission ("SEC"). In
addition,
the Fund will not purchase Municipal Obligations during the existence of
any
underwriting or selling group relating thereto of which Lehman Brothers or
any
affiliate thereof is a member, except to the extent permitted by the SEC.
Under
certain circumstances, the Fund may be at a disadvantage because of
these
limitations in comparison with other investment company portfolios which have
a
similar investment objective but are not subject to such
limitations.
Furthermore, with respect to such transactions, securities and deposits,
the
Fund will not give preference to Service Organizations with whom the Fund
enters
into agreements relating to Class B or Class C shares. See the
Prospectus,
"Management of the Fund--Service Organizations."
The Fund may participate, if and when practicable, in bidding for
the
purchase of Municipal Obligations directly from an issuer in order to
take
advantage of the lower purchase price available to members of a bidding
group.
The Fund will engage in this practice, however, only when LBGAM, in its
sole
discretion, believes such practice to be otherwise in the Fund's interests.
The Fund does not intend to seek profits through short-term trading.
The
Fund's annual portfolio turnover is not expected to have a material effect
on
its net income. The Fund's portfolio turnover is expected to be zero
for
regulatory reporting purposes.
ADDITIONAL INFORMATION ON INVESTMENT PRACTICES
VARIABLE AND FLOATING RATE INSTRUMENTS. Municipal Obligations purchased
by
the Fund may include variable and floating rate instruments, which provide
for
adjustments in the interest rate on certain reset dates or whenever a
specified
interest rate index changes, respectively. Variable and floating
rate
instruments are subject to the credit quality standards described in
the
Prospectus. In some cases the Fund may require that the obligation to pay
the
principal of the instrument be backed by a letter or line of credit
or
guarantee. Such instruments may carry stated maturities in excess of 397
days
provided that the maturity-shortening provisions stated in Rule 2a-7 under
the
1940 Act are satisfied. Although a particular variable or floating rate
demand
instrument may not be actively traded in a secondary market, in some cases,
the
Fund may be entitled to principal on demand and may be able to resell such
notes
in the dealer market.
Variable and floating rate demand instruments held by the Fund may
have
maturities of more than 13 months, provided: (i) the Fund is entitled to
the
payment of principal at any time or during specified intervals not exceeding
13
months, subject to notice of no more than 30 days, and (ii) the rate of
interest
on such instruments is adjusted (based upon a pre-selected market
sensitive
index such as the prime rate of a major commercial bank) at periodic
intervals
not exceeding 13 months. In determining the Fund's average weighted
portfolio
maturity and whether a variable or floating rate demand instrument has
a
remaining maturity of 13 months or less, the maturity of each instrument will
be
computed in accordance with guidelines established by the SEC.
3
<PAGE>
In determining whether an unrated variable rate demand instrument is
of
comparable quality at the time of purchase to instruments with minimal
credit
risk, the Fund's adviser will follow guidelines adopted by the Trust's Board
of
Trustees.
TENDER OPTION BONDS. The Fund may invest up to 10% of the value of
its
assets in tender option bonds. The Fund will not purchase tender option
bonds
unless (a) the demand feature applicable thereto is exercisable by the
Fund
within 13 months of the date of such purchase upon no more than 30 days'
notice
and thereafter is exercisable by the Fund no less frequently than annually
upon
no more than 30 days' notice and, (b) at the time of such purchase,
LBGAM
reasonably expects that (i) based upon its assessment of current and
historical
interest rate trends, prevailing short-term tax-exempt rates will not exceed
the
stated interest rate on the underlying Municipal Obligations at the time of
the
next tender fee adjustment, and (ii) the circumstances which might entitle
the
grantor of a tender option to terminate the tender option would not occur
prior
to the time of the next tender opportunity. At the time of each
tender
opportunity, the Fund will exercise the tender option with respect to any
tender
option bonds unless LBGAM reasonably expects that, (a) based upon its
assessment
of current and historical interest rate trends, prevailing short-term tax-
exempt
rates will not exceed the stated interest rate on the underlying
Municipal
Obligations at the time of the next tender fee adjustment, and (b)
the
circumstances which might entitle the grantor of a tender option to
terminate
the tender option would not occur prior to the time of the next
tender
opportunity. The Fund will exercise the tender feature with respect to
tender
option bonds, or otherwise dispose of their tender option bonds, prior to
the
time the tender option is scheduled to expire pursuant to the terms of
the
agreement under which the tender option is granted. The Fund otherwise
will
comply with the provisions of Rule 2a-7 under the 1940 Act in connection
with
the purchase of tender option bonds, including, without limitation,
the
requisite determination by the Board of Trustees that the tender option bonds
in
question meet the quality standards described in Rule 2a-7. In the event of
a
default of the Municipal Obligation underlying a tender option bond, or
the
termination of the tender option agreement, the Fund would look to the
maturity
date of the underlying security for purposes of compliance with Rule 2a-7
and,
if its remaining maturity was greater than 13 months, the Fund would sell
the
security as soon as would be practicable. The Fund will purchase tender
option
bonds only when it is satisfied that (a) the custodial and tender
option
arrangements, including the fee payment arrangements, will not adversely
affect
the tax-exempt status of the underlying Municipal Obligations and (b) payment
of
any tender fees will not have the effect of creating taxable income for
the
Fund. Based on the tender option bond arrangement, the Fund expects to value
the
tender option bond at par; however, the value of the instrument will
be
monitored to assure that it is valued at fair value.
WHEN-ISSUED SECURITIES. As stated in the Prospectus, the Fund may
purchase
Municipal Obligations on a "when-issued" basis (I.E., for delivery beyond
the
normal settlement date at a stated price and yield). When the Fund agrees
to
purchase when-issued securities, its custodian will set aside cash or
liquid
portfolio securities equal to the amount of the commitment in a
separate
account. Normally, the custodian will set aside portfolio securities to
satisfy
a purchase commitment, and in such a case the Fund may be required
subsequently
to place additional assets in the separate account in order to ensure that
the
value of the account remains equal to the amount of the Fund's commitment.
It
may be expected that the Fund's net assets will fluctuate to a greater
degree
when it sets aside portfolio securities to cover such purchase commitments
than
when it sets aside cash. Because the Fund will set aside cash or liquid
assets
to satisfy its purchase commitments in the manner described, the
Fund's
liquidity and ability to manage its portfolios might be affected in the
event
its commitments to purchase when-issued securities ever exceeded 25% of
the
4
<PAGE>
value of its assets. When the Fund engages in when-issued transactions,
it
relies on the seller to consummate the trade. Failure of the seller to do so
may
result in the Fund's incurring a loss or missing an opportunity to obtain
a
price considered to be advantageous. The Fund does not intend to
purchase
when-issued securities for speculative purposes but only in furtherance of
its
investment objective. The Fund reserves the right to sell the securities
before
the settlement date if it is deemed advisable.
STAND-BY COMMITMENTS. The Fund may acquire "stand-by commitments"
with
respect to Municipal Obligations held in its portfolio. Under a stand-
by
commitment, a dealer agrees to purchase at the Fund's option specified
Municipal
Obligations at their amortized cost value to the Fund plus accrued interest,
if
any. (Stand-by commitments acquired by the Fund may also be referred to as
"put"
options.) Stand-by commitments may be sold, transferred or assigned by the
Fund
only with the underlying instruments.
The Fund expects that stand-by commitments will generally be
available
without the payment of any direct or indirect consideration. However,
if
necessary or advisable, the Fund may pay for a stand-by commitment
either
separately in cash or by paying a higher price for portfolio securities
which
are acquired subject to the commitment (thus reducing the yield to
maturity
otherwise available for the same securities). The total amount paid in
either
manner for outstanding stand-by commitments held by the Fund is not expected
to
exceed 1/2 of 1% of the value of the Fund's total assets calculated
immediately
after each stand-by commitment is acquired.
The Fund intends to enter into stand-by commitments only with dealers,
banks
and broker-dealers which, in the opinion of the investment adviser,
present
minimal credit risks. In evaluating the creditworthiness of the issuer of
a
stand-by commitment, the investment adviser will review periodically
the
issuer's assets, liabilities, contingent claims and other relevant
financial
information.
The Fund would acquire stand-by commitments solely to facilitate
portfolio
liquidity and does not intend to exercise its rights thereunder for
trading
purposes. Stand-by commitments acquired by the Fund would be valued at zero
in
determining net asset value. Where the Fund paid any consideration directly
or
indirectly for a stand-by commitment, its cost would be reflected as
unrealized
depreciation for the period during which the commitment was held by the Fund.
PARTICIPATIONS. The Fund may purchase from financial
institutions
tax-exempt participation interests in Municipal Obligations. A
participation
interest gives the Fund an undivided interest in the Municipal Obligation in
the
proportion that the Fund's participation interest bears to the total amount
of
the Municipal Obligation. These instruments may have floating or variable
rates
of interest. If the participation interest is unrated, it will be backed by
an
irrevocable letter of credit or guarantee of a bank that the Trust's Board
of
Trustees has determined meets certain quality standards or the
payment
obligation otherwise will be collateralized by obligations of the
U.S.
Government and its agencies and instrumentalities ("U.S.
Government
securities"). The Fund will have the right, with respect to
certain
participation interests, to demand payment, on a specified number of
days'
notice, for all or any part of the Fund's interest in the Municipal
Obligations,
plus accrued interest. The Fund will invest no more than 5% of its total
assets
in participation interests.
ILLIQUID SECURITIES. The Fund may not invest more than 10% of its total
net
assets in illiquid securities, including securities that are illiquid by
virtue
of the absence of a readily available market or legal or
contractual
restrictions on resale. Securities that have legal or contactual restrictions
on
resale but have a
5
<PAGE>
readily available market are not considered illiquid for purposes of
this
limitation. The Fund's investment adviser will monitor on an ongoing basis
the
liquidity of such restricted securities under the supervision of the Board
of
Trustees.
The SEC has adopted Rule 144A under the Securities Act of 1933 as
amended
(the "1933 Act") which allows for a broader institutional trading market
for
securities otherwise subject to restriction on resale to the general
public.
Rule 144A establishes a "safe harbor" from the registration requirements of
the
1933 Act for resales of certain securities to qualified institutional
buyers.
The Fund's investment adviser anticipates that the market for certain
restricted
securities such as institutional municipal securities will expand further as
a
result of this regulation and the development of automated systems for
the
trading, clearance and settlement of unregistered securities of domestic
and
foreign issuers, such as the PORTAL system sponsored by the National
Association
of Securities Dealers.
The investment adviser will monitor the liquidity of restricted
securities
under the supervision of the Board of Trustees. In reaching liquidity
decisions
with respect to Rule 144A securities, the investment adviser will
consider,
inter alia, the following factors: (1) the unregistered nature of a Rule
144A
security; (2) the frequency of trades and quotes for a Rule 144A security;
(3)
the number of dealers willing to purchase or sell the Rule 144A security and
the
number of other potential purchasers; (4) dealer undertakings to make a
market
in the Rule 144A security; (5) the trading markets for the Rule 144A
security;
and (6) the nature of the Rule 144A security and the nature of
marketplace
trades (including, the time needed to dispose of the Rule 144A security,
methods
of soliciting offers and mechanics of transfer).
The Appendix to this Statement of Additional Information contains
a
description of the relevant rating symbols used by nationally
recognized
statistical rating organizations ("NRSROs") for Municipal Obligations that
may
be purchased by the Fund.
INVESTMENT LIMITATIONS
The Prospectus for the Fund summarizes certain investment limitations that
may
not be changed without the affirmative vote of the holders of a majority of
the
Fund's outstanding shares (as defined below under "Miscellaneous").
Investment
limitations numbered 1 through 6 may not be changed without such a vote
of
shareholders; investment limitations 7 through 12 may be changed by a vote
of
the Trust's Board of Trustees at any time.
The Fund may not:
1. Borrow money, except from banks for temporary purposes and then
in
amounts not exceeding 10% of the value of the Fund's total assets at
the
time of such borrowing; or mortgage, pledge or hypothecate any assets
except
in connection with any such borrowing and in amounts not in excess of
the
lesser of the dollar amounts borrowed or 10% of the value of the
Fund's
total assets at the time of such borrowing. Additional investments will
not
be made when borrowings exceed 5% of the Fund's assets.
2. Make loans, except that the Fund may purchase or hold
debt
instruments in accordance with its investment objective and policies.
3. Act as an underwriter of securities, except insofar as the Fund
may
be deemed an underwriter under applicable securities laws in
selling
portfolio securities.
6
<PAGE>
4. Purchase or sell real estate or real estate limited
partnerships,
provided that the Fund may purchase securities of issuers which invest
in
real estate or interests therein.
5. Purchase or sell commodities or commodity contracts, or invest
in
oil, gas or mineral exploration or development programs or in
mineral
leases.
6. Purchase any securities which would cause 25% or more of the
value
of its total assets at the time of purchase to be invested in the
securities
of issuers conducting their principal business activities in the
same
industry, provided that there is no limitation with respect to
investments
in U.S. Government securities.
7. Knowingly invest more than 10% of the value of the Fund's assets
in
securities that may be illiquid because of legal or contractual
restrictions
on resale or securities for which there are not readily available
market
quotations.
8. Purchase securities on margin, make short sales of securities
or
maintain a short position.
9. Write or sell puts, calls, straddles, spreads or
combinations
thereof.
10. Invest in securities if as a result the Fund would then have
more
than 5% of its total assets in securities of companies
(including
predecessors) with less than three years of continuous operation.
11. Purchase securities of other investment companies except
as
permitted under the 1940 Act or in connection with a merger,
consolidation,
acquisition or reorganization.
12. Invest in warrants.
In addition, without the affirmative vote of the holders of a majority of
a
Fund's outstanding shares, such Fund may not change its policy of investing
at
least 80% of its total assets (except during temporary defensive periods)
in
Municipal Obligations.
MUNICIPAL OBLIGATIONS
IN GENERAL
Municipal Obligations include debt obligations issued by governmental
entities
to obtain funds for various public purposes, including the construction of
a
wide range of public facilities, the refunding of outstanding obligations,
the
payment of general operating expenses and the extension of loans to
public
institutions and facilities. Private activity bonds that are issued by or
on
behalf of public authorities to finance various privately-operated
facilities
are included within the term Municipal Obligations if the interest paid
to
shareholders is (subject to the federal alternative minimum tax) exempt
from
regular federal income tax. Opinions relating to the validity of
Municipal
Obligations and to the exemption of interest thereon from federal income
taxes
are rendered by counsel to the issuers or bond counsel to the respective
issuing
authorities at the time of issuance. Neither the Fund nor the investment
adviser
will review independently the underlying proceedings relating to the issuance
of
Municipal Obligations or the bases for such opinions.
The Fund may hold tax-exempt derivatives which may be in the form of
tender
option bonds, participations, beneficial interests in a trust,
partnership
interests or other forms. A number of different structures have been used.
For
example, interests in long-term fixed rate Municipal Obligations held by a
bank
as
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<PAGE>
trustee or custodian are coupled with tender option, demand and other
features
when tax-exempt derivatives are created. Together, these features entitle
the
holder of the interest to tender (or put) the underlying Municipal Obligation
to
a third party at periodic intervals and to receive the principal amount
thereof.
In some cases, Municipal Obligations are represented by custodial
receipts
evidencing rights to receive specific future interest payments,
principal
payments or both, on the underlying municipal securities held by the
custodian.
Under such arrangements, the holder of the custodial receipt has the option
to
tender the underlying municipal securities at their face value to the
sponsor
(usually a bank or broker-dealer or other financial institution), which is
paid
periodic fees equal to the difference between the bond's fixed coupon rate
and
the rate that would cause the bond, coupled with the tender option, to trade
at
par on the date of a rate adjustment. The Fund may hold tax-exempt
derivatives,
such as participation interests and custodial receipts, for
Municipal
Obligations which give the holder the right to receive a payment of
principal
subject to the conditions described above. The Internal Revenue Service has
not
ruled on whether the interest received on tax-exempt derivatives in the form
of
participation interests or custodial receipts is tax-exempt, and
accordingly,
purchases of any such interests or receipts are based on the opinion of
counsel
to the sponsors of such derivative securities. Neither the Fund nor
the
investment adviser will review independently the underlying proceedings
related
to the creation of any tax-exempt derivatives or the bases for such opinions.
As described in the Prospectus for the Fund, the two
principal
classifications of Municipal Obligations consist of "general obligation"
and
"revenue" issues, and the Fund's portfolios may include "moral
obligation"
issues, which are normally issued by special purpose authorities. There are,
of
course, variations in the quality of Municipal Obligations, both within
a
particular classification and between classifications, and the yields
on
Municipal Obligations depend upon a variety of factors, including general
money
market conditions, the financial condition of the issuer, general conditions
of
the municipal bond market, the size of a particular offering, the maturity
of
the obligation and the rating of the issue. The ratings of statistical
rating
organizations represent their opinions as to the quality of
Municipal
Obligations. It should be emphasized, however, that ratings are general and
are
not absolute standards of quality, and Municipal Obligations with the
same
maturity, interest rate and rating may have different yields while
Municipal
Obligations of the same maturity and interest rate with different ratings
may
have the same yield. Subsequent to their purchase by the Fund, issues
of
Municipal Obligations may cease to be rated or their ratings may be
reduced
below the minimum rating required for purchase by the Fund. The
investment
adviser will consider such an event in determining whether the Funds
should
continue to hold the obligation.
An issuer's obligations under its Municipal Obligations are subject to
the
provisions of bankruptcy, insolvency and other laws affecting the rights
and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any,
which may be enacted by federal or state legislatures extending the time
for
payment of principal or interest, or both, or imposing other constraints
upon
enforcement of such obligations or upon the ability of municipalities to
levy
taxes. The power or ability of an issuer to meet its obligations for the
payment
of interest on and principal of its Municipal Obligations may be
materially
adversely affected by litigation or other conditions.
Among other types of Municipal Obligations, the Funds may purchase short-
term
General Obligation Notes, Tax Anticipation Notes, Bond Anticipation
Notes,
Revenue Anticipation Notes, Tax-Exempt Commercial Paper, Construction Loan
Notes
and other forms of short-term loans. Such instruments are issued with
a
short-term maturity in anticipation of the receipt of tax funds, the proceeds
of
bond placements or
8
<PAGE>
other revenues. In addition, the Fund may invest in other types of tax-
exempt
instruments, including general obligation and private activity bonds,
provided
they have remaining maturities of 13 months or less at the time of purchase.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL OBLIGATIONS
Some of the significant financial considerations relating to the
Fund's
investments in California Municipal Obligations are summarized below.
This
summary information is derived principally from official statements
and
prospectuses relating to securities offerings of the State of California
and
various local agencies in California, available as of the date of this
Statement
of Additional Information and does not purport to be a complete description
of
any of the considerations mentioned herein. The accuracy and completeness of
the
information contained in such official statements has not been
independently
verified.
ECONOMIC FACTORS. The Governor's 1993-1994 budget, released on January
8,
1993, proposed general fund expenditures of $37.3 billion, with
projected
revenues of $39.9 billion. It also proposed special fund expenditures of
$12.4
billion and special fund revenues of $12.1 billion. To balance the budget in
the
face of declining revenues, the Governor proposed a series of revenue
shifts
from local government, reliance on increased federal aid, and reductions
in
state spending.
On May 20, 1993, the Department of Finance of the State of California
issued
its May Revision of General Fund Revenues and Expenditures (the "May
Revision").
The May Revision indicated that the revenue projections of the January
budget
proposal were tracking well, with the full year 1992-1993 about $80
million
higher than the January projection. Personal income tax revenue was higher
than
projected, sales tax was close to target, and bank and corporation taxes
were
lagging behind projections. The May Revision projected the State would have
an
accumulated deficit of about $2.75 billion by June 30, 1993. The
Governor
proposed to eliminate this deficit over an 18-month period. He also agreed
to
retain the 0.5% sales tax scheduled to expire June 30 for a six-month
period,
dedicated to local public safety purposes, with a November election to
determine
a permanent extension. Unlike previous years, the Governor's Budget and
May
Revision did not calculate a "gap" to be closed, but rather set forth
revenue
and expenditure forecasts and proposals designed to produce a balanced budget.
The 1993-1994 budget act (the "1993-94 Budget Act") was signed by
the
Governor on June 30, 1993, along with implementing legislation. The
Governor
vetoed about $71 million in spending.
The 1993-94 Budget Act is predicated on general fund revenues and
transfers
estimated at $40.6 billion, $400 million below 1992-93 (and the
second
consecutive year of actual decline). The principal reasons for declining
revenue
are the continued weak economy and the expiration (or repeal) of three
fiscal
steps taken in 1991 -- a half cent temporary sales tax, a deferral of
operating
loss carryforwards, and repeal by initiative of a sales tax on candy and
snack
foods.
The 1993-94 Budget Act also assumes special fund revenues of $11.9
billion,
an increase of 2.9 percent over 1992-93.
The 1993-94 Budget Act includes general fund expenditures of $38.5 billion
(a
6.3 percent reduction from projected 1992-93 expenditures of $41.1 billion),
in
order to keep a balanced budget within the available revenues. The 1993-
94
Budget Act also includes special fund expenditures of $12.1 billion, a
4.2
percent increase. The 1993-94 Budget Act reflects the following
major
adjustments:
9
<PAGE>
1. Changes in local government financing to shift about $2.6 billion
in
property taxes from cities, counties, special districts and
redevelopment
agencies to school and community college districts, thereby reducing
general
fund support by an equal amount. About $2.5 billion would be
permanent,
reflecting termination of the State's "bailout" of local
governments
following the property tax cuts of Proposition 13 in 1978
(See
"Constitutional, Legislative and Other Factors" below).
The property tax revenue losses for cities and counties are offset
in
part by additional sales tax revenues and mandate relief. The temporary
0.5
percent sales tax has been extended through December 31, 1993, for
allocation
to counties for public safety programs. A Constitutional amendment will
be
placed on the ballot in a special statewide election in November 1993
to
extend the sales tax permanently for public safety purposes.
Legislation also has been enacted to eliminate state mandates in order
to
provide local governments flexibility in making their programs responsive
to
local needs. Legislation provides mandate relief for local justice
systems
which affect county audit requirements, court reporter fees, and
court
consolidation; health and welfare relief involving advisory boards,
family
planning, state audits and realignment maintenance efforts; and relief
in
areas such as county welfare department self-evaluations, noise
guidelines
and recycling requirements.
A lawsuit has been filed by Los Angeles County challenging the shift
of
property taxes. Other counties or local agencies may join this action or
file
separate suits.
2. The 1993-94 Budget Act keeps K-12 Proposition 98 funding on a cash
basis
at the same per-pupil level as 1992-93 by providing schools a
$609
million loan payable from future years' Proposition 98 funds.
3. President Clinton's Fiscal Year 1994 budget proposals include about
$692
million of aid to the State from the federal government to offset
health
and welfare costs associated with foreign immigrants living in the
State,
which would reduce a like amount of general fund expenditures. About
$411
million of this amount is one-time funding. The receipt of this money
is
dependent upon the inclusion of such funding for the State in the
President's
budget that is ultimately approved.
4. Reductions of $600 million in health and welfare programs, which
were
agreed upon by the California Legislature and the Governor.
5. Reductions of $400 million in support for higher education.
These
reductions will be partly offset by fee increases at all three units
of
higher education.
6. A 2-year suspension of the renters' tax credit ($390 million
expenditure
reduction in 1993-94). A constitutional amendment will be placed on
the
June 1994 ballot to restore the renters' tax credit after 1994-95.
7. Various miscellaneous cuts (totalling approximately $150 million)
in
State government services in many agencies, up to 15 percent.
The
Governor would suspend the 4 percent automatic budget reduction "trigger,"
as
was done in 1992-93, so cuts can be focused.
8. Miscellaneous one-time items, including deferral of payment to the
Public
Employees Retirement Fund ($339 million) and a change in accounting
for
debt service from accrual to cash basis, saving $107 million.
10
<PAGE>
The 1993-94 Budget Act contains no general fund tax/revenue increases
other
than a two year suspension of the renters' tax credit. The Governor continues
to
predict that population growth in the 1990's will keep upward pressure on
major
State programs, such as K-14 education, health and welfare and
corrections,
outstripping projected revenue growth in an economy only very slowly
emerging
from a deep recession.
The October 1993 Bulletin of the Department of Finance reports that
General
Fund revenues for September were $128 million above projections, although
the
report indicated $45 million of this represented a scheduled insurance
tax
refund which was not processed in September. Through the first three months
of
the fiscal year, revenues were $214 million, or 2.3 percent, above
projections,
with all four major taxes (personal income, sales, bank and corporation,
and
insurance) tracking projections well. Revenues for the first quarter
represent
about 20 percent of annual receipts. The Department of Finance also reports
that
the State will only receive approximately $450 million in aid from the
Federal
Government to offset the health and welfare costs associated with
foreign
immigrants living in the State, substantially less than the $692
million
contemplated by the 1993-94 Budget Act.
Despite the encouraging financial results early in the fiscal year,
the
Department's report of sluggish economic activity raises the possibility
that
results later in the fiscal year may not meet original projections. A
new
projection will be issued with the Governor's Budget in January 1994.
CONSTITUTIONAL, LEGISLATIVE AND OTHER FACTORS. Certain
California
constitutional amendments, legislative measures, executive
orders,
administrative regulations and voter initiatives could result in the
adverse
effects described below. The following information constitutes only a
brief
summary, does not purport to be a complete description, and is based
on
information drawn from official statements and prospectuses relating
to
securities offerings of the State of California and various local agencies
in
California, available as of the date of this Statement of
Additional
Information. While the Fund has not independently verified such information,
it
has no reason to believe that such information is not correct in all
material
respects.
Certain California Municipal Obligations in the Fund's portfolio may
be
obligations of issuers which rely in whole or in part on California
state
revenues for payment of these obligations. Property tax revenues and a
portion
of the State's general fund surplus are distributed to counties, cities
and
their various taxing entities and the State assumes certain
obligations
theretofore paid out of local funds. Whether and to what extent a portion of
the
State's general fund will be distributed in the future to counties, cities
and
their various entities, is unclear.
On November 1, 1993, the United States Supreme Court agreed to review
the
California court decisions in BARCLAYS BANK INTERNATIONAL, LTD V. FRANCHISE
TAX
BOARD and COLGATE-PALMOLIVE COMPANY, INC. V. FRANCHISE TAX BOARD which
upheld
California's worldwide combined reporting ("WWCR") method of taxing
corporations
engaged in a unitary business operation against challenges under the
foreign
commerce and due process clauses. In 1983, in CONTAINER CORPORATION V.
FRANCHISE
TAX BOARD, the Supreme Court held that the WWCR method did not violate
the
foreign commerce clause in the case of a domestic-based unitary business
group
with foreign-domiciled subsidiaries, but specifically left open the question
of
whether a different result would obtain for a foreign-based
multinational
unitary business. BARCLAYS concerns a foreign-based multinational
and
COLGATE-PALMOLIVE concerns a domestic-based multinational in light of
federal
foreign policy developments since 1983. In a brief filed at the Supreme
Court's
request, the Clinton Administration had argued that the Court should not
hear
the BARCLAYS case, even though there are
11
<PAGE>
"serious questions" about the California Supreme Court's analysis and
holdings,
because the recent changes in the law noted below means the issue in
BARCLAYS
"lacks substantial recurring importance." The Clinton Administration
had
previously decided not to become involved in the BARCLAYS petition. The
United
States Government under the Bush Administration, along with various
foreign
Governments, had appeared as amicus on behalf of BARCLAY'S before the
California
Courts. It is unclear what position, if any, the Clinton Administration
will
take in the case on the merits. The fiscal impact on the State of California
has
been reported as follows: the State would have to refund $1.730 billion
to
taxpayers ($530 million due to BARCLAYS; $1.2 billion due to COLGATE),
and
cancel another $2.35 billion of pending assessments ($350 million due
to
BARCLAYS; $1.9 billion due to COLGATE), if the Supreme Court ultimately
strikes
down the WWCR method and rules its decision has retrospective effect.
Certain California Municipal Obligations held by the Fund may be
obligations
of issuers who rely in whole or in part on ad valorem real property taxes as
a
source of revenue. On June 6, 1978, California voters approved an amendment
to
the California Constitution known as Proposition 13, which added Article
XIIIA
to the California Constitution. The effect of Article XIIIA is to limit
ad
valorem taxes on real property and to restrict the ability of taxing entities
to
increase real property tax revenues. On November 7, 1978, California
voters
approved Proposition 8, and on June 3, 1986, California voters
approved
Proposition 46, both of which amended Article XIIIA.
Section 1 of Article XIIIA limits the maximum ad valorem tax on real
property
to 1% of full cash value (as defined in Section 2), to be collected by
the
counties and apportioned according to law; provided that the 1% limitation
does
not apply to ad valorem taxes or special assessments to pay the interest
and
redemption charges on (i) any indebtedness approved by the voters prior to
July
1, 1978, or (ii) any bonded indebtedness for the acquisition or improvement
of
real property approved on or after July 1, 1978, by two-thirds of the votes
cast
by the voters voting on the proposition. Section 2 of Article XIIIA
defines
"full cash value" to mean "the County Assessor's valuation of real property
as
shown on the 1975/76 tax bill under 'full cash value' or, thereafter,
the
appraised value of real property when purchased, newly constructed, or a
change
in ownership has occurred after the 1975 assessment." The full cash value may
be
adjusted annually to reflect inflation at a rate not to exceed 2% per year,
or
reduction in the consumer price index or comparable local data, or reduced
in
the event of declining property value caused by damage, destruction or
other
factors. The California State Board of Equalization has adopted
regulations,
binding on county assessors, interpreting the meaning of "change in
ownership"
and "new construction" for purposes of determining full cash value of
property
under Article XIIIA.
Legislation enacted by the California Legislature to implement Article
XIIIA
(Statutes of 1978, Chapter 292, as amended) provides that notwithstanding
any
other law, local agencies may not levy any ad valorem property tax except to
pay
debt service on indebtedness approved by the voters prior to July 1, 1978,
and
that each county will levy the maximum tax permitted by Article XIIIA of
$4.00
per $100 assessed valuation (based on the former practice of using 25%,
instead
of 100%, of full cash value as the assessed value for tax purposes).
The
legislation further provided that, for the 1978/79 fiscal year only, the
tax
levied by each county was to be apportioned among all taxing agencies within
the
county in proportion to their average share of taxes levied in certain
previous
years. The apportionment of property taxes for fiscal years after 1978/79
has
been revised pursuant to Statutes of 1979, Chapter 282 which provides
relief
funds from State moneys beginning in fiscal year 1979/80 and is designed
to
provide a permanent system for sharing state taxes and budget funds with
local
agencies. Under Chapter 282, cities and counties receive
12
<PAGE>
more of the remaining property tax revenues collected under Proposition
13
instead of direct state aid. School districts receive a correspondingly
reduced
amount of property taxes, but receive compensation directly from the state
and
are given additional relief. Chapter 282 does not affect the derivation of
the
base levy ($4.00 per $100 assessed valuation) and the bonded debt tax rate.
On November 6, 1979, an initiative known as "Proposition 4" or the
"Gann
Initiative" was approved by the California voters, which added Article XIIIB
to
the California Constitution. Under Article XIIIB, State and local
governmental
entities have an annual "appropriations limit" and are not allowed to
spend
certain moneys called "appropriations subject to limitation" in an amount
higher
than the "appropriations limit." Article XIIIB does not affect the
appropriation
of moneys which are excluded from the definition of "appropriations subject
to
limitation," including debt service on indebtedness existing or authorized as
of
January 1, 1979, or bonded indebtedness subsequently approved by the voters.
In
general terms, the "appropriations limit" is required to be based on
certain
1978/79 expenditures, and is to be adjusted annually to reflect changes
in
consumer prices, population and certain services provided by these
entities.
Article XIIIB also provides that if these entities' revenues in any year
exceed
the amounts permitted to be spent, the excess is to be returned by revising
tax
rates or fee schedules over the subsequent two years.
At the November 8, 1988 general election, California voters approved
an
initiative known as Proposition 98. This initiative amends Article XIIIB
to
require that (i) the California Legislature establish a prudent state
reserve
fund in an amount as it shall deem reasonable and necessary and (ii) revenues
in
excess of amounts permitted to be spent and which would otherwise be
returned
pursuant to Article XIIIB by revision of tax rates or fee schedules,
be
transferred and allocated (up to a maximum of 4%) to the State School Fund
and
be expended solely for purposes of instructional improvement and
accountability.
No such transfer or allocation of funds will be required if certain
designated
state officials determine that annual student expenditures and class size
meet
certain criteria as set forth in Proposition 98. Any funds allocated to
the
State School Fund shall cause the appropriation limits established in
Article
XIIIB to be annually increased for any such allocation made in the prior year.
Proposition 98 also amends Article XVI to require that the State
of
California provide a minimum level of funding for public schools and
community
colleges. Commencing with the 1988-89 fiscal year, state monies to
support
school districts and community college districts shall equal or exceed
the
lesser of (i) an amount equalling the percentage of state general revenue
bonds
for school and community college districts in fiscal year 1986-87, or (ii)
an
amount equal to the prior year's state general fund proceeds of
taxes
appropriated under Article XIIIB plus allocated proceeds of local taxes,
after
adjustment under Article XIIIB. The initiative permits the enactment
of
legislation, by a two-thirds vote, to suspend the minimum funding
requirement
for one year.
On June 30, 1989, the California Legislature enacted Senate
Constitutional
Amendment 1, a proposed modification of the California Constitution to alter
the
spending limit and the education funding provisions of Proposition 98.
Senate
Constitutional Amendment 1, on the June 5, 1990 ballot as Proposition 111,
was
approved by the voters and took effect on July 1, 1990. Among a number
of
important provisions, Proposition 111 recalculates spending limits for the
State
and for local governments, allows greater annual increases in the limits,
allows
the averaging of two years' tax revenues before requiring action
regarding
excess tax revenues, reduces the amount of the funding guarantee in
recession
years for school districts and community college districts (but with a floor
of
40.9 percent of State general fund tax revenues),
removes
13
<PAGE>
the provision of Proposition 98 which included excess moneys transferred
to
school districts and community college districts in the base calculation for
the
next year, limits the amount of State tax revenue over the limit which would
be
transferred to school districts and community college districts, and
exempts
increased gasoline taxes and truck weight fees from the State
appropriations
limit. Additionally, Proposition 111 exempts from the State appropriations
limit
funding for capital outlays.
Article XIIIB, like Article XIIIA, may require further interpretation by
both
the Legislature and the courts to determine its applicability to
specific
situations involving the State and local taxing authorities. Depending upon
the
interpretation, Article XIIIB may limit significantly a governmental
entity's
ability to budget sufficient funds to meet debt service on bonds and
other
obligations.
On November 4, 1986, California voters approved an initiative statute
known
as Proposition 62. This initiative (i) requires that any tax for
general
governmental purposes imposed by local governments be approved by resolution
or
ordinance adopted by a two-thirds vote of the governmental entity's
legislative
body and by a majority vote of the electorate of the governmental entity,
(ii)
requires that any special tax (defined as taxes levied for other than
general
governmental purposes) imposed by a local governmental entity be approved by
a
two-thirds vote of the voters within that jurisdiction, (iii) restricts the
use
of revenues from a special tax to the purposes or for the service for which
the
special tax was imposed, (iv) prohibits the imposition of ad valorem taxes
on
real property by local governmental entities except as permitted by
Article
XIIIA, (v) prohibits the imposition of transaction taxes and sales taxes on
the
sale of real property by local governments, (vi) requires that any tax
imposed
by a local government on or after August 1, 1985 be ratified by a majority
vote
of the electorate within two years of the adoption of the initiative or
be
terminated by November 15, 1988, (vii) requires that, in the event a
local
government fails to comply with the provisions of this measure, a reduction
in
the amount of property tax revenue allocated to such local government occurs
in
an amount equal to the revenues received by such entity attributable to the
tax
levied in violation of the initiative, and (viii) permits these provisions to
be
amended exclusively by the voters of the State of California.
In September 1988, the California Court of Appeal in CITY OF WESTMINSTER
V.
COUNTY OF ORANGE, 204 Cal. App. 3d 623, 215 Cal. Rptr. 511 (Cal. Ct. App.
1988),
held that Proposition 62 is unconstitutional to the extent that it requires
a
general tax by a general law city, enacted on or after August 1, 1985 and
prior
to the effective date of Proposition 62, to be subject to approval by a
majority
of voters. The Court held that the California Constitution prohibits
the
imposition of a requirement that local tax measures be submitted to
the
electorate by either referendum or initiative. It is not possible to predict
the
impact of this decision on charter cities, on special taxes or on new
taxes
imposed after the effective date of Proposition 62.
On November 8, 1988, California voters approved Proposition 87.
Proposition
87 amended Article XVI, Section 16, of the California Constitution
by
authorizing the California Legislature to prohibit redevelopment agencies
from
receiving any of the property tax revenue raised by increased property tax
rates
levied to repay bonded indebtedness of local governments which is approved
by
voters on or after January 1, 1989. It is not possible to predict whether
the
California Legislature will enact such a prohibition nor is it possible
to
predict the impact of Proposition 87 on redevelopment agencies and their
ability
to make payments on outstanding debt obligations.
14
<PAGE>
Certain California Municipal Obligations held by the Fund may be
obligations
which are payable solely from the revenues of health care institutions.
Certain
provisions under California law may adversely affect these revenues
and,
consequently, payment on those Municipal Obligations.
The Federally sponsored Medicaid program for health care services to
eligible
welfare beneficiaries in California is known as the Medi-Cal
program.
Historically, the Medi-Cal program has provided for a cost-based system
of
reimbursement for inpatient care furnished to Medi-Cal beneficiaries by
any
hospital wanting to participate in the Medi-Cal program, provided such
hospital
met applicable requirements for participation. California law now provides
that
the State of California shall selectively contract with hospitals to
provide
acute inpatient services to Medi-Cal patients. Medi-Cal contracts
currently
apply only to acute inpatient services. Generally, such selective contracting
is
made on a flat per diem payment basis for all services to Medi-
Cal
beneficiaries, and generally such payment has not increased in relation
to
inflation, costs or other factors. Other reductions or limitations may
be
imposed on payment for services rendered to Medi-Cal beneficiaries in
the
future.
Under this approach, in most geographical areas of California, only
those
hospitals which enter into a Medi-Cal contract with the State of California
will
be paid for non-emergency acute inpatient services rendered to Medi-
Cal
beneficiaries. The State may also terminate these contracts without notice
under
certain circumstances and is obligated to make contractual payments only to
the
extent the California legislature appropriates adequate funding therefor.
In February 1987, the Governor of the State of California announced
that
payments to Medi-Cal providers for certain services (not including
hospital
acute inpatient services) would be decreased by ten percent through June
1987.
However, a federal district court issued a preliminary injunction
preventing
application of any cuts until a trial on the merits can be held. If
the
injunction is deemed to have been granted improperly, the State of
California
would be entitled to recapture the payment differential for the
intended
reduction period. It is not possible to predict at this time whether
any
decreases will ultimately be implemented.
California enacted legislation in 1982 that authorizes private health
plans
and insurers to contract directly with hospitals for services to
beneficiaries
on negotiated terms. Some insurers have introduced plans known as
"preferred
provider organizations" ("PPOs"), which offer financial incentives
for
subscribers who use only the hospitals which contract with the plan. Under
an
exclusive provider plan, which includes most health maintenance
organizations
("HMOs"), private payors limit coverage to those services provided by
selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to
the
contracting hospital of less than actual cost and the volume of
patients
directed to a hospital under an HMO or PPO contract may vary significantly
from
projections. Often, HMO or PPO contracts are enforceable for a stated
term,
regardless of provider losses or of bankruptcy of the respective HMO or PPO.
It
is expected that failure to execute and maintain such PPO and HMO
contracts
would reduce a hospital's patient base or gross revenues.
Conversely,
participation may maintain or increase the patient base, but may result
in
reduced payment and lower net income to the contracting hospitals.
Such California Municipal Obligations may also be insured by the State
of
California pursuant to an insurance program implemented by the Office
of
Statewide Health Planning and Development for health facility
construction
loans. If a default occurs on insured California Municipal Obligations,
the
State Treasurer will issue debentures payable out of a reserve fund
established
under the insurance program or
15
<PAGE>
will pay principal and interest on an unaccelerated basis from
unappropriated
State funds. At the request of the Office of Statewide Health Planning
and
Development, Arthur D. Little, Inc., prepared a study in December 1983
to
evaluate the adequacy of the reserve fund established under the
insurance
program and based on certain formulations and assumptions found the reserve
fund
substantially underfunded. In September of 1986, Arthur D. Little, Inc.
prepared
an update of the study and concluded that an additional 10% reserve
be
established for "multi-level" facilities. For the balance of the reserve
fund,
the update recommended maintaining the current reserve calculation method.
In
March of 1990, Arthur D. Little, Inc. prepared a further review of the study
and
recommended that separate reserves continue to be established for "multi-
level"
facilities at a reserve level consistent with those that would be required by
an
insurance company.
Certain California Municipal Obligations held by the Fund may be
obligations
which are secured in whole or in part by a mortgage or deed of trust on
real
property. California has five principal statutory provisions which limit
the
remedies of a creditor secured by a mortgage or deed of trust. To limit
the
creditor's right to obtain a deficiency judgment, one limitation being based
on
the method of foreclosure and the other on the type of debt secured. Under
the
former, a deficiency judgment is barred when the foreclosure is accomplished
by
means of nonjudicial trustee's sale. Under the latter, a deficiency judgment
is
barred when the foreclosed mortgage or deed of trust secures certain
purchase
money obligations. Another California statute, commonly known as the "one
form
of action" rule, requires creditors secured by real property to exhaust
their
real property security by foreclosure before bringing a personal action
against
the debtor. The fourth statutory provision limits any deficiency
judgment
obtained by a creditor secured by real property following a judicial sale
of
such property to the excess of the outstanding debt over the fair value of
the
property at the time of the sale, thus preventing the creditor from obtaining
a
large deficiency judgment against the debtor as the result of low bids at
a
judicial sale. The fifth statutory provision gives the debtor the right
to
redeem the real property from any judicial foreclosure sale as to which
a
deficiency judgment may be ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to
California
real property, the creditor's nonjudicial foreclosure rights under the power
of
sale contained in the mortgage or deed of trust are subject to the
constraints
imposed by California law upon transfers of title to real property by
private
power of sale. During the three-month period beginning with the filing of
a
formal notice of default, the debtor is entitled to reinstate the mortgage
by
making any overdue payments. Under standard loan servicing procedures,
the
filing of the formal notice of default does not occur unless at least three
full
monthly payments have become due and remain unpaid. The power of sale
is
exercised by posting and publishing a notice of sale for at least 20 days
after
expiration of the three-month reinstatement period. Therefore, the
effective
minimum period for foreclosing on a mortgage could be in excess of seven
months
after the initial default. Such time delays in collections could disrupt
the
flow of revenues available to an issuer for the payment of debt service on
the
outstanding obligations if such defaults occur with respect to a
substantial
number of mortgages or deeds of trust securing an issuer's obligations.
In addition, a court could find that there is sufficient involvement of
the
issuer in the nonjudicial sale of property securing a mortgage for such
private
sale to constitute "state action," and could hold that the private-right-of-
sale
proceedings violate the due process requirements of the Federal or
State
Constitutions, consequently preventing an issuer from using the
nonjudicial
foreclosure remedy described above.
16
<PAGE>
Certain California Municipal Obligations in the Fund's portfolio may
be
obligations which finance the acquisition of single family home mortgages
for
low and moderate income mortgagors. These obligations may be payable solely
from
revenues derived from the home mortgages, and are subject to
California's
statutory limitations described above applicable to obligations secured by
real
property. Under California antideficiency legislation, there is no
personal
recourse against a mortgagor of a single family residence purchased with
the
loan secured by the mortgage, regardless of whether the creditor
chooses
judicial or nonjudicial foreclosure.
Under California law, mortgage loans secured by single-family, owner-
occupied
dwellings may be prepaid at any time. Prepayment charges on such mortgage
loans
may be imposed only with respect to voluntary prepayments made during the
first
five years during the term of the mortgage loan, and cannot in any event
exceed
six months' advance interest on the amount prepaid in excess of 20% of
the
original principal amount of the mortgage loan. This limitation could affect
the
flow of revenues available to an issuer for debt service on the outstanding
debt
obligations which financed such home mortgages.
OTHER CONSIDERATIONS
From time to time, proposals have been introduced before Congress for
the
purpose of restricting or eliminating the federal income tax exemption
for
interest on Municipal Obligations. For example, under the Tax Reform Act
of
1986, enacted in October 1986, interest on certain private activity bonds
must
be included in an investor's alternative minimum taxable income, and
corporate
investors must treat all tax-exempt interest as an item of tax preference.
(See
the Prospectus, "Taxes.") Moreover, with respect to Municipal Obligations
issued
by the State of California, the Trust cannot predict what legislation, if
any,
may be proposed in the California Legislature as regards the California
state
personal income tax status of interest on such obligations, or which
proposals,
if any, might be enacted. Such proposals, while pending or if enacted,
might
materially adversely affect the availability of California
Municipal
Obligations, in particular, and Municipal Obligations generally, for
investment
by the Fund and the liquidity and value of the Fund's portfolio. In such
an
event, the Trust would re-evaluate the investment objective and policies of
the
Fund and consider changes in its structure or possible dissolution.
Moreover, if the Trust's Board of Trustees, after consultation with
the
investment adviser, should for any reason determine that it is impracticable
to
invest at least 50% of the Fund's assets in California Municipal Obligations
at
the close of each quarter of the Trust's taxable year (and thereby to
qualify
the Fund to pay dividends that are exempt from California state personal
income
tax), the Board would consider changing the Fund's investment objective
and
policies (and recommending to shareholders a change in the Fund's name),
or
possibly dissolving the Fund.
The payment of principal and interest on most securities purchased by
the
Fund will depend upon the ability of the issuers to meet their obligations.
The
value of the Fund's portfolio securities can be expected to vary inversely
with
changes in prevailing interest rates.
17
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
IN GENERAL
Information on how to purchase and redeem shares of the Fund, and how
such
shares are priced, is included in the Prospectus. The issuance of shares
is
recorded on the books of the Fund, and share certificates are not issued.
The regulations of the Comptroller of the Currency (the
"Comptroller")
provide that funds held in a fiduciary capacity by a national bank approved
by
the Comptroller to exercise fiduciary powers must be invested in accordance
with
the instrument establishing the fiduciary relationship and local law. The
Trust
believes that the purchase of Fund shares by such national banks acting
on
behalf of their fiduciary accounts is not contrary to applicable regulations
if
consistent with the particular account and proper under the law governing
the
administration of the account.
Conflict of interest restrictions may apply to an institution's receipt
of
compensation paid by the Fund on fiduciary funds that are invested in the
Fund's
Class B or Class C shares. Institutions, including banks regulated by
the
Comptroller and investment advisers and other money managers subject to
the
jurisdiction of the SEC, the Department of Labor or state
securities
commissions, should consult their legal advisers before investing
fiduciary
funds in the Fund's Class B or Class C shares.
Prior to effecting a redemption of shares represented by certificates,
The
Shareholder Services Group, Inc. ("TSSG"), the Trust's transfer agent, must
have
received such certificates at its principal office. All such certificates
must
be endorsed by the redeeming shareholder or accompanied by a signed stock
power,
in each instance with the signature guaranteed by a bank or other
eligible
guarantor institution unless other arrangements satisfactory to the Fund
have
previously been made. The Fund may require any additional information
reasonably
necessary to evidence that a redemption has been duly authorized.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone
the date of payment upon redemption for any period during which the New
York
Stock Exchange (the "Exchange") is closed, other than customary weekend
and
holiday closings, or during which trading on the Exchange is restricted,
or
during which (as determined by the SEC by rule or regulation) an
emergency
exists as a result of which disposal or valuation of portfolio securities is
not
reasonably practicable, or for such other periods as the SEC may permit.
(The
Fund may also suspend or postpone the recordation of the transfer of its
shares
upon the occurrence of any of the foregoing conditions.) In addition, the
Fund
may redeem shares involuntarily in certain other instances if the Board
of
Trustees determines that failure to redeem may have material
adverse
consequences to the Fund's shareholders in general. If the Board of
Trustees
determines that conditions exist which make payment of redemption
proceeds
wholly in cash unwise or undesirable, the Fund may make payment wholly or
partly
in readily marketable securities or other property. In certain instances,
the
Fund may redeem shares pro rata from each shareholder of record without
payment
of monetary consideration. See "Net Asset Value" below.
Any institution purchasing shares on behalf of separate accounts will
be
required to hold the shares in a single nominee name (a "Master
Account").
Institution, investing in more than one of the Trust's portfolios or class
of
shares must maintain a separate Master Account for each portfolio and class
of
shares. Sub-accounts may be established by name or number either when the
Master
Account is opened or later.
18
<PAGE>
NET ASSET VALUE
The Fund's net asset value per share is calculated by adding the value of all
of
the Fund's portfolio securities and other assets belonging to that
Fund,
subtracting the liabilities charged to the Fund including dividends that
have
been declared but not paid, and dividing the result by the number of the
Fund's
shares outstanding (irrespective of class or series). "Assets belonging to"
the
Fund consist of the consideration received upon the issuance of the
Fund's
shares together with all income, earnings, profits and proceeds derived from
the
investment thereof, including any proceeds from the sale of such
investments,
any funds or payments derived from any reinvestment of such proceeds, and
the
portion of any general assets of the Trust not belonging to the Fund.
Assets
belonging to the Fund are charged with the direct liabilities of the Fund
and
with a share of the general liabilities of the Trust allocated in proportion
to
the relative net assets of the Fund and the Trust's other
portfolios.
Determinations made in good faith and in accordance with generally
accepted
accounting principles by the Board of Trustees as to the allocation of
any
assets and liabilities with respect to the Fund are conclusive and a portion
of
any general assets of the Trust not belonging to a particular portfolio.
Assets
belonging to the Fund are charged with the direct liabilities of the Fund
and
with a share of the general liabilities of the Trust allocated on a daily
basis
in proportion to the relative net assets of the Trust's other
portfolios.
Determinations made in good faith and in accordance with generally
accepted
accounting principles of the Trust's Board of Trustees as to the allocation
of
any assets or liabilities with respect to the Fund are conclusive.
As stated in the Prospectus, in computing the net asset value of its
shares
for purposes of sales and redemptions, the Fund uses the amortized cost
method
of valuation. Under this method, the Fund values each of its
portfolio
securities at cost on the date of purchase and thereafter assumes a
constant
proportionate amortization of any discount or premium until maturity of
the
security. As a result, the value of a portfolio security for purposes
of
determining net asset value normally does not change in response to
fluctuating
interest rates. While the amortized cost method provides certainty in
portfolio
valuation, it may result in valuations of the Fund's securities which are
higher
or lower than the market value of such securities.
In connection with its use of amortized valuation, the Fund limits
the
dollar-weighted average maturity of its portfolio to not more than 90 days
and
does not purchase any instrument with a remaining maturity of more than
13
months (397 days) (with certain exceptions). The Trust's Board of Trustees
has
also established, pursuant to rules promulgated by the SEC, procedures that
are
intended to stabilize the Fund's net asset value per share for purposes of
sales
and redemptions at $1.00. Such procedures include the determination at
such
intervals as the Board deems appropriate, of the extent, if any, to which
the
Fund's net asset value per share calculated by using available market
quotations
deviates from $1.00 per share. In the event such deviation exceeds 1/2 of
1%,
the Board will promptly consider what action, if any, should be initiated.
If
the Board believes that the amount of any deviation from the Fund's
$1.00
amortized cost price per share may result in material dilution or other
unfair
results to investors or existing shareholders, it will take such steps as
it
considers appropriate to eliminate or reduce to the extent
reasonably
practicable any such dilution or unfair results. These steps may include
selling
portfolio instruments prior to maturity to realize capital gains or losses or
to
shorten the Fund's average portfolio maturity, redeeming shares in
kind,
reducing or withholding dividends, or utilizing a net asset value per
share
determined by using available market quotations.
19
<PAGE>
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Trust's trustees and executive officers, their addresses,
principal
occupations during the past 5 years and other affiliations are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
NAME AND ADDRESS POSITION WITH THE TRUST
AND OTHER AFFILIATIONS
------------------------------------------ -------------------------- ------
--------------------------------------
<S> <C> <C>
STEVEN SPIEGEL(1)(2) Vice Chairman of the Board
Managing Director, Lehman Brothers;
3 World Financial Center and Trustee
President, Lehman Brothers Global Asset
New York, NY 10285
Management Inc.; formerly Chairman, Lehman
Brothers International (Europe).
CHARLES F. BARBER(2)(3) Trustee
Consultant; formerly Chairman of the Board,
66 Glenwood Drive ASARCO
Incorporated
Greenwich, CT 06830
BURT N. DORSETT(2)(3) Trustee
Managing Partner, Dorsett McCabe Capital
201 East 62nd Street
Management, Inc., an investment counselling
New York, NY 10022 firm;
Director, Research Corporation
Technologies, a non-profit patent-clearing
and
licensing operation; formerly President,
Westinghouse Pension Investments
Corporation; formerly Executive Vice
President and Trustee, College Retirement
Equities Fund, Inc., a variable annuity
fund;
and formerly Investment Officer,
University of Rochester.
EDWARD J. KAIER(2)(3) Trustee
Partner with the law firm of Hepburn Willcox
1100 One Penn Center
Hamilton & Putnam.
Philadelphia, PA 19103
S. DONALD WILEY(2)(3) Trustee Vice-
Chairman and Trustee, H.J. Heinz
USX Tower
Company Foundation; prior to October 1990,
Pittsburgh, PA 15219 Senior
Vice President, General Counsel and
Secretary, H.J. Heinz Company.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
NAME AND ADDRESS POSITION WITH THE TRUST
AND OTHER AFFILIATIONS
------------------------------------------ -------------------------- ------
--------------------------------------
<S> <C> <C>
PETER MEENAN President
Managing Director of Lehman Brothers;
260 Franklin Street
President of Lehman Brothers Institutional
Boston, MA 02110 Funds
Group Trust; formerly, Director,
Senior
Vice President and Director of
Institutional Fund Services, The Boston
Company Advisors, Inc. from February 1984 to
May
1993; Director, Funds Distributor, Inc.
(1992-
1993); Senior Vice President, The
Boston
Company Advisors, Inc. from August
1984
to May 1993.
JOHN M. WINTERS Vice President and Senior
Vice President and Senior Money
3 World Financial Center Investment Officer Market
Portfolio Manager, Lehman Brothers
New York, NY 10285 Global
Asset Management Inc.; formerly
Product Manager with Lehman Brothers Capital
Markets Group.
MICHAEL L. KARDOK Treasurer Vice
President, The Shareholder Services
One Exchange Place Group,
Inc.; prior to May 1994, Vice
Boston, MA 02109
President, The Boston Company Advisors, Inc.
PATRICIA l. BICKINER Secretary Vice
President and Associate General
One Exchange Place
Counsel, The Shareholder Services Group,
Boston, MA 02109 Inc.,
prior to May 1994, Vice President and
Associate General Counsel, The Boston
Company Advisors, Inc.
<FN>
------------------------
(1) Considered by the Trust to be "interested persons" of the Trust as
defined
in the 1940 Act.
(2) Audit Committee Member.
(3) Nominating Committee Member.
</TABLE>
Two trustees of the Trust, Messrs. Barber and Dorsett, serve as trustees
or
directors of other investment companies for which Lehman Brothers, LBGAM or
one
of their affiliates serves as distributor or investment adviser.
No employee of Lehman Brothers, LBGAM or TSSG receives any compensation
from
the Trust for acting as an officer or trustee of the Trust. The Trust pays
each
trustee who is not a director, officer or employee of Lehman Brothers, LBGAM
or
TSSG or any of their affiliates, a fee of $20,000 per annum plus $1,250
per
meeting attended and reimburses them for travel and out-of-pocket expenses.
21
<PAGE>
For the fiscal period ended January 31, 1994, such fees and expenses
totalled
$9,589, $94,754 for the Trust in the aggregate. As of May 13, 1994, Trustees
and
officers of the Trust as a group beneficially owned less than 1% of
the
outstanding shares of the Fund.
By virtue of the responsibilities assumed by Lehman Brothers, LBGAM, TSSG
and
their affiliates under their respective agreements with the Trust, the
Trust
itself requires no employees in addition to its officers.
INVESTMENT ADVISER
LBGAM serves as the investment adviser to the Fund. The investment
advisory
agreement provides that LBGAM is responsible for all investment activities
of
the Fund, including executing portfolio strategy, effecting Fund purchase
and
sale transactions and employs professional portfolio managers and
security
analysts who provide research for the Fund.
The Investment Advisory Agreement with respect to the Funds will continue
in
effect for a period of two years from February 5, 1993 and thereafter from
year
to year provided the continuance is approved annually (i) by the Trust's
Board
of Trustees or (ii) by a vote of a "majority" (as defined in the 1940 Act)
of
the Fund's outstanding voting securities, except that in either event
the
continuance is also approved by a majority of the Trustees of the Trust who
are
not "interested persons" (as defined in the 1940 Act). The Investment
Advisory
Agreement may be terminated (i) on 60 days' written notice by the Trustees
of
the Trust, (ii) by vote of holders of a majority of the Fund's
outstanding
voting securities, or upon 90 days' written notice by Lehman Brothers, or
(iii)
automatically in the event of its assignment (as defined in the 1940 Act).
As compensation for LBGAM's services rendered to the Fund, the Fund pays
a
fee, computed daily and paid monthly, at the annual rate of .30% of the
average
daily net assets of the Fund. For the period February 8, 1993 (commencement
of
operations) to January 31, 1994, LBGAM received net advisory fees equal
to
$6,746. Waivers by LBGAM of advisory fees and reimbursement of expenses to
which
it was entitled amounted to $6,746 and $69,533, respectively. In order
to
maintain a competitive expense ratio during 1994 through 1997, the
investment
adviser and administrator have agreed to reimburse the Fund if total
operating
expenses exceed certain levels. See "Background and Expense Information" in
the
Prospectus.
PRINCIPAL HOLDERS
At May 13, 1994, the principal holders of the Fund were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
HELD OF
NAME AND ADDRESS RECORD
ONLY
--------------------------------
-------
<S> <C> <C>
Class A Shares: University National Bank
66.90 %
and Trust (Principal
Acct)
P.O. Box 89
Palo Alto, CA 94302
Borel Bank & Trust
19.20 %
Company
P.O. Box 5492
160 Bovet Road
San Mateo, CA 94402
Lehman Brothers Inc.
9.84 %
Three World Financial
Ctr.
</TABLE>
22
<PAGE>
As of May 13, 1994, the Class B and Class C shares of the Fund had not
been
offered to the public and all outstanding shares were held by Lehman Brothers.
The shareholders described above have indicated that they each hold
their
shares on behalf of various accounts and not as beneficial owners. To the
extent
that any shareholder is the beneficial owner of more than 25% of the
outstanding
shares of a Fund, such shareholder may be deemed to be a "control person"
of
that Fund for purposes of the 1940 Act.
ADMINISTRATOR AND TRANSFER AGENT
TSSG, a subsidiary of First Data Corporation, is located at One Exchange
Place,
Boston, Massachusetts 02109, and serves as the Trust's administrator
and
transfer agent. As the Fund's administrator, TSSG has agreed to provide
the
following services: (i) assist generally in supervising the Fund's
operations,
providing and supervising the operation of an automated data processing
system
to process purchase and redemption orders, providing information concerning
the
Fund to its shareholders of record, handling shareholder problems,
supervising
the services of employees whose principal responsibility and function is
to
preserve and strengthen shareholder relations and monitoring the
arrangements
pertaining to the Fund's agreements with Service Organizations; (ii)
prepare
reports to the Fund's shareholders and prepare tax returns and reports to
and
filings with the SEC; (iii) compute the net asset value per share of the
Fund;
(iv) provide the services of certain persons who may be elected as trustees
or
appointed as officers of the Trust by the Board of Trustees; and (v)
maintain
the registration or qualification of the Fund's shares for sale under
state
securities laws. TSSG receives, as compensation for its services rendered
under
an administration agreement, an administrative fee, computed daily and
paid
monthly, at the annual rate of .10% of the average daily net assets of the
Fund.
TSSG pays Boston Safe, the Fund's custodian, a portion of its
monthly
administration fee for custody services rendered to the Funds. In order
to
maintain a competitive expense ratio during 1994 through 1997, the
investment
adviser and administrator have agreed to reimburse the Fund if total
operating
expenses exceed certain levels. See "Background and Expense Information" in
the
Prospectus.
Prior to May 6, 1994, The Boston Company Advisors, Inc. ("TBCA"),
a
wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"), served
as
administrator of the Fund. On May 6, 1994, TSSG acquired TBCA's third
party
mutual fund administration business from Mellon, and the Fund's
administration
agreement with TBCA was assigned to TSSG. For the period February 8,
1993
(commencement of operations) to January 31, 1994, TBCA received
net
administration fees equal to $6,746. Waivers by TBCA of administration fees
and
reimbursement of expenses to which it was entitled amounted to $6,746
and
$6,592, respectively.
Under the transfer agency agreement, TSSG maintains the shareholder
account
records for the Trust, handles certain communications between shareholders
and
the Trust and distributes dividends and distributions payable by the Trust
and
produces statements with respect to account activity for the Trust and
its
shareholders. For these services, TSSG receives a monthly fee based on
average
annual assets and is reimbursed for out-of-pocket expenses.
DISTRIBUTOR
Lehman Brothers acts as distributor of the Fund's shares. The Fund's shares
are
sold on a continuous basis by Lehman Brothers as agent. The distributor pays
the
cost of printing and distributing prospectuses to
23
<PAGE>
persons who are not shareholders of the Fund (excluding preparation and
printing
expenses necessary for the continued registration of the Fund's shares) and
of
preparing, printing, and distributing all sales literature. No compensation
is
payable by the Fund to Lehman Brothers for its distribution services.
Lehman Brothers is comprised of several major operating business
units.
Lehman Brothers Institutional Funds Group is the business group within
Lehman
Brothers that is primarily responsible for the distribution and client
service
requirements of the Trust and its shareholders. Lehman Brothers
Institutional
Funds Group has been serving institutional clients' investment needs
exclusively
for more than 20 years, emphasizing high quality individualized service
to
clients.
CUSTODIAN
Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly owned
subsidiary
of The Boston Company, Inc., is located at One Boston Place,
Boston,
Massachusetts 02108, and serves as the custodian of the Trust pursuant to
a
custody agreement. Under the custody agreement, Boston Safe holds the
Fund's
portfolio securities and keeps all necessary accounts and records. For
its
services, Boston Safe receives a monthly fee based upon the month-end
market
value of securities held in custody and also receives securities
transaction
charges, including out-of-pocket expenses. The Fund will enter into an
agreement
with each Service Organization whose customers ("Customers") are the
beneficial
owners of Class C shares that requires the Service Organization to
provide
certain services to Customers. The assets of the Trust are held under
bank
custodianship in compliance with the 1940 Act.
SERVICE ORGANIZATIONS
As stated in the Fund's Prospectus, the Fund will enter into an agreement
with
each financial institution which may purchase Class C shares. The Fund
will
enter into an agreement with each Service Organization whose
customers
("Customers") are the beneficial owners of Class C shares that requires
the
Service Organization to provide certain services to Customers in
consideration
of the Fund's payment of .35% of the average daily net asset value of the
Class
C shares held by the Service Organization for the benefit of its Customers.
Such
services include: (i) aggregating and processing purchase and
redemption
requests from customers and placing net purchase and redemption orders with
one
of the Fund's distributors; (ii) processing dividend payments from the Fund
on
behalf of Customers; (iii) providing information periodically to
Customers
showing their positions in shares; (iv) arranging for bank wires; (v)
responding
to Customer inquiries relating to the services performed by the
Service
Organization and handling correspondence; (vi) forwarding
shareholder
communications from the Fund (such as proxies, shareholder reports, annual
and
semi-annual financial statements and dividend, distribution and tax notices)
to
Customers; (vii) acting as a shareholder of record or nominee; and (viii)
other
similar account administrative services. In addition, a Service Organization
at
its option, may also provide to its Customers of Class C shares (a) a
service
that invests the assets of their accounts in shares pursuant to specific
or
pre-authorized instructions; (b) provide sub-accounting with respect to
shares
beneficially owned by Customers or the information necessary for sub-
accounting;
and (c) provide checkwriting services. Service Organizations that purchase
Class
C shares will also provide assistance in connection with the support of
the
distribution of Class C shares to its Customers, including marketing
assistance
and the forwarding to Customers of sales literature and advertising provided
by
a distributor of the shares.
Holders of Class B shares of the Fund will receive the services set forth
in
(i) and (v) and may receive one or more of the services set forth in
(ii),
(iii), (iv), (vi) and (viii) above. In consideration of the services to
be
24
<PAGE>
rendered in connection with this Class of shares, the Fund will pay the
Service
Organization .25% of the average daily net asset value of the Class B
shares
held by the Service Organization. A Service Organization, at its option,
may
also provide to its Customers of Class B shares services including: (a)
acting
as shareholder of record and as nominee; (b) providing Customers with a
service
that invests the assets of their accounts in shares pursuant to specific
or
pre-authorized instruction; (c) provide sub-accounting with respect to
shares
beneficially owned by Customers or the information necessary for sub-
accounting;
(d) providing information periodically to Customers showing their position
in
shares; (e) arranging for bank wires; (f) forwarding shareholder
communications
from the Fund (such as proxies, shareholder reports, annual and semi-
annual
financial statements and dividend, distribution, and tax notices) to
Customers;
and (h) providing such other similar services as the Fund may reasonably
request
to the extent Service Organization is permitted to do so under
applicable
statutes, rules or regulations.
The Fund's agreements with Service Organizations are governed by a plan
(the
"Plan"), which has been adopted by the Board of Trustees pursuant to
applicable
rules and regulations of the SEC and an exemptive order granted by the
SEC.
Under the Plan, the Board of Trustees reviews, at least quarterly, a
written
report of the amounts expended under the Fund's agreements with
Service
Organizations and the purposes for which the expenditures were made.
In
addition, the Fund's arrangements with Service Organizations must be
approved
annually by a majority of the Trust's trustees, including a majority of
the
trustees who are not "interested persons" of the Trust defined in the 1940
Act
and have no direct or indirect financial interest in such arrangements
(the
"Disinterested Trustees").
The Board of Trustees has approved the Fund's arrangements with
Service
Organizations based on information provided by the Fund's service
contractors
that there is a reasonable likelihood that the arrangements will benefit
the
Fund and its shareholders by affording the Fund greater flexibility
in
connection with the servicing of the accounts of the beneficial owners of
its
shares in an efficient manner. Any material amendment to the Fund's
arrangements
with Service Organizations must be approved by a majority of the Trust's
Board
of Trustees (including a majority of the Disinterested Trustees), and
any
amendment to increase materially the costs under the Plan adopted by the
Board
with respect to the Class B or Class C shares must be approved by the holders
of
a majority of the outstanding shares of the relevant Class. So long as
the
Fund's arrangements with Service Organizations are in effect, the selection
and
nomination of the members of the Board of Trustees who are not
"interested
persons" (as defined in the 1940 Act) of the Trust will be committed to
the
discretion of such non-interested trustees.
For the period February 8, 1993 (commencement of operations) to January
31,
1994, the Fund's Class B shares paid $85 in service fees.
EXPENSES
The Fund's expenses include taxes, interest, fees and salaries of the
Trust's
trustees and officers who are not directors, officers or employees of the
Fund's
service providers, SEC fees, state securities qualification fees, costs
of
preparing and printing prospectuses for regulatory purposes and for
distribution
to shareholders, advisory, sub-advisory and administration fees, charges of
the
custodian, transfer agent and dividend disbursing agent, Service
Organization
fees, certain insurance premiums, outside auditing and legal expenses, cost
of
independent pricing service, costs of shareholder reports and
shareholder
meetings and any extraordinary expenses. The Fund also pays for brokerage
fees
and commissions (if any) in connection with the purchase and sale of
portfolio
securities. LBGAM and TSSG have agreed that if, in any fiscal
year,
25
<PAGE>
the expenses borne by the Fund exceed the applicable expense limitations
imposed
by the securities regulations of any state in which shares of the Fund
are
registered or qualified for sale to the public, they will reimburse the Fund
for
any excess to the extent required by such regulations. Unless otherwise
required
by law, such reimbursement would be accrued and paid on the same basis that
the
advisory and administration fees are accrued and paid by the Fund. To the
Fund's
knowledge, of the expense limitations in effect on the date of this Statement
of
Additional Information, none is more restrictive than 2.5% of the first
$30
million of the Fund's average annual net assets, 2% of the next $70 million
of
the average annual net assets and 1.5% of the remaining average net assets.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional federal, state and local
tax
considerations generally affecting the Funds and their shareholders that are
not
described in the Fund's Prospectus. No attempt is made to present a
detailed
explanation of the tax treatment of the Fund or its shareholders, and
the
discussion here and in the Fund's Prospectus is not intended as a substitute
for
careful tax planning. Investors should consult their tax advisers with
specific
reference to their own tax situations.
GENERAL
The Fund is treated as a separate corporate entity under the Internal
Revenue
Code of 1986, as amended (the "Code"), qualified as a regulated
investment
company under the Code and intends to so qualify in future years.
As described above and in the Fund's Prospectus, the Fund is designed
to
provide California institutional investors and their customers with
current
tax-exempt interest income. The Fund is not intended to constitute a
balanced
investment program and is not designed for investors seeking
capital
appreciation or maximum tax-exempt income irrespective of fluctuations
in
principal. Shares of the Fund would not be suitable for tax-exempt
institutions
and may not be suitable for retirement plans qualified under Section 401 of
the
Code, H.R. 10 plans and individual retirement accounts since such plans
and
accounts are generally tax-exempt and, therefore, would not only not gain
any
additional benefit from the Fund's dividends being tax-exempt, but
such
dividends would be ultimately taxable to the beneficiaries when distributed
to
them. In addition, the Fund may not be an appropriate investment for
entities
which are "substantial users" of facilities financed by private activity
bonds
or "related persons" thereof. "Substantial user" is defined under U.S.
Treasury
Regulations to include a non-exempt person who regularly uses a part of
such
facilities in his trade or business and (i) whose gross revenues derived
with
respect to the facilities financed by the issuance of bonds are more than 5%
of
the total revenues derived by all users of such facilities, or (ii) who
occupies
more than 5% of the usable area of such facilities or (iii) for whom
such
facilities or a part thereof were specifically constructed, reconstructed
or
acquired. "Related persons" include certain related natural persons,
affiliated
corporations, a partnership and its partners and an S Corporation and
its
shareholders.
The percentage of total dividends paid by the Fund with respect to
any
taxable year which qualify as federal exempt-interest dividends will be the
same
for all shareholders receiving dividends for such year. In order for the Fund
to
pay exempt-interest dividends for any taxable year, at the close of each
fiscal
quarter at least 50% of the aggregate value of the Fund's portfolio must
consist
of exempt-interest obligations. In addition, the Fund must distribute
with
respect to each taxable year an amount that is at least equal to
the
26
<PAGE>
sum of 90% of the exempt-interest income net of certain deductions and 90%
of
the investment company taxable income for the taxable year. Not later than
60
days after the close of its taxable year, the Fund will notify each
shareholder
of the portion of the dividends paid by the Fund to the shareholder with
respect
to such taxable year which constitutes an exempt-interest dividend.
The
aggregate amount of dividends so designated cannot, however, exceed the
excess
of the amount of interest exempt from tax under Section 103 of the Code
received
by the Fund during the taxable year over any amounts disallowed as
deductions
under Sections 265 and 171(a)(2) of the Code.
Interest on indebtedness incurred by a shareholder to purchase or carry
the
Fund's shares is not deductible for federal income tax purposes if (as
expected)
the Fund distributes exempt-interest dividends during the shareholder's
taxable
year.
While the Fund does not expect to earn any investment company taxable
income,
any taxable income earned by the Fund will be distributed to shareholders.
In
general, the Fund's investment company taxable income will be its taxable
income
(for example, its short-term capital gains) subject to certain adjustments
and
excluding the excess of any net long-term capital gain for the taxable year
over
the net short-term capital loss, if any, for such year. Such distributions
would
be taxable to shareholders as ordinary income (whether made in cash
or
additional shares).
The Fund does not expect to realize long-term capital gains and
therefore
does not expect to distribute any capital gain dividends.
Dividends declared in October, November or December of any year and
made
payable to the Fund's shareholders of record on a specified date in such
months
will be deemed for Federal income tax purposes to have been received by
the
shareholders and paid by the Fund on December 31 of such year, if such
dividends
are actually paid during January of the following year.
A 4% non-deductible excise tax is imposed on regulated investment
companies
that fail to distribute currently an amount equal to specified percentages
of
their ordinary taxable income and capital gain net income (excess of
capital
gains over capital losses). The Fund intends to make sufficient distributions
or
deemed distributions of its ordinary taxable income and any capital gain
net
income with respect to each calendar year to avoid liability for this
excise
tax.
Although the Fund expects to qualify each year as a "regulated
investment
company" and to be relieved of all or substantially all liability for
federal
income taxes, the Fund may be subject to the tax laws of certain states
or
localities, depending upon the extent of its activities in states and
localities
in which its offices are maintained, in which its agents or
independent
contractors are located or in which it is deemed to be conducting business.
If for any taxable year the Fund does not qualify for the special
federal
income tax treatment afforded regulated investment companies, all of its
taxable
income would be subject to federal income tax at regular corporate
rates
(without any deduction for distributions to its shareholders). In such
event,
dividend distributions (including amounts derived from interest on
Municipal
Obligations) would be taxable to shareholders to the extent of the
Fund's
current or accumulated earnings and profits, and would be eligible for
the
dividends received deduction for corporations.
The Fund will be required in certain cases to withhold and remit to the
U.S.
Treasury 31% of taxable dividends or 31% of gross proceeds realized upon
sale
paid to shareholders who have failed to provide a
27
<PAGE>
correct tax identification number in the manner required, or who are subject
to
withholding by the Internal Revenue Service for failure properly to include
on
their return payments of taxable interest or dividends, or who have failed
to
certify to the Fund that they are not subject to backup withholding
when
required to do so or that they are "exempt recipients."
The foregoing discussion is based on federal tax laws and regulations
which
are in effect on the date of this Statement of Additional Information; such
laws
and regulations may be changed by legislative or administrative
action.
Shareholders are advised to consult their tax advisers concerning
the
application of state and local taxes.
CALIFORNIA
Assuming the Fund qualifies as a "regulated investment company," it will
be
relieved of California franchise and income taxes to the extent it
distributes
its exempt-interest income, investment company taxable income and any excess
of
net long-term capital gain over net short-term capital loss. It is
anticipated
that the Fund will be relieved of all or substantially all of
California
franchise and income taxes by making such distributions.
If, at the close of each quarter of its taxable year, at least 50% of
the
value of the total assets of a regulated investment company, or series
thereof,
consists of obligations the interest on which is exempt from taxation under
the
Constitution or laws of California ("California Municipal Obligations")
and
obligations the interest on which is exempt from taxation under the
U.S.
Constitution or laws of the United States ("Federal Obligations"), then
the
regulated investment company, or series of that company, will be qualified
to
pay dividends exempt from California state personal income tax to
its
non-corporate shareholders (hereinafter referred to as
"California
exempt-interest dividends"). Series of a regulated investment company is
defined
as a segregated portfolio of assets, the beneficial interest in which is
owned
by the holders of an exclusive class or series of stock of the company. The
Fund
intends to qualify under the above requirement so that it can pay
California
exempt-interest dividends. If the Fund fails to so qualify, no part of
its
dividends will be exempt from California state personal income tax.
Not later than 60 days after the close of its taxable year, the Fund
will
notify each shareholder of the portion of the dividends paid by the Fund to
the
shareholder with respect to such taxable year which is exempt from
California
state personal income tax. The total amount of California exempt-
interest
dividends paid by the Fund to its shareholders with respect to any taxable
year
cannot exceed the excess of the amount of interest received by the Fund
during
such year on California Municipal Obligations and Federal Obligations over
any
amounts that, if the Fund were treated as an individual, would be
considered
expenses related to tax-exempt income and would thus not be deductible
under
Federal income or California state personal income tax law. The percentage
of
total dividends paid by the Fund with respect to any taxable year
which
qualifies as California exempt-interest dividends will be the same for
all
shareholders receiving dividends from the Fund with respect to such year.
In cases where shareholders are "substantial users" or "related persons"
with
respect to California Municipal Obligations held by the Fund, such
shareholders
should consult their tax advisers to determine whether
California
exempt-interest dividends paid by the Fund with respect to such
obligations
retain their California state personal income tax exclusion. In this
connection
rules similar to those regarding the possible unavailability of
federal
exempt-interest dividend treatment to "substantial users" are applicable
for
California state tax purposes. See "Additional Information Concerning Taxes
--
General" above.
28
<PAGE>
To the extent, if any, dividends paid to shareholders are derived
from
long-term and short-term capital gains, such dividends will not
constitute
California exempt-interest dividends. Rules similar to those regarding
the
treatment of such dividends for Federal income tax purposes are also
applicable
for California state personal income tax purposes. See "Additional
Information
Concerning Taxes -- General." Moreover, interest on indebtedness incurred by
a
shareholder to purchase or carry shares of the Fund is not deductible
for
California state personal income tax purposes if the particular Fund
distributes
California exempt-interest dividends to the shareholder during his or
her
taxable year.
The foregoing is only a summary of some of the important California
state
personal income tax considerations generally affecting the Fund and
its
shareholders. No attempt is made to present a detailed explanation of
the
California state personal income tax treatment of the Fund or its
shareholders,
and this discussion is not intended as a substitute for careful
planning.
Further, it should be noted that the portion of the Fund's
dividends
constituting California exempt-interest dividends is excludable from income
for
California state personal income tax purposes only. Any dividends paid
to
shareholders of the Fund subject to California state franchise tax or
California
state corporate income tax will be taxed as ordinary dividends to
such
shareholders, notwithstanding that all or a portion of such dividends is
exempt
from California state personal income tax. Accordingly, potential investors
in
the Fund, including, in particular, corporate investors which may be subject
to
either California franchise tax or California corporate income tax,
should
consult their tax advisers with respect to the application of such taxes to
the
receipt of the Fund's dividends and as to their own California state
tax
situation, in general.
DIVIDENDS
Net income for dividend purposes consists of (i) interest accrued and
original
issue discount earned on the Fund's assets for the applicable dividend
period,
less (ii) amortization of market premium on such assets, accrued
expenses
directly attributable to the Fund and the general expenses (E.G.,
legal,
accounting and trustees' fees) of the Trust prorated to the Fund on the basis
of
its relative net assets. The amortization of market discount on the
Fund's
assets is not included in the calculation of net income.
Realized and unrealized gains and losses on portfolio securities
are
reflected in net asset value. In addition, the Fund's Class B and Class C
shares
bear exclusively the expense of fees paid to Service Organizations with
respect
to each such Class of shares. See "Management of the Fund --
Service
Organizations."
As stated, the Trust uses its best efforts to maintain the net asset
value
per share of the Fund at $1.00. As a result of a significant expense or
realized
or unrealized loss incurred by the Fund, it is possible that the Fund's
net
asset value per share may fall below $1.00.
ADDITIONAL YIELD INFORMATION
The "yields," "effective yields" and "tax-equivalent yields" are
calculated
separately for each Class of the Fund's shares. The seven-day yield for
each
Class of shares is calculated by determining the net change in the value of
a
hypothetical preexisting account in the Fund having a balance of one share
of
the Class involved at the beginning of the period, dividing the net change
by
the value of the account at the beginning of the period to obtain the
base
period return, and multiplying the base period return by 365/7. The net
change
in
29
<PAGE>
the value of an account in the Fund includes the value of additional
shares
purchased with dividends from the original share and dividends declared on
the
original share and any such additional shares, net of all fees charged to
all
shareholder accounts in proportion to the length of the base period and
the
Fund's average account size, but does not include gains and losses or
unrealized
appreciation and depreciation. In addition, the effective yield is calculated
by
compounding the unannualized base period return for each Class (calculated
as
above) by adding one to the base period return for the Fund, raising that sum
to
a power equal to 365/7, and subtracting one from the result. A tax-
equivalent
yield for each Class of the Fund's shares is computed by: (a) dividing
the
portion of the yield for the series involved (calculated as above) that
is
exempt from both federal and California State income taxes by one minus a
stated
combined federal and California State income tax rate; (b) dividing the
portion
of the yield for the series involved (calculated as above) that is exempt
from
federal income tax only by one minus a stated federal income tax rate; and
(c)
adding the figures resulting from (a) and (b) above to that portion, if any,
of
the yield for the series involved that is not exempt from federal income
tax.
Similarly, based on the calculations described above, 30-day (or one-
month)
yields, effective yields and tax-equivalent yields may also be calculated.
For the 7-day period ended January 31, 1994 the yield for Class A shares
of
the Fund was 2.17% and the effective yield was 2.19%. The tax equivalent
yield
for the Class A shares for this period was 3.17% assuming a maximum federal
tax
rate of 31% and a California state tax rate of 9.3%. Without such fee waivers
or
expense reimbursements the 7-day yield, effective and tax equivalent yield
for
Class A shares of the Fund would have been 2.04%, 2.06% and 2.99%,
respectively.
For the 30-day period ended January 31, 1994 the yield and effective
yield
for Class A shares of the Fund was 2.13% and ___%, respectively. The
tax
equivalent yield for the Class A shares for this period was 3.09% assuming
a
maximum federal tax rate of 31% and a California state tax rate of 9.3%.
Without
such fee waivers or expense reimbursements the 30-day yield, effective tax
yield
and tax equivalent yield for Class A shares of the Fund would have been
2.00%,
___% and 2.90%, respectively.
Class B and Class C shares bear the expenses of fees paid to
Service
Organizations. As a result, at any given time, the net yield of the Class B
and
Class C shares could be up to .25% and .35% lower than the net yield of Class
A
shares, respectively. The Class B and Class C shares did not have activity as
of
January 31, 1994 and, accordingly, yield information is not available
with
respect to such classes of shares.
From time to time, in advertisements or in reports to shareholders, the
yield
of the Fund may be quoted and compared to those of other mutual funds
with
similar investment objectives and to stock or other relevant indices.
For
example, the yields of the Fund may be compared to the Donoghue's IBC/MONEY
FUND
AVERAGE, which is an average compiled by Donoghue's MONEY FUND REPORT-R-
of
Holliston, MA 01746, a widely recognized independent publication that
monitors
the performance of money market funds, or to the data prepared by
Lipper
Analytical Services, Inc., a widely-recognized independent service that
monitors
the performance of mutual funds.
Yield will fluctuate, and any quotation of yield should not be considered
as
representative of the future performance of the Fund. Since yields
fluctuate,
yield data cannot necessarily be used to compare an investment in the
Fund's
shares with bank deposits, savings accounts and similar investment
alternatives
which often provide an agreed or guaranteed fixed yield for a stated period
of
time. Shareholders should remember that yield is generally a function of
the
kind and quality of the investments held in a
portfolio,
30
<PAGE>
portfolio maturity, operating expenses and market conditions. Any fees
charged
by banks or other financial institutions with respect to customer
accounts
investing in shares of the Fund will not be included in calculations of
yield;
such fees, if charged, would reduce the actual yield from that quoted.
ADDITIONAL DESCRIPTION CONCERNING SHARES
The Trust does not presently intend to hold annual meetings of
shareholders
except as required by the 1940 Act or other applicable law. The law
under
certain circumstances provides shareholders with the right to call for a
meeting
of shareholders to consider the removal of one or more trustees. To the
extent
required by the law, the Trust will assist in shareholder communication in
such
matters.
As stated in the Fund's Prospectus, holders of shares in the Fund will
vote
in the aggregate and not by class or series on all matters, except
where
otherwise required by law and except that only the Fund's Class B and Class
C
shares, as the case may be, will be entitled to vote on matters submitted to
a
vote of shareholders pertaining to the Fund's arrangements with
Service
Organizations with respect to the relevant Class of shares. (See "Management
of
the Fund--Service Organizations.") Further, shareholders of all of the
Trust's
portfolios will vote in the aggregate and not by portfolio except as
otherwise
required by law or when the Board of Trustees determines that the matter to
be
voted upon affects only the interests of the shareholders of a
particular
portfolio. Rule 18f-2 under the 1940 Act provides that any matter required to
be
submitted by the provisions of such Act or applicable state law, or
otherwise,
to the holders of the outstanding securities of an investment company such
as
the Trust shall not be deemed to have been effectively acted upon
unless
approved by the holders of a majority of the outstanding shares of
each
portfolio affected by the matter. Rule 18f-2 further provides that a
portfolio
shall be deemed to be affected by a matter unless it is clear that the
interests
of each portfolio in the matter are identical or that the matter does not
affect
any interest of the portfolio. Under the Rule the approval of an
investment
advisory agreement or any change in a fundamental investment policy would
be
effectively acted upon with respect to a portfolio only if approved by
the
holders of a majority of the outstanding voting securities of such
portfolio.
However, the Rule also provides that the ratification of the selection
of
independent certified public accountants, the approval of principal
underwriting
contracts and the election of trustees are not subject to the separate
voting
requirements and may be effectively acted upon by shareholders of the
investment
company voting without regard to portfolio.
COUNSEL
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York,
New York 10022, serves as counsel for the Trust and will pass upon the
legality
of the shares offered hereby. Willkie Farr & Gallagher also serves as counsel
to
Lehman Brothers.
AUDITORS
Ernst & Young, independent auditors, serve as auditors to the Fund and render
an
opinion on the Fund's financial statements annually. Ernst & Young has
offices
at 200 Clarendon Street, Boston, Massachusetts 02116-5072.
31
<PAGE>
FINANCIAL STATEMENTS
The Trust's Annual Report for the fiscal period ended January 31, 1994
is
incorporated into this Statement of Information by reference in its entirety.
MISCELLANEOUS
SHAREHOLDER VOTE
As used in this Statement of Additional Information and the Fund's Prospectus,
a
"majority of the outstanding shares" of the Fund or of any other portfolio
means
the lesser of (1) 67% of the Fund's shares (irrespective of class), or of
a
portfolio represented at a meeting at which the holders of more than 50% of
the
outstanding shares of the Fund or such portfolio are present in person or
by
proxy, or (2) more than 50% of the Fund's outstanding shares (irrespective
of
class) or of the portfolio.
SHAREHOLDER AND TRUSTEE LIABILITY
The Trust is organized as a trust under the laws of the Commonwealth
of
Massachusetts. Shareholders of such a trust may, under certain circumstances,
be
held personally liable (as if they were partners) for the obligations of
the
trust. The Declaration of Trust of the Trust provides that shareholders
shall
not be subject to any personal liability for the acts or obligations of
the
Trust and that every note, bond, contract, order or other undertaking made
by
the Trust shall contain a provision to the effect that the shareholders are
not
personally liable thereunder. The Declaration of Trust provides
for
indemnification out of the trust property of the Fund of any shareholder of
the
Fund held personally liable solely by reason of being or having been
a
shareholder and not because of any acts or omissions or some other reason.
The
Declaration of Trust also provides that the Trust shall, upon request,
assume
the defense of any claim made against any shareholder for any act or
obligation
of the Trust and satisfy any judgment thereon. Thus, the risk of a
Fund
shareholder's incurring financial loss beyond the amount invested on account
of
shareholder liability is limited to circumstances in which the Fund itself
would
be unable to meet its obligations.
The Trust's Declaration of Trust provides further that no trustee of
the
Trust shall be personally liable for or on account of any contract, debt,
tort,
claim, damage, judgment or decree arising out of or connected with
the
administration or preservation of the trust estate or the conduct of
any
business of the Trust, nor shall any trustee be personally liable to any
person
for any action or failure to act except by reason of bad faith,
willful
misfeasance, gross negligence in performing duties, or by reason of
reckless
disregard for the obligations and duties as trustee. It also provides that
all
persons having any claim against the trustees or the Trust shall look solely
to
the trust property for payment. With the exceptions stated, the Declaration
of
Trust provides that a trustee is entitled to be indemnified against
all
liabilities and expenses reasonably incurred in connection with the defense
or
disposition of any proceeding in which the trustee may be involved or may
be
threatened with by reason of being or having been a trustee, and that
the
trustees have the power, but not the duty, to indemnify officers and
employees
of the Trust unless such persons would not be entitled to indemnification
if
they were in the position of trustee.
32
<PAGE>
APPENDIX
DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of
the
likelihood of timely payment of debt having an original maturity of no more
than
365 days. The following summarizes the rating categories used by Standard
and
Poor's for commercial paper:
A-1 -- Issue's degree of safety regarding timely payment is strong.
Those
issues determined to possess extremely strong safety characteristics are
denoted
"A-1+."
A-2 -- Issue's capacity for timely payment is satisfactory. However,
the
relative degree of safety is not as high as for issues designated "A-l."
A-3 -- Issue has an adequate capacity for timely payment. It is,
however,
somewhat more vulnerable to the adverse effects of changes and
circumstances
than an obligation carrying a higher designation.
B -- Issue has only a speculative capacity for timely payment.
C -- Issue has a doubtful capacity for payment.
D -- Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of issuers
to
repay punctually promissory obligations not having an original maturity
in
excess of 9 months. The following summarizes the rating categories used
by
Moody's for commercial paper:
PRIME-1 -- Issuer or related supporting institutions are considered to have
a
superior capacity for repayment of short-term promissory obligations.
Principal
repayment capacity will normally be evidenced by the following
characteristics:
leading market positions in well established industries; high rates of return
on
funds employed; conservative capitalization structures with moderate reliance
on
debt and ample asset protection; broad margins in earning coverage of
fixed
financial charges and high internal cash generation; and well established
access
to a range of financial markets and assured sources of alternate liquidity.
PRIME-2 -- Issuer or related supporting institutions are considered to have
a
strong capacity for repayment of short-term promissory obligations. This
will
normally be evidenced by many of the characteristics cited above but to a
lesser
degree. Earnings trends and coverage ratios, while sound, will be more
subject
to variation. Capitalization characteristics, while still appropriate, may
be
more affected by external conditions. Ample alternative liquidity is
maintained.
PRIME-3 -- Issuer or related supporting institutions have an
acceptable
capacity for repayment of short-term promissory obligations. The effects
of
industry characteristics and market composition may be more
pronounced.
Variability in earnings and profitability may result in changes in the level
of
debt protection measurements and the requirement for relatively high
financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME -- Issuer does not fall within any of the Prime rating
categories.
A-1
<PAGE>
The three rating categories of Duff & Phelps for investment grade
commercial
paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps employs
three
designations, "Duff 1+," "Duff 1" and "Duff 1-," within the highest
rating
category. The following summarizes the rating categories used by Duff &
Phelps
for commercial paper:
DUFF 1+ -- Debt possesses highest certainty of timely payment. Short-
term
liquidity, including internal operating factors and/or access to
alternative
sources of funds, is outstanding, and safety is just below risk-free
U.S.
Treasury short-term obligations.
DUFF 1 -- Debt possesses very high certainty of timely payment.
Liquidity
factors are excellent and supported by good fundamental protection factors.
Risk
factors are minor.
DUFF 1- -- Debt possesses high certainty of timely payment. Liquidity
factors
are strong and supported by good fundamental protection factors. Risk
factors
are very small.
DUFF 2 -- Debt possesses good certainty of timely payment. Liquidity
factors
and company fundamentals are sound. Although ongoing funding needs may
enlarge
total financing requirements, access to capital markets is good. Risk
factors
are small.
DUFF 3 -- Debt possesses satisfactory liquidity, and other protection
factors
qualify issue as investment grade. Risk factors are larger and subject to
more
variation. Nevertheless, timely payment is expected.
DUFF 4 -- Debt possesses speculative investment characteristics.
DUFF 5 -- Issuer has failed to meet scheduled principal and/or
interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand
or have original maturities of up to three years. The following summarizes
the
rating categories used by Fitch for short-term obligations:
F-1+ -- Securities possess exceptionally strong credit quality.
Issues
assigned this rating are regarded as having the strongest degree of
assurance
for timely payment.
F-1 -- Securities possess very strong credit quality. Issues assigned
this
rating reflect an assurance of timely payment only slightly less in degree
than
issues rated "F-1+."
F-2 -- Securities possess good credit quality. Issues carrying this
rating
have a satisfactory degree of assurance for timely payment, but the margin
of
safety is not as great as the "F-1+" and "F-1" categories.
F-3 -- Securities possess fair credit quality. Issues assigned this
rating
have characteristics suggesting that the degree of assurance for timely
payment
is adequate; however, near-term adverse changes could cause those securities
to
be rated below investment grade.
F-S -- Securities possess weak credit quality. Issues assigned this
rating
have characteristics suggesting a minimal degree of assurance for timely
payment
and are vulnerable to near-term adverse changes in financial and
economic
conditions.
D -- Securities are in actual or imminent payment default.
A-2
<PAGE>
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate
that the rating is based upon a letter of credit issued by a commercial bank.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for corporate
and
municipal debt:
AAA -- This designation represents the highest rating assigned by Standard
&
Poor's to a debt obligation and indicates an extremely strong capacity to
pay
interest and repay principal.
AA -- Debt is considered to have a very strong capacity to pay interest
and
repay principal and differs from AAA issues only in small degree.
A -- Debt is considered to have a strong capacity to pay interest and
repay
principal although such issues are somewhat more susceptible to the
adverse
effects of changes in circumstances and economic conditions than debt
in
higher-rated categories.
BBB -- Debt is regarded as having an adequate capacity to pay interest
and
repay principal. Whereas such issues normally exhibit adequate
protection
parameters, adverse economic conditions or changing circumstances are
more
likely to lead to a weakened capacity to pay interest and repay principal
for
debt in this category than in higher-rated categories.
BB, B, CCC, CC, AND C -- Debt that possesses one of these ratings
is
regarded, on balance, as predominantly speculative with respect to capacity
to
pay interest and repay principal in accordance with the terms of the
obligation.
"BB" indicates the lowest degree of speculation and "C" the highest degree
of
speculation. While such debt will likely have some quality and
protective
characteristics, these are outweighed by large uncertainties or major
risk
exposures to adverse conditions.
CI -- This rating is reserved for income bonds on which no interest is
being
paid.
D -- Debt is in default, and payment of interest and/or repayment
of
principal is in arrears.
PLUS (+) OR MINUS (-) -- The ratings from "AA" through "CCC" may be
modified
by the addition of a plus or minus sign to show relative standing within
the
major rating categories.
The following summarizes the ratings used by Moody's for corporate
and
municipal long-term debt:
AAA -- Bonds are judged to be of the best quality. They carry the
smallest
degree of investment risk and are generally referred to as "gilt edge."
Interest
payments are protected by a large or by an exceptionally stable margin
and
principal is secure. While the various protective elements are likely to
change,
such changes as can be visualized are most unlikely to impair the
fundamentally
strong position of such issues.
AA -- Bonds are judged to be of high quality by all standards. Together
with
the "Aaa" group they comprise what are generally known as high grade bonds.
They
are rated lower than the best bonds because margins of protection may not be
as
large as in "Aaa" securities or fluctuation of protective elements may be
of
greater amplitude or there may be other elements present which make
the
long-term risks appear somewhat larger than in "Aaa" securities.
A-3
<PAGE>
A -- Bonds possess many favorable investment attributes and are to
be
considered as upper medium grade obligations. Factors giving security
to
principal and interest are considered adequate but elements may be present
which
suggest a susceptibility to impairment sometime in the future.
BAA -- Bonds considered medium-grade obligations, i.e., they are
neither
highly protected nor poorly secured. Interest payments and principal
security
appear adequate for the present but certain protective elements may be
lacking
or may be characteristically unreliable over any great length of time.
Such
bonds lack outstanding investment characteristics and in fact have
speculative
characteristics as well.
BA, B, CAA, CA, AND C -- Bonds that possess one of these ratings
provide
questionable protection of interest and principal ("Ba" indicates
some
speculative elements; "B" indicates a general lack of characteristics
of
desirable investment; "Caa" represents a poor standing; "Ca"
represents
obligations which are speculative in a high degree; and "C" represents
the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
CON. (---) -- Bonds for which the security depends upon the completion
of
some act or the fulfillment of some condition are rated conditionally. These
are
bonds secured by (a) earnings of projects under construction, (b) earnings
of
projects unseasoned in operation experience, (c) rentals which begin
when
facilities are completed, or (d) payments to which some other limiting
condition
attaches. Parenthetical rating denotes probable credit stature upon
completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification
from "Aa" to "B" in its bond rating system. The modifier 1 indicates that
the
security ranks in the higher end of its generic rating category; the modifier
2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks
at the lower end of its generic rating category.
The following summarizes the ratings used by Duff & Phelps for corporate
and
municipal long-term debt:
AAA -- Debt is considered to be of the highest credit quality. The
risk
factors are negligible, being only slightly more than for risk-free
U.S.
Treasury debt.
AA -- Debt is considered of high credit quality. Protection factors
are
strong. Risk is modest but may vary slightly from time to time because
of
economic conditions.
A -- Debt possesses protection factors which are average but
adequate.
However, risk factors are more variable and greater in periods of
economic
stress.
BBB -- Debt possesses below average Protection factors but such
protection
factors are still considered sufficient for prudent investment.
Considerable
variability in risk is present during economic cycles.
BB, B, CCC, DD, AND DP -- Debt that possesses one of these ratings
is
considered to be below investment grade. Although below investment grade,
debt
rated "BB" is deemed likely to meet obligations when due. Debt rated
"B"
possesses the risk that obligations will not be met when due. Debt rated
"CCC"
is well below investment grade and has considerable uncertainty as to
timely
payment of principal, interest or preferred dividends. Debt rated "DD" is
a
defaulted debt obligation, and the rating "DP" represents preferred stock
with
dividend arrearages.
A-4
<PAGE>
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB,"
"BB" and "B" ratings may be modified by the addition of a plus (+) or minus
(-)
sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate
and municipal bonds:
AAA -- Bonds considered to be investment grade and of the highest
credit
quality. The obligor has an exceptionally strong ability to pay interest
and
repay principal, which is unlikely to be affected by reasonably
foreseeable
events.
AA -- Bonds considered to be investment grade and of very high
credit
quality. The obligor's ability to pay interest and repay principal is
very
strong, although not quite as strong as bonds rated "AAA." Because bonds
rated
in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable
future developments, short-term debt of these issuers is generally rated "F-
1+."
A -- Bonds considered to be investment grade and of high credit quality.
The
obligor's ability to pay interest and repay principal is considered to
be
strong, but may be more vulnerable to adverse changes in economic conditions
and
circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory
credit
quality. The obligor's ability to pay interest and repay principal is
considered
to be adequate. Adverse changes in economic conditions and
circumstances,
however, are more likely to have an adverse impact on these bonds,
and
therefore, impair timely payment. The likelihood that the ratings of these
bonds
will fall below investment grade is higher than for bonds with higher ratings.
BB, B, CCC, CC, C, DDD, DD, AND D -- Bonds that possess one of these
ratings
are considered by Fitch to be speculative investments. The ratings "BB" to
"C"
represent Fitch's assessment of the likelihood of timely payment of
principal
and interest in accordance with the terms of obligation for bond issues not
in
default. For defaulted bonds, the rating "DDD" to "D" is an assessment of
the
ultimate recovery value through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings
from and including "AA" to "C" may be modified by the addition of a plus (+)
or
minus (-) sign to show relative standing within these major rating categories.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and market
access
risks unique to notes due in three years or less. The following summarizes
the
ratings used by Standard & Poor's Corporation for municipal notes:
SP-1 -- The issuers of these municipal notes exhibit very strong or
strong
capacity to pay principal and interest. Those issues determined to
possess
overwhelming safety characteristics are given a plus (+) designation.
SP-2 -- The issuers of these municipal notes exhibit satisfactory capacity
to
pay principal and interest.
SP-3 -- The issuers of these municipal notes exhibit speculative capacity
to
pay principal and interest.
A-5
<PAGE>
Moody's ratings for state and municipal notes and other short-term loans
are
designated Moody's Investment Grade ("MIG") and variable rate demand
obligations
are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings
recognize the differences between short-term credit risk and long-term risk.
The
following summarizes the ratings by Moody's Investors Service, Inc.
for
short-term notes:
MIG-1/VMIG-1 -- Loans bearing this designation are of the best
quality,
enjoying strong protection by established cash flows, superior liquidity
support
or demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2 -- Loans bearing this designation are of high quality,
with
margins of protection ample although not so large as in the preceding group.
MIG-3/VMIG-3 -- Loans bearing this designation are of favorable quality,
with
all security elements accounted for but lacking the undeniable strength of
the
preceding grades. Liquidity and cash flow protection may be narrow and
market
access for refinancing is likely to be less well established.
MIG-4/VMIG-4 -- Loans bearing this designation are of adequate
quality,
carrying specific risk but having protection commonly regarded as required of
an
investment security and not distinctly or predominantly speculative.
SG -- Loans bearing this designation are of speculative quality and
lack
margins of protection.
Fitch uses the short-term ratings described under Commercial Paper
Ratings
for municipal notes.
A-6
<PAGE>
100% GOVERNMENT OBLIGATIONS MONEY MARKET FUND
100% TREASURY INSTRUMENTS MONEY MARKET FUND
INVESTMENT PORTFOLIOS OFFERED BY LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP
TRUST
<TABLE>
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION
</TABLE>
MAY __,
1994
This Statement of Additional Information is meant to be read in
conjunction
with the Prospectuses for 100% Government Obligations Money Market Fund and
100%
Treasury Instruments Money Market Fund, each dated May __, 1994 as amended
or
supplemented from time to time, and is incorporated by reference in its
entirety
into those Prospectuses. Because this Statement of Additional Information is
not
itself a prospectus, no investment in shares of 100% Government
Obligations
Money Market Fund or 100% Treasury Instruments Money Market Fund should be
made
solely upon the information contained herein. Copies of the Prospectuses
for
100% Government Obligations Money Market Fund and 100% Treasury
Instruments
Money Market Fund shares may be obtained by calling Lehman Brothers, a
division
of Lehman Brothers Inc. ("Lehman Brothers"), at 1-800-368-5556.
Capitalized
terms used but not defined herein have the same meanings as in the
Prospectuses.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---
<S> <C>
The Trust......................................... 2
Investment Objective and Policies................. 2
Additional Purchase and Redemption Information.... 5
Management of the Funds........................... 7
Additional Information Concerning Taxes........... 13
Dividends......................................... 14
Additional Yield Information...................... 15
Additional Description Concerning Fund Shares..... 16
Counsel........................................... 17
Auditors.......................................... 17
Financial Statements.............................. 17
Miscellaneous..................................... 17
</TABLE>
<PAGE>
THE TRUST
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-
load,
open-end management investment company. The Trust currently includes a family
of
money market and non-money market portfolios, two of which are the
100%
Government Obligations Money Market Fund and 100% Treasury Instruments
Money
Market Fund portfolios (individually, a "Fund", and collectively, the
"Funds").
The obligations held by 100% Government Obligations Money Market Fund
are
limited to obligations issued or guaranteed by the U.S. Government, its
agencies
or instrumentalities. The obligations held by 100% Treasury Instruments
Money
Market Fund are limited to U.S. Treasury bills, notes and other
direct
obligations of the U.S. Treasury. Although the Funds and the Trust's
other
portfolios have the same investment adviser and have comparable
investment
objectives, the Funds differ in that they may not engage in
repurchase
agreements; their yields normally will differ due to their differing cash
flows
and differences in the specific portfolio securities held.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE FUNDS' PROSPECTUSES
RELATE
PRIMARILY TO THE FUNDS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUNDS. INVESTORS
WISHING
TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER PORTFOLIOS MAY
OBTAIN
SEPARATE PROSPECTUSES DESCRIBING THOSE PORTFOLIOS BY CONTACTING LEHMAN
BROTHERS
AT 1-800-368-5556.
INVESTMENT OBJECTIVE AND POLICIES
As stated in the Funds' Prospectuses, the investment objective of the Funds
is
to provide current income with liquidity and security of principal.
The
following policies supplement the description in the Prospectuses of
the
investment objectives and policies of the Funds.
The Funds are managed to provide stability of capital while
achieving
competitive yields. The investment adviser intends to follow a value-
oriented,
research-driven and risk-averse investment strategy, engaging in a full range
of
economic, strategic, credit and market-specific analyses in
researching
potential investment opportunities.
PORTFOLIO TRANSACTIONS
Subject to the general control of the Trust's Board of Trustees and
Lehman
Brothers Global Asset Management Inc. ("LBGAM"), the Funds' investment
adviser,
is responsible for, makes decisions with respect to and places orders for
all
purchases and sales of portfolio securities for the Funds. Purchases and
sales
of portfolio securities are usually principal transactions without
brokerage
commissions. In making portfolio investments, LBGAM seeks to obtain the best
net
price and the most favorable execution of orders. To the extent that
the
execution and price offered by more than one dealer are comparable, LBGAM
may,
in its discretion, effect transactions in portfolio securities with dealers
who
provide the Trust with research advice or other services.
Investment decisions for the Funds are made independently from those
for
other investment company portfolios advised by LBGAM. Such other
investment
company portfolios may invest in the same securities as the Funds.
When
purchases or sales of the same security are made at substantially the same
time
on behalf
2
<PAGE>
of such other investment company portfolios, transactions are averaged as
to
price, and available investments allocated as to amount, in a manner
which
Shearson Lehman Advisors believes to be equitable to each portfolio,
including
the Funds. In some instances, this investment procedure may adversely affect
the
price paid or received by the Funds or the size of the position obtained for
the
Funds. To the extent permitted by law, LBGAM may aggregate the securities to
be
sold or purchased for the Funds with those to be sold or purchased for
such
other investment company portfolios in order to obtain best execution.
Portfolio securities will not be purchased from or sold to Lehman
Brothers
Inc. ("Lehman Brothers") or LBGAM or any affiliated person (as such term
is
defined in the Investment Company Act of 1940, as amended (the "1940 Act"))
of
any of them, except to the extent permitted by the Securities and
Exchange
Commission (the "SEC"). Furthermore, with respect to such transactions,
the
Funds will not give preference to Service Organizations with which the
Funds
enter into agreements relating to Class B or Class C shares. (See
the
Prospectuses, "Management of the Fund--Service Organizations.")
As stated in the Funds' Prospectuses, the Funds may purchase securities on
a
"when-issued" basis (I.E., for delivery beyond the normal settlement date at
a
stated price and yield). When a Fund agrees to purchase when-issued
securities,
its custodian will set aside cash or liquid portfolio securities equal to
the
amount of the commitment in a separate account. Normally, the custodian will
set
aside portfolio securities to satisfy a purchase commitment, and in such a
case
such Fund may be required subsequently to place additional assets in
the
separate account in order to ensure that the value of the account remains
equal
to the amount of such Fund's commitment. It may be expected that a Fund's
net
assets will fluctuate to a greater degree when it sets aside
portfolio
securities to cover such purchase commitments than when it sets aside
cash.
Because the Funds will set aside cash or liquid assets to satisfy
their
respective purchase commitments in the manner described, such a Fund's
liquidity
and ability to manage its portfolio might be affected in the event
its
commitments to purchase when-issued securities ever exceeded 25% of the value
of
its assets. The Funds do not intend to purchase when-issued securities
for
speculative purposes but only in furtherance of their investment objectives.
The
Funds reserve the right to sell the securities before the settlement date if
it
is deemed advisable.
When a Fund engages in when-issued transactions, it relies on the seller
to
consummate the trade. Failure of the seller to do so may result in a
Fund's
incurring a loss or missing an opportunity to obtain a price considered to
be
advantageous.
The Funds may seek profits through short-term trading and engage
in
short-term trading for liquidity purposes. Increased trading may provide
greater
potential for capital gains and losses, and also involves
correspondingly
greater trading costs which are borne by the Fund involved. The
Funds'
investment adviser will consider such costs in determining whether or not a
Fund
should engage in such trading. The portfolio turnover rate for the Funds
is
expected to be zero for regulatory reporting purposes.
INVESTMENT LIMITATIONS
The Funds' Prospectuses summarize certain investment limitations that may not
be
changed without the affirmative vote of the holders of a "majority of
the
outstanding shares" of the respective Fund (as defined below
under
"Miscellaneous"). Investment limitations numbered 1 through 7 may not be
changed
without such a vote of shareholders; investment limitations 8 through 13 may
be
changed by a vote of the Trust's Board of Trustees at any time.
3
<PAGE>
A Fund may not:
1. Purchase the securities of any issuer if as a result more than 5% of
the
value of the Fund's assets would be invested in the securities of
such
issuer, except that up to 25% of the value of the Fund's assets may
be
invested without regard to this 5% limitation and provided that there is
no
limitation with respect to investments in U.S. government securities.
2. Borrow money except from banks for temporary purposes and then in
an
amount not exceeding 10% of the value of the particular Fund's
total
assets, or mortgage, pledge or hypothecate its assets except in
connection
with any such borrowing and in amounts not in excess of the lesser of
the
dollar amounts borrowed or 10% of the value of the particular Fund's
total
assets at the time of such borrowing. Additional investments will not be
made
when borrowings exceed 5% of the Fund's assets.
3. Make loans except that the Fund may purchase or hold debt obligations
in
accordance with its investment objective and policies.
4. Act as an underwriter, except insofar as the Fund may be deemed
an
underwriter under applicable securities laws in selling
portfolio
securities.
5. Purchase or sell real estate or real estate limited partnerships
except
that the Fund may invest in securities secured by real estate
or
interests therein.
6. Purchase or sell commodity contracts, or invest in oil, gas or
mineral
exploration or development programs or in mineral leases.
7. Purchase any securities which would cause 25% or more of the value of
its
total assets at the time of purchase to be invested in the securities
of
issuers conducting their principal business activities in the same
industry,
provided that there is no limitation with respect to investments in
U.S.
government securities.
8. Knowingly invest more than 10% of the value of the Fund's assets
in
securities that may be illiquid because of legal or
contractual
restrictions on resale or securities for which there are no readily
available
market quotations.
9. Purchase securities on margin, make short sales of securities or
maintain
a short position.
10. Write or sell puts, calls, straddles, spreads or combinations thereof.
11. Invest in securities if as a result the Fund would then have more than
5%
of its total assets in securities of companies (including
predecessors)
with less than three years of continuous operation.
12. Purchase securities of other investment companies except as
permitted
under the 1940 Act or in connection with a merger,
consolidation,
acquisition or reorganization.
13. Invest in warrants.
4
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
IN GENERAL
Information on how to purchase and redeem a Fund's shares is included in
its
Prospectus. The issuance of shares is recorded on the books of the Funds,
and
share certificates are not issued.
The regulations of the Comptroller of the Currency (the
"Comptroller")
provide that funds held in a fiduciary capacity by a national bank approved
by
the Comptroller to exercise fiduciary powers must be invested in accordance
with
the instrument establishing the fiduciary relationship and local law. The
Trust
believes that the purchase of 100% Government Obligations Money Market
Fund
shares and 100% Treasury Instruments Money Market Fund shares by such
national
banks acting on behalf of their fiduciary accounts is not contrary to
applicable
regulations if consistent with the particular account and proper under the
law
governing the administration of the account.
Conflict of interest restrictions may apply to an institution's receipt
of
compensation paid by the Funds on fiduciary funds that are invested in
their
Class B or Class C shares. Institutions, including banks regulated by
the
Comptroller and investment advisers and other money managers subject to
the
jurisdiction of the SEC, the Department of Labor or state
securities
commissions, should consult their legal advisors before investing
fiduciary
funds in Class B or Class C shares.
Prior to effecting a redemption of shares represented by certificates,
The
Shareholder Services Group, Inc. ("TSSG"), the Trust's transfer agent, must
have
received such certificates at its principal office. All such certificates
must
be endorsed by the redeeming shareholder or accompanied by a signed stock
power,
in each instance with the signature guaranteed by a commercial bank or a
member
of a major stock exchange, unless other arrangements satisfactory to the
Funds
have previously been made. The Funds may require any additional
information
reasonably necessary to evidence that a redemption has been duly authorized.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone
the date of payment upon redemption for any period during which the New
York
Stock Exchange (the "Exchange") is closed, other than customary weekend
and
holiday closings, or during which trading on said Exchange is restricted,
or
during which (as determined by the SEC by rule or regulation) an
emergency
exists as a result of which disposal or valuation of portfolio securities is
not
reasonably practicable, or for such other periods as the SEC may permit.
(The
Funds may also suspend or postpone the recordation of the transfer of
their
shares upon the occurrence of any of the foregoing conditions.) In addition,
the
Funds may redeem shares involuntarily in certain other instances if the Board
of
Trustees determines that failure to redeem may have material
adverse
consequences to a Fund's shareholders in general. Each Fund is obligated
to
redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset
value,
whichever is less, for any one shareholder within a 90-day period.
Any
redemption beyond this amount will also be in cash unless the Board of
Trustees
determines that conditions exist which make payment of redemption
proceeds
wholly in cash unwise or undesirable. In such a case, the Fund may make
payment
wholly or partly in readily marketable securities or other property, valued
in
the same way as the Fund determines net asset value. See "Net Asset Value"
below
for an example of when such redemption or form of payment might be
appropriate.
Redemption in kind is not as liquid as a cash redemption. Shareholders
who
receive a redemption in kind may incur transaction costs if they sell
such
securities or property, and may receive less than the redemption value of
such
securities or property upon sale, particularly where such securities are
sold
prior to maturity.
5
<PAGE>
Any institution purchasing shares on behalf of separate accounts will
be
required to hold the shares in a single nominee name (a "Master
Account").
Institutions investing in more than one of the Trust's portfolios or classes
or
sub-classes of shares, must maintain a separate Master Account for each
Fund's
class or sub-class of shares. Sub-accounts may be established by name or
number
either when the Master Account is opened or later.
NET ASSET VALUE
As stated in each Fund's Prospectus, a Fund's net asset value per share
is
calculated by adding, the value of all of that Fund's portfolio securities
and
other assets belonging to that Fund, subtracting the liabilities charged to
that
Fund and dividing the result by the total number of that Fund's
shares
outstanding (irrespective of class). "Assets belonging to" a Fund consist of
the
consideration received upon the issuance of shares together with all
income,
earnings, profits and proceeds derived from the investment thereof,
including
any proceeds from the sale, exchange or liquidation of such investments,
any
funds or payments derived from any reinvestment of such proceeds, and a
portion
of any general assets of the Trust not belonging to a particular
portfolio.
Assets belonging to a particular Fund are charged with the direct liabilities
of
that Fund and with a share of the general liabilities of the Trust allocated
in
proportion to the relative net assets of such Fund and the Trust's
other
portfolios. Determinations made in good faith and in accordance with
generally
accepted accounting principles by the Board of Trustees as to the allocations
of
any assets or liabilities with respect to a Fund are conclusive.
As stated in the Funds' Prospectuses, in computing the net asset value
of
shares of the Funds for purposes of sales and redemptions, the Funds use
the
amortized cost method of valuation. Under this method, the Funds value each
of
their portfolio securities at cost on the date of purchase and thereafter
assume
a constant proportionate amortization of any discount or premium until
maturity
of the security. As a result, the value of a portfolio security for purposes
of
determining net asset value normally does not change in response to
fluctuating
interest rates. While the amortized cost method provides certainty in
portfolio
valuation, it may result in valuations for the Funds' securities which
are
higher or lower than the market value of such securities.
In connection with their use of amortized cost valuation, each of the
Funds
limits the dollar-weighted average maturity of its portfolio to not more than
90
days. 100% Government Obligations Money Market Fund and 100%
Treasury
Instruments Money Market Fund do not purchase any instrument with a
remaining
maturity of more than thirteen months and one year, respectively (with
certain
exceptions). In determining the average weighted portfolio maturity of
each
Fund, a variable rate obligation that is issued or guaranteed by the
U.S.
Government, or an agency or instrumentality thereof, is deemed to have
a
maturity equal to the period remaining until the obligation's next interest
rate
adjustment. The Trust's Board of Trustees has also established
procedures,
pursuant to rules promulgated by the SEC, that are intended to stabilize the
net
asset value per share of each Fund for purposes of sales and redemptions
at
$1.00. Such procedures include the determination at such intervals, as the
Board
deems appropriate, of the extent, if any, to which each Fund's net asset
value
per share calculated by using available market quotations deviates from
$1.00
per share. In the event such deviation exceeds 1/2 of 1% with respect to a
Fund,
the Board will promptly consider what action, if any, should be initiated.
If
the Board believes that the amount of any deviation from the $1.00
amortized
cost price per share of a Fund may result in material dilution or other
unfair
results to investors or existing shareholders, it will take such steps as
it
considers appropriate to eliminate or reduce to the extent
reasonably
practicable any such dilution or unfair results. These steps
may
6
<PAGE>
include selling portfolio instruments prior to maturity; shortening the
Fund's
average portfolio maturity; withholding or reducing dividends; redeeming
shares
in kind; or utilizing a net asset value per share determined by using
available
market quotations.
MANAGEMENT OF THE FUNDS
TRUSTEES AND OFFICERS
The Trust's trustees and executive officers, their addresses,
principal
occupations during the past five years and other affiliations are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5
NAME AND ADDRESS POSITION WITH THE TRUST
YEARS AND OTHER AFFILIATIONS
--------------------------------------------- -------------------------- ---
-------------------------------------
<S> <C> <C>
Steven Spiegel(1)(2) Vice Chairman of the Board
Managing Director, Lehman Brothers;
3 World Financial Center and Trustee
President, Lehman Brothers Global Asset
New York, NY 10285
Management Inc.; formerly Chairman,
Lehman Brothers International (Europe)
Charles F. Barber(2)(3) Trustee
Consultant; formerly Chairman of the
66 Glenwood Drive
Board, ASARCO Incorporated
Greenwich, CT 06830
Burt N. Dorsett(2)(3) Trustee
Managing Partner, Dorsett McCabe Capital
201 East 62nd Street
Management, Inc., an investment
New York, NY 10022
counselling firm; Director, Research
Corporation Technologies, a non-profit
patent-clearing and licensing operation;
formerly President, Westinghouse Pension
Investments Corporation; formerly
Executive Vice President and Trustee,
College Retirement Equities Fund, Inc.,
a
variable annuity fund; and formerly
Investment Officer, University of
Rochester
Edward J. Kaier(2)(3) Trustee
Partner with the law firm of Hepburn
1100 One Penn Center
Willcox Hamilton & Putnam
Philadelphia, PA 19103
S. Donald Wiley(2)(3) Trustee
Vice-Chairman and Trustee, H.J. Heinz
USX Tower
Company Foundation; prior to October
Pittsburgh, PA 15219
1990, Senior Vice President, General
Counsel and Secretary, H.J. Heinz
Company
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5
NAME AND ADDRESS POSITION WITH THE TRUST
YEARS AND OTHER AFFILIATIONS
--------------------------------------------- -------------------------- ---
-------------------------------------
<S> <C> <C>
Peter Meenan President
Managing Director of Lehman Brothers;
260 Franklin Street
President of Lehman Brothers
Boston, MA 02110
Institutional Funds Group Trust;
formerly, Director, Senior Vice
President and Director of Institutional
Fund Services, The Boston Company
Advisors, Inc. from February 1984 to May
1993; Director, Funds Distributor, Inc.
(1992-1993); Senior Vice President, The
Boston Company Advisors, Inc. from
August 1984 to May 1993
John M. Winters Vice President and
Senior Vice President and Senior Money
World Financial Center Investment Officer
Market Portfolio Manager, Lehman
New York, NY 10285
Brothers, Global Asset Management Inc.;
formerly Product Manager with Lehman
Brothers Capital Markets Group
Michael L. Karbok Treasurer
Vice President, The Shareholder Services
One Exchange Place
Group, Inc.; prior to May 1994, Vice
Boston, MA 02109
President, The Boston Company Advisors,
Inc.
Patricia L. Bilkinger Secretary
Vice President and Associate General
One Exchange Place
Counsel, The Shareholder Services Group,
Boston, MA 02109
Inc.; prior to May 1994, Vice President
and
Associate General Counsel, The
Boston Company Advisors, Inc.
<FN>
----------
1. Considered by the Trust to be "interested persons" of the Trust as defined
in
the 1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.
</TABLE>
One trustee of the Trust, Mr. Dorsett, serves as trustee or director of
other
investment companies for which Lehman Brothers and LBGAM serve as
distributor
and investment adviser.
No employee of Lehman Brothers, LBGAM or TSSG receives any compensation
from
the Trust for acting as an officer or trustee of the Trust. The Trust pays
each
trustee who is not a director, officer or employee of Shearson Lehman
Brothers,
LBGAM or TSSG or any of their affiliates, a fee of $20,000 per annum plus
$1,250
per meeting attended and reimburses them for travel and out-of-pocket
expenses.
8
<PAGE>
For the fiscal period ended January 31, 1994, such fees and expenses
totalled
$9,589 for each Fund, $94,754 for the Trust in the aggregate. As of May
13,
1994, Trustees and officers of the Trust as a group beneficially owned less
than
1% of the outstanding shares of the Fund.
By virtue of the responsibilities assumed by Lehman Brothers, LBGAM, TSSG
and
their affiliates under their respective agreements with the Trust, the
Trust
itself requires no employees in addition to its officers.
INVESTMENT ADVISER
LBGAM serves as the investment adviser to each of the Funds. The
investment
advisory agreements provide that LBGAM is responsible for investment
activities
of the Funds, including executing portfolio strategy, all Fund purchase and
sale
transactions and employs professional portfolio managers and security
analysts
who provide research for the Funds.
The Investment Advisory Agreements with respect to each of the Funds
will
continue in effect for a period of two years from February 5, 1993
and
thereafter from year to year provided the continuance is approved annually
(i)
by the Trust's Board of Trustees or (ii) by a vote of a "majority" (as
defined
in the 1940 Act) of a Fund's outstanding voting securities, except that
in
either event the continuance is also approved by a majority of the Trustees
of
the Trust who are not "interested persons" (as defined in the 1940 Act).
Each
Investment Advisory Agreement may be terminated (i) on 60 days' written
notice
by the Trustees of the Trust, (ii) by vote of holders of a majority of a
Fund's
outstanding voting securities, or upon 90 days' written notice by
Lehman
Brothers, or (iii) automatically in the event of its assignment (as defined
in
the 1940 Act).
As compensation for LBGAM's services rendered to the Funds, each Fund pays
a
fee, computed daily and paid monthly, at the annual rate of .30% of the
average
daily net assets of the Fund. For the period February 8, 1993 (commencement
of
operations) to January 31, 1994. LBGAM received net advisory fees in
the
following amounts: the 100% Government Obligations Money Market Fund,
$27,323
and the 100% Treasury Instruments Money Market Fund, $70,084. Waivers by
LBGAM
of advisory fees and reimbursement of expenses to which it was entitled
amounted
to: the 100% Government Obligations Money Market Fund, $27,323 and
$130,650,
respectively, and the 100% Treasury Instruments Money Market Fund $70,084
and
$128,972, respectively. In order to maintain competitive expense ratios
during
1994 through 1997, the investment adviser and administrator have agreed
to
reimburse the Funds if total operating expenses exceed certain levels.
See
"Background and Expense Information" in each Fund's Prospectus.
PRINCIPAL HOLDERS
At May 13, 1994, the principal holders of each Fund were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES HELD OF
100% GOVERNMENT OBLIGATIONS MONEY MARKET FUND NAME AND ADDRESS
RECORD ONLY
------------------------------------------------------------------------------
-----------
<S> <C> <C>
Class A Shares Lehman Brothers Inc.
64.73%
Three World Financial Ctr.
New York, NY 10285
Norwest Bank of Minnesota NA
34.56%
733 Marquette South
Minneapolis, MN 55479
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES HELD OF
GOVERNMENT OBLIGATIONS MONEY MARKET FUND NAME AND ADDRESS
RECORD ONLY
------------------------------------------------------------------------------
-----------
<S> <C> <C>
100% TREASURY INSTRUMENTS MONEY MARKET FUND
Class A Shares Westco
56.59%
P.O. Box 380
Schenectady, NY 12301
Firstrust Co., The National
17.53%
City Bank of Evansville
P.O. Box 868
Evansville, IN 47705
Commerce Company
7.20%
P.O. Box 17089
Fortworth, TX 76102
Onbank and Trust Co.
6.88%
P.O. Box 4983
Syracuse, NY 13221
Troy Savings Bank
5.75%
P.O. Box 58
Troy, NY 12181
Lehman Brothers Inc.
5.30%
World Financial Center
New York, NY 10285
</TABLE>
As of May 13, 1994, the Class B and Class C shares of the Funds had not
been
offered to the public and all outstanding shares were held by Lehman Brothers.
The shareholders described above have indicated that they each hold
their
shares on behalf of various accounts and not as beneficial owners. To the
extent
that any shareholder is the beneficial owner of more than 25% of the
outstanding
shares of a Fund, such shareholder may be deemed to be a "control person"
of
that Fund for purposes of the 1940 Act.
ADMINISTRATOR AND TRANSFER AGENT
TSSG, a subsidiary of First Data Corporation, is located at One Exchange
Place,
Boston, Massachusetts 02109, and serves as the Trust's administrator
and
transfer agent. As the Funds' administrator, TSSG has agreed to provide
the
following services: (i) assist generally in supervising the Funds'
operations,
providing and supervising the operation of an automated data processing
system
to process purchase and redemption orders, providing information concerning
the
Funds to their shareholders of record, handling shareholder
problems,
supervising the services of employees whose principal responsibility
and
function is to preserve and strengthen shareholder relations and monitoring
the
arrangements pertaining to the Funds' agreements with Service
Organizations;
(ii) prepare reports to the Funds' shareholders and prepare tax returns
and
reports to and filings with the SEC; (iii) compute the respective net
asset
value per share of each Fund; (iv) provide the services of certain persons
who
may be elected as trustees or appointed as officers of the Trust by the Board
of
Trustees; and (v) maintain the registration or qualification of the
Funds'
shares for sale
10
<PAGE>
under state securities laws. TSSG receives, as compensation for its
services
rendered under an administration agreement, an administrative fee,
computed
daily and paid monthly, at the annual rate of .10% of the average daily
net
assets of each Fund. TSSG pays Boston Safe, the Fund's custodian, a portion
of
its monthly administration fee for custody services rendered to the Funds.
Prior to May 6, 1994, The Boston Company Advisors Inc. ("TBCA"),
an
wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"), served
as
administrator of the Funds. On May 6, 1994, TSSG acquired TBCA's third
party
mutual fund administration business from Mellon, and each Fund's
administration
agreement with TBCA was assigned to TSSG. For the period February 8,
1993
(commencement of operations) to January 31, 1994, TBCA received
net
administration fees in the following amounts: 100% Government Obligations
Money
Market Fund, $27,323 and the 100% Treasury Instruments Money Market
Fund,
$70,084. Waivers by TBCA of administration fees and reimbursement of expenses
to
which it was entitled amounted to the following: 100% Government
Obligations
Money Market Fund, $27,323 and $9,381, respectively, and 100%
Treasury
Instruments Money Market Fund, $70,084 and $21,978, respectively. In order
to
maintain competitive expense ratios during 1994 and 1997, the investment
adviser
and administrator have agreed to reimburse the Funds if total operating
expenses
exceed certain levels. See "Background and Expense Information" in each
Fund's
Prospectus.
Under the transfer agency agreement, TSSG maintains the shareholder
account
records for the Trust, handles certain communications between shareholders
and
the Trust and distributes dividends and distributions payable by the Trust
and
produces statements with respect to account activity for the Trust and
its
shareholders. For these services, TSSG receives a monthly fee based on
average
annual assets and is reimbursed for out-of-pocket expenses.
DISTRIBUTOR
Lehman Brothers acts as distributor of the Funds' shares. Each Fund's shares
are
sold on a continuous basis by Lehman Brothers as agent. The distributor pays
the
cost of printing and distributing prospectuses to persons who are
not
shareholders of the Funds (excluding preparation and printing expenses
necessary
for the continued registration of Fund shares) and of preparing, printing
and
distributing all sales literature. No compensation is payable by the Funds
to
Lehman Brothers for its distribution services.
Lehman Brothers is comprised of several major operating business
units.
Lehman Brothers Institutional Funds Group is the business group within
Lehman
Brothers that is primarily responsible for the distribution and client
service
requirements of the Trust and its shareholders. Lehman Brothers
Institutional
Funds Group has been serving institutional clients' investment needs
exclusively
for more than 20 years, emphasizing high quality individualized service
to
clients.
CUSTODIAN
Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly owned
subsidiary
of The Boston Company, Inc., is located at One Boston Place,
Boston,
Massachusetts 02108, and serves as the custodian of the Trust pursuant to
a
custody agreement. Under the custody agreement, Boston Safe holds each
Fund's
portfolio securities and keeps all necessary accounts and records. For
its
services, Boston Safe receives a monthly fee based upon the month-end
market
value of securities held in custody and also receives securities
transaction
charges, including out-of-pocket expenses. The assets of the Trust are
held
under bank custodianship in compliance with the 1940 Act.
11
<PAGE>
SERVICE ORGANIZATIONS
As stated in the Funds' Prospectuses, the Funds will enter into an
agreement
with each financial institution which may purchase Class C shares. The
Funds
will enter into an agreement with each Service Organization whose
customers
("Customers") are the beneficial owners of Class C shares that requires
the
Service Organization to provide certain services to Customers in
consideration
of the Funds' payment of .35% of the average daily net asset value of the
Class
C shares held by the Service Organization for the benefit of Customers.
Such
services include: (i) aggregating and processing purchase and
redemption
requests from Customers and placing net purchase and redemption orders with
a
Fund's distributor; (ii) processing dividend payments from the Funds on
behalf
of Customers; (iii) providing information periodically to Customers
showing
their positions in shares; (iv) arranging for bank wires; (v) responding
to
Customer inquiries relating to the services performed by the
Service
Organization and handling correspondence; (vi) forwarding
shareholder
communications from the Funds (such as proxies, shareholder reports, annual
and
semi-annual financial statements and dividend, distribution and tax notices)
to
Customers; (vii) acting as shareholder of record or nominee; and (viii)
other
similar account administrative services. In addition, a Service Organization
at
its option, may also provide to its Customers of Class C shares (a) a
service
that invests the assets of their accounts in shares pursuant to specific
or
pre-authorized instructions; (b) provide sub-accounting with respect to
shares
beneficially owned by Customers or the information necessary for sub-
accounting;
and (c) provide checkwriting services. Service Organizations that purchase
Class
C shares will also provide assistance in connection with the support of
the
distribution of Class C shares to its Customers, including marketing
assistance
and the forwarding to Customers of sales literature and advertising provided
by
a distributor of the shares.
Holders of Class B shares of a Fund will receive the services set forth
in
(i) and (v) and may receive one or more of the services set forth in
(ii),
(iii), (iv), (vi) and (viii) above. In consideration of the services to
be
rendered in connection with this Class of shares pursuant to an
agreement
between the Fund and the Service Organization, the Fund will pay the
Service
Organization .25% (on an annualized basis) of the average daily net asset
value
of the Class B shares held by the Service Organization. A Service
Organization,
at its option, may also provide to its Customers of Class B shares
services
including: (a) acting as shareholder of record and as nominee; (b)
providing
Customers with a service that invests the assets of their accounts in
shares
pursuant to specific or pre-authorized instruction; (c) provide sub-
accounting
with respect to shares beneficially owned by Customers or the
information
necessary for sub-accounting; (d) providing information periodically
to
Customers showing their position in shares; (e) arranging for bank wires;
(f)
forwarding shareholder communications from the Fund (such as
proxies,
shareholder reports, annual and semi-annual financial statements and
dividend,
distribution, and tax notices) to Customers; (g) providing reasonable
assistance
in connection with the distribution of shares to Customers; and (h)
providing
such other similar services as the Fund may reasonably request to the
extent
Service Organization is permitted to do so under applicable statutes, rules,
or
regulations.
Each Fund's agreements with Service Organizations are governed by
a
Shareholder Services Plan (the "Plan") that has been adopted by the
Trust's
Board of Trustees pursuant to an exemptive order granted by the SEC. Under
this
Plan, the Board of Trustees reviews, at least quarterly, a written report of
the
amounts expended under the Fund's agreements with Service Organizations and
the
purposes for which the expenditures were made. In addition, the
Funds'
arrangements with Service Organizations must be approved
12
<PAGE>
annually by a majority of the Trust's trustees, including a majority of
the
trustees who are not "interested persons" of the Trust as defined in the
1940
Act and have no direct or indirect financial interest in such arrangements
(the
"Disinterested Trustees").
The Board of Trustees has approved the Funds' arrangements with
Service
Organizations based on information provided by the Funds' service
contractors
that there is a reasonable likelihood that the arrangements will benefit
the
Funds and their shareholders by affording the Funds greater flexibility
in
connection with the servicing of the accounts of the beneficial owners of
their
shares in an efficient manner. Any material amendment to the Funds'
arrangements
with Service Organizations must be approved by a majority of the Trust's
Board
of Trustees (including a majority of the Disinterested Trustees). So long as
the
Funds' arrangements with Service Organizations are in effect, the selection
and
nomination of the members of the Trust's Board of Trustees who are
not
"interested persons" (as defined in the 1940 Act) of the Trust will be
committed
to the discretion of such non-interested trustees.
For the period February 8, 1993 (commencement of operations) to January
31,
1994, the 100% Government Obligations Money Market Fund did not pay any
service
fees and the Class B shares of the 100% Treasury Instruments Money Market
Fund
paid $923 in service fees.
EXPENSES
The Funds' expenses include taxes, interest, fees and salaries of the
Trust's
trustees and officers who are not directors, officers or employees of
the
Trust's service contractors, SEC fees, state securities qualification
fees,
costs of preparing and printing prospectuses for regulatory purposes and
for
distribution to shareholders, advisory, sub-advisory and administration
fees,
charges of the custodian, transfer agent and dividend disbursing agent,
Service
Organization fees, certain insurance premiums, outside auditing and
legal
expenses, costs of shareholder reports and shareholder meetings and
any
extraordinary expenses. The Funds also pay for brokerage fees and
commissions
(if any) in connection with the purchase and sale of portfolio securities.
LBGAM
and TSSG have agreed that if, in any fiscal year, the expenses borne by a
Fund
exceed the applicable expense limitations imposed by the securities
regulations
of any state in which shares of the particular Fund are registered or
qualified
for sale to the public, it will reimburse such Fund for any excess to the
extent
required by such regulations in the same proportion that each of their
fees
bears to the Fund's aggregate fees for investment advice, sub-investment
advice
and administrative services. Unless otherwise required by law,
such
reimbursement would be accrued and paid on the same basis that the advisory
and
administration fees are accrued and paid by such Fund. To the Funds'
knowledge,
of the expense limitations in effect on the date of this Statement of
Additional
Information, none is more restrictive than two and one-half percent (2 1/2%)
of
the first $30 million of a Fund's average annual net assets, two percent (2%)
of
the next $70 million of the average annual net assets and one and one-
half
percent (1 1/2%) of the remaining average annual net assets.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations
generally
affecting each Fund and its shareholders that are not described in each
Fund's
Prospectus. No attempt is made to present a detailed explanation of the
tax
treatment of the Funds or their shareholders or possible legislative
changes,
and the discussion here and in each Fund's Prospectus is not intended as
a
substitute for careful tax planning. Investors should consult their tax
advisors
with specific reference to their own tax situation.
13
<PAGE>
Each Fund is treated as a separate corporate entity under the Code
and
qualified as a regulated investment company under the Code and intends to
so
qualify in future years. In order to so qualify for a taxable year, each
Fund
must satisfy the distribution requirement described in its Prospectus, derive
at
least 90% of its gross income for the year from certain qualifying
sources,
comply with certain diversification tests and derive less than 30% of its
gross
income from the sale or other disposition of securities and certain
other
investments held for less than three months. Interest (including original
issue
discount and accrued market discount) received by a Fund upon maturity
or
disposition of a security held for less than three months will not be treated
as
gross income derived from the sale or other disposition of such
securities
within the meaning of this requirement. However, any other income which
is
attributable to realized market appreciation will be treated as gross
income
from the sale or other disposition of securities for this purpose.
A 4% nondeductible excise tax is imposed on regulated investment
companies
that fail to distribute currently an amount equal to specified percentages
of
their ordinary taxable income and capital gain net income (excess of
capital
gains over capital losses). Each Fund intends to make sufficient
distributions
or deemed distributions of its ordinary taxable income and any capital gain
net
income each calendar year to avoid liability for this excise tax.
If for any taxable year a Fund does not qualify for tax treatment as
a
regulated investment company, all of its taxable income will be subject
to
federal income tax at regular corporate rates without any deduction
for
distributions to Fund shareholders. In such event, dividend distributions
would
be taxable as ordinary income to the Fund's shareholders to the extent of
its
current and accumulated earnings and profits, and would be eligible for
the
dividends received deduction in the case of corporate shareholders.
Each Fund will be required in certain cases to withhold and remit to the
U.S.
Treasury 31% of taxable dividends or 31% of gross proceeds realized upon
sale
paid to any shareholder who has failed to provide a correct tax
identification
number in the manner required, or who is subject to withholding by the
Internal
Revenue Service for failure to properly include on his return payments
of
taxable interest or dividends, or who has failed to certify to the Fund that
he
is not subject to backup withholding when required to do so or that he is
an
"exempt recipient."
Depending upon the extent of the Funds' activities in states and
localities
in which their offices are maintained, in which their agents or
independent
contractors are located or in which they are otherwise deemed to be
conducting
business, the Funds may be subject to the tax laws of such states or
localities.
In addition, in those states and localities which have income tax laws,
the
treatment of the Funds and their shareholders under such laws may differ
from
their treatment under federal income tax laws. Shareholders are advised
to
consult their tax advisors concerning the application of state and local
taxes.
The foregoing discussion is based on federal tax laws and regulations
which
are in effect on the date of this Statement of Additional Information; such
laws
and regulations may be changed by legislative or administrative action.
DIVIDENDS
Net income of each of the Funds for dividend purposes consists of (i)
interest
accrued and original issue discount earned on the Fund's assets, (ii) plus
the
amortization of market discount and minus the amortization of market premium
on
such assets, (iii) less accrued expenses directly attributable to the Fund
and
the
14
<PAGE>
general expenses (E.G., legal, accounting and trustees' fees) of the
Trust
prorated to the Fund on the basis of its relative net assets. In addition,
Class
B or Class C shares bear exclusively the expense of fees paid to
Service
Organizations with respect to the relevant Class of shares. See "Management
of
the Funds--Service Organizations."
As stated, the Trust uses its best efforts to maintain the net asset
value
per share of each Fund at $1.00. As a result of a significant expense
or
realized or unrealized loss incurred by either of these Funds, it is
possible
that a Fund's net asset value per share may fall below $1.00.
ADDITIONAL YIELD INFORMATION
The "yields," "effective yields" and "tax-equivalent yields" are
calculated
separately for each class of shares of each Fund and in accordance with
the
formulas prescribed by the SEC. The seven-day yield for each class of shares
is
calculated by determining the net change in the value of a
hypothetical
pre-existing account in the particular Fund which has a balance of one share
of
the Class involved at the beginning of the period, dividing the net change
by
the value of the account at the beginning of the period to obtain the
base
period return, and multiplying the base period return by 365/7. The net
change
in the value of an account in a Fund includes the value of additional
shares
purchased with dividends from the original share and dividends declared on
the
original share and any such additional shares, net of all fees charged to
all
shareholder accounts in proportion to the length of the base period and
the
Fund's average account size, but does not include gains and losses or
unrealized
appreciation and depreciation. In addition, an effective annualized
yield
quotation may be computed on a compounded basis with respect to each Class
of
its shares by adding 1 to the base period return for the Class
involved
(calculated as described above), raising that sum to a power equal to 365/7,
and
subtracting 1 from the result. A tax-equivalent yield for each Class of a
Fund's
shares is computed by dividing the portion of the yield (calculated as
above)
that is exempt from federal income tax by one minus a stated federal income
tax
rate and adding that figure to that portion, if any, of the yield that is
not
exempt from federal income tax.
For the 7-day period ended January 31, 1994 the yield for Class A shares
of
the 100% Government Obligations Money Market Fund, was 3.07% and the
effective
yield was 3.11%. The tax equivalent yield for this period for the Class A
shares
of the 100% Government Obligations Money Market Fund was 4.51% assuming
a
federal tax rate of 31%. For the same period, the yields for Class A, B and
C
shares of the 100% Treasury Instruments Money Market Fund, were: 3.05%,
2.80%
and 2.70%, respectively and the effective yields were 3.09%, 2.84% and
2.73%,
respectively. The tax equivalent yields for this period for the Class A, B and
C
shares of the 100% Treasury Instruments Money Market Fund were 4.48%, 4.12%
and
3.96%, respectively, assuming a federal tax rate of 31%. Without such
fee
waivers or expense reimbursements the 7-day yield, effective yield and
tax
equivalent yield for the Class A shares of the 100% Government Obligations
Money
Market Fund would have been 2.94%, 2.98% and 4.32%, respectively. The
yields,
effective yields and tax equivalent yields for Class A, B and C shares of
the
100% Treasury Instruments Money Market Fund would have been 2.92%, 2.67%
and
2.57%, 2.96%, 2.70% and 2.60%, and 4.29%, 3.91% and 3.77%, respectively.
For the 30-day period ended January 31, 1994 the yield and effective
yield
for Class A shares of the 100% Government Obligations Money Market Fund,
were
3.10% and ____%, respectively. The tax equivalent yield for this period for
the
Class A shares of the 100% Government Obligations Money
Market
15
<PAGE>
Fund was 4.49% assuming a federal tax rate of 31%. For the same period,
the
yields for Class A, B and C shares of the 100% Treasury Instruments Money
Market
Fund, were 3.06%, 2.81% and 2.71%, respectively, and the effective yields
were
____%, ____% and ____%, respectively. The tax equivalent yields for this
period
for the Class A, B and C shares of the 100% Treasury Instruments Money
Market
Fund were 4.43%, 4.07% and 3.93%, respectively, assuming a federal tax rate
of
31%. Without such fee waivers for expense reimbursements the 30-day
yield,
effective yield and tax equivalent yield for the Class a shares of the
100%
Government Obligations Money Market Fund would have been 2.97%, ____% and
4.30%,
respectively. The yields, effective yields and tax equivalent yields for
Class
A, B and C shares of the 100% Treasury Instruments Money Market Fund would
have
been 2.93%, 2.68% and 2.58%, ____%, ____% and ____%, and 4.25%, 3.88% and
3.74%,
respectively.
Class B and Class C Shares bear the expenses of fees paid to
Service
Organizations. As a result, at any given time, the net yield of Class B
and
Class C Shares could be up to .25% and .35% lower than the net yield of Class
A
Shares, respectively. The Class B and Class C shares of the 100%
Government
Obligations Money Market Fund did not have activity as of January 31, 1994
and,
accordingly, yield information is not available with respect to such classes
of
shares.
Similarly, based on the calculations described above, the Funds' 30-day
(or
one-month) yields, effective yields and tax-equivalent yields may also
be
calculated. Such yields refer to the average daily income generated over
a
30-day (or one-month) period, as appropriate.
From time to time, in advertisements or in reports to shareholders,
the
performance of the Funds may be quoted and compared to that of other
money
market funds or accounts with similar investment objectives and to stock
or
other relevant indices. For example, the yields of the Funds may be compared
to
the Donoghue's MONEY FUND AVERAGE, which is an average compiled
by
IBC/Donoghue's MONEY FUND REPORT-R- of Holliston, MA 01746, a widely
recognized
independent publication that monitors the performance of money market funds,
or
to the average yields reported by the BANK RATE MONITOR from money
market
deposit accounts offered by the 50 leading banks and thrift institutions in
the
top five standard metropolitan statistical areas.
The Funds' yields will fluctuate and any quotation of yield should not
be
considered as representative of the future performance of the Funds.
Since
yields fluctuate, yield data cannot necessarily be used to compare an
investment
in the Funds' shares with bank deposits, savings accounts and similar
investment
alternatives which often provide an agreed or guaranteed fixed yield for
a
stated period of time. Shareholders should remember that performance and
yield
are generally functions of the kind and quality of the investments held in
a
portfolio, portfolio maturity, operating expenses net of waivers and
expense
reimbursements, and market conditions. Any fees charged by Service
Organizations
or other institutional investors with respect to customer accounts in
investing
in shares of the Funds will not be included in yield calculations; such fees,
if
charged, would reduce the actual yield from that quoted.
ADDITIONAL DESCRIPTION CONCERNING FUND SHARES
The Trust does not presently intend to hold annual meetings of
shareholders
except as required by the 1940 Act or other applicable law. The law
under
certain circumstances provides shareholders with the right to call for a
meeting
of shareholders to consider the removal of one or more trustees. To the
extent
required by law, the Trust will assist in shareholder communication in
such
matters.
16
<PAGE>
As stated in the Prospectuses for the Funds, holders of the shares of a
Fund
will vote in the aggregate and not by class on all matters, except
where
otherwise required by law and except that only a Fund's Class B and Class
C
shares, as the case may be, will be entitled to vote on matters submitted to
a
vote of shareholders pertaining to the Fund's arrangements with
Service
Organizations with respect to the relevant Class of shares. (See "Management
of
the Funds--Service Organizations.") Further, shareholders of all of the
Trust's
portfolios will vote in the aggregate and not by portfolio except as
otherwise
required by law or when the Board of Trustees determines that the matter to
be
voted upon affects only the interests of the shareholders of a
particular
portfolio. Rule 18f-2 under the 1940 Act provides that any matter required to
be
submitted by the provisions of such Act or applicable state law, or
otherwise,
to the holders of the outstanding securities of an investment company such
as
the Trust shall not be deemed to have been effectively acted upon
unless
approved by the holders of a majority of the outstanding shares of
each
portfolio affected by the matter. Rule 18f-2 further provides that a
portfolio
shall be deemed to be affected by a matter unless it is clear that the
interests
of each portfolio in the matter are identical or that the matter does not
affect
any interest of the portfolio. Under the Rule the approval of an
investment
advisory agreement or any change in a fundamental investment policy would
be
effectively acted upon with respect to a portfolio only if approved by
the
holders of a majority of the outstanding voting securities of such
portfolio.
However, the Rule also provides that the ratification of the selection
of
independent accountants, the approval of principal underwriting contracts
and
the election of trustees are not subject to the separate voting requirements
and
may be effectively acted upon by shareholders of the investment company
voting
without regard to portfolio.
COUNSEL
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York,
New York 10022, serves as counsel to the Trust and will pass on the legality
of
the shares offered hereby. Willkie Farr & Gallagher also acts as counsel
to
Lehman Brothers.
AUDITORS
Ernst & Young, independent auditors, serve as auditors to the Fund and render
an
opinion on the Fund's financial statements annually. Ernst & Young has
offices
at 200 Clarendon Street, Boston, Massachusetts 02116-5072.
FINANCIAL STATEMENTS
The Trust's Annual Report for the fiscal period ended January 31, 1994
is
incorporated into this Statement of Additional Information by reference in
its
entirety.
MISCELLANEOUS
SHAREHOLDER VOTE
As used in this Statement of Additional Information and the Prospectuses for
the
Funds, a "majority of the outstanding shares" of a Fund or of any
other
portfolio means the lesser of (1) 67% of the shares of the
Fund
17
<PAGE>
(irrespective of class) or of the portfolio represented at a meeting at
which
the holders of more than 50% of the outstanding shares of such Fund or
portfolio
are present in person or by proxy, or (2) more than 50% of the
outstanding
shares of such Fund (irrespective of class) or of the portfolio.
SHAREHOLDER AND TRUSTEE LIABILITY
The Trust is organized as a "business trust" under the laws of the
Commonwealth
of Massachusetts. Shareholders of such a trust may, under certain
circumstances,
be held personally liable (as if they were partners) for the obligations of
the
trust. The Declaration of Trust of the Trust provides that shareholders of
the
Funds shall not be subject to any personal liability for the acts or
obligations
of the Trust and that every note, bond, contract, order or other
undertaking
made by the Trust shall contain a provision to the effect that the
shareholders
are not personally liable thereunder. The Declaration of Trust provides
for
indemnification out of the trust property of a Fund of any shareholder of
the
Fund held personally liable solely by reason of his being or having been
a
shareholder and not because of his acts or omissions or some other reason.
The
Declaration of Trust also provides that the Trust shall, upon request,
assume
the defense of any claim made against any shareholder for any act or
obligation
of the Trust and satisfy any judgment thereon. Thus, the risk of a
shareholder
incurring financial loss beyond its investment in a Fund on account
of
shareholder liability is limited to circumstances in which the Fund itself
would
be unable to meet its obligations.
The Trust's Declaration of Trust provides further that no trustee, officer
or
agent of the Trust shall be personally liable for or on account of any
contract,
debt, tort, claim, damage, judgment or decree arising out of or connected
with
the administration or preservation of the trust estate or the conduct of
any
business of the Trust, nor shall any trustee be personally liable to any
person
for any action or failure to act except by reason of his own bad faith,
willful
misfeasance, gross negligence in the performance of his duties or by reason
of
reckless disregard of his obligations and duties as trustee. It also
provides
that all persons having any claim against the trustees or the Trust shall
look
solely to the trust property for payment. With the exceptions stated,
the
Declaration of Trust provides that a trustee is entitled to be
indemnified
against all liabilities and expenses reasonably incurred by him in
connection
with the defense or disposition of any proceeding in which he may be involved
or
with which he may be threatened by reason of his being or having been a
trustee,
and that the trustees have the power, but not the duty, to indemnify
officers
and employees of the Trust unless such person would not be entitled
to
indemnification had he been a trustee.
18
<PAGE>
PRIME VALUE MONEY MARKET FUND
PRIME MONEY MARKET FUND
INVESTMENT PORTFOLIOS OFFERED BY
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
STATEMENT OF ADDITIONAL INFORMATION
MAY , 1994
THIS STATEMENT OF ADDITIONAL INFORMATION IS MEANT TO BE READ IN
CONJUNCTION WITH THE PROSPECTUSES FOR THE PRIME VALUE MONEY MARKET FUND AND
PRIME MONEY MARKET FUND PORTFOLIOS, EACH DATED MAY , 1994 AS AMENDED
OR SUPPLEMENTED FROM TIME TO TIME, AND IS INCORPORATED BY REFERENCE IN ITS
ENTIRETY INTO EACH PROSPECTUS. BECAUSE THIS STATEMENT OF ADDITIONAL
INFORMATION IS NOT ITSELF A PROSPECTUS, NO INVESTMENT IN SHARES OF THE
PRIME VALUE MONEY MARKET FUND OR PRIME MONEY MARKET FUND PORTFOLIOS SHOULD
BE MADE SOLELY UPON THE INFORMATION CONTAINED HEREIN. COPIES OF A
PROSPECTUS FOR PRIME VALUE MONEY MARKET FUND OR PRIME MONEY MARKET FUND
SHARES MAY BE OBTAINED BY CALLING LEHMAN BROTHERS, INC. ("LEHMAN BROTHERS"),
AT
1-800-368-5556. CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN HAVE THE SAME
MEANINGS AS IN THE PROSPECTUSES.
TABLE OF CONTENTS
Page
----
The Trust . . . . . . . . . . . . . . . . . . . . . . .
Investment Objective and Policies . . . . . . . . . . .
Additional Purchase and Redemption Information. . . . .
Management of the Funds . . . . . . . . . . . . . . . .
Additional Information Concerning Taxes . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . .
Additional Yield Information. . . . . . . . . . . . . .
Additional Description Concerning Fund Shares . . . . .
Counsel . . . . . . . . . . . . . . . . . . . . . . . .
Auditors. . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements. . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . .
Appendix. . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
THE TRUST
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a no-load,
open-end management investment company. The Trust currently includes money
market and non-money market portfolios, two of which are Prime Money Market
Fund
and Prime Value Money Market Fund (individually, a "Fund"; collectively, the
"Funds").
Although Prime Money Market Fund and Prime Value Money Market Fund
have the same investment adviser and have comparable investment objectives,
their yields will normally vary due to their differing cash flows and their
differing types of portfolio securities (for example, Prime Value Money Market
Fund invests in obligations of foreign branches of U.S. banks and of foreign
banks and corporate issuers and Prime Money Market Fund does not).
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE FUND'S PROSPECTUSES
RELATE PRIMARILY TO THE FUNDS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVES
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO EACH
FUND. INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S
OTHER PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY
CONTACTING LEHMAN BROTHERS AT 1-800-368-5556.
INVESTMENT OBJECTIVE AND POLICIES
As stated in the Funds' Prospectuses, the investment objective of each Fund
is to provide current income and stability of principal by investing in a
portfolio of money market instruments. The following policies supplement the
description of each Fund's investment objective and policies in the applicable
Prospectus.
The Funds are managed to provide stability of capital while achieving
competitive yields. The investment adviser intends to follow a value-oriented,
research-driven and risk-averse investment strategy, engaging in a full range
of
economic, strategic, credit and market-specific analyses in researching
potential investment opportunities.
PORTFOLIO TRANSACTIONS
Subject to the general control of the Trust's Board of Trustees and Lehman
Brothers Global Asset Management Inc. ("LBGAM"), the Funds' investment
adviser,
is responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for a Fund. LBGAM purchases
portfolio securities for the Funds either directly from the issuer or from
dealers who specialize in money market instruments. Such purchases are usually
without brokerage commissions. In making portfolio investments, LBGAM seeks to
obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one dealer are
comparable, LBGAM may, in its discretion, effect transactions in portfolio
securities with dealers who provide the Trust with research advice or other
services.
LBGAM may seek to obtain an undertaking from issuers of commercial paper
or
dealers selling commercial paper to consider the repurchase of such securities
from a Fund prior to their maturity at their original cost plus interest
(interest may sometimes be adjusted to reflect the actual maturity of the
securities) if LBGAM believes that a Fund's anticipated need for liquidity
makes
such action desirable. Certain dealers (but not issuers) have charged and may
in
the future charge a higher price for commercial paper where they undertake to
repurchase prior to maturity. The payment of a higher price in order to obtain
such an undertaking reduces the yield which might otherwise be received by a
Fund on the commercial paper. The Trust's Board of Trustees has authorized
2
<PAGE>
LBGAM to pay a higher price for commercial paper where it secures such an
undertaking if LBGAM believes that the prepayment privilege is desirable to
assure a Fund's liquidity and such an undertaking cannot otherwise be
obtained.
Investment decisions for each Fund are made independently from those for
another of the Trust's portfolios or other investment company portfolio or
accounts advised by LBGAM. Such other portfolios may also invest in the same
securities as the Funds. When purchases or sales of the same security are made
at substantially the same time on behalf of such other portfolios,
transactions
are averaged as to price, and available investments allocated as to amount, in
a
manner which LBGAM believes to be equitable to each portfolio, including the
Funds. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtainable for a
Fund. To the extent permitted by law, LBGAM may aggregate the securities to be
sold or purchased for a Fund with those to be sold or purchased for such other
portfolios in order to obtain best execution.
The Funds will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase agreements with Lehman Brothers, Inc. or LBGAM, or any affiliated
person (as such term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of any of them, except to the extent permitted by
the
Securities and Exchange Commission (the "SEC"). In addition, with respect to
such transactions, securities, deposits and agreements, the Funds will not
give
preference to Service Organizations with which a Fund enters into agreements
relating to Class B or Class C shares. (See the applicable Prospectus,
"Management of the Fund -- Service Organizations.")
The Funds do not intend to seek profits through short-term trading.
Each Fund's annual portfolio turnover will be relatively high, but is not
expected to have a material effect on its net income. Each Fund's portfolio
turnover rate is expected to be zero for regulatory reporting purposes.
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
With respect to the variable rate notes and variable rate demand notes
described
in the applicable Prospectuses, the Funds' investment adviser will consider
the
earning power, cash flows and other liquidity ratios of the issuers of such
notes and will continuously monitor their financial ability to meet payment
obligations when due.
The repurchase price under the repurchase agreements described in the
Funds' Prospectuses generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement). The
collateral underlying each repurchase agreement entered into by the Fund will
consist entirely of direct obligations of the U.S. Government and obligations
issued or guaranteed by U.S. Government agencies or instrumentalities.
Securities subject to repurchase agreements will be held by the Trust's
custodian, sub-custodian or in the Federal Reserve/Treasury book-entry system.
Repurchase agreements are considered to be loans by the Funds under the 1940
Act.
As stated in the Funds' Prospectuses, a Fund may purchase securities
on a "when issued" basis (I.E., for delivery beyond the normal settlement
date at a stated price and yield). When a Fund agrees to purchase
when-issued securities, the custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to
satisfy a purchase commitment, and in such a case that Fund may be required
subsequently to place additional assets in the separate account in order to
ensure that the value of the account remains equal to the amount of such
Fund's commitment. It may be expected that a Fund's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. Because a
Fund will set aside cash or liquid assets to satisfy its purchase
commitments in the manner described, such Fund's liquidity and ability to
manage its portfolio might be affected in the event its commitments to
purchase when-issued
3
<PAGE>
securities ever exceeded 25% of the value of its assets. When a Fund engages
in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in a Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
Neither
Fund intends to purchase when-issued securities for speculative purposes but
only in furtherance of its investment objective. Each Fund reserves the right
to
sell these securities before the settlement date if it is deemed advisable.
Examples of the types of U.S. government obligations that may be held
by a Fund include, in addition to U.S. Treasury Bills, the obligations of
the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, Federal National Mortgage
Association, Federal Financing Bank, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal
Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Federal Land Banks, Federal Farm Credit Banks,
Maritime Administration, Resolution Trust Corporation, Tennessee Valley
Authority, U.S. Postal Service and Washington D.C. Armory Board.
For purposes of Prime Value Money Market Fund's investment policies
with respect to obligations of issuers in the banking industry, the assets
of a bank or savings institution will be deemed to include the assets of
its domestic and foreign branches. Prime Value Money Market Fund's
investments in the obligations of foreign branches of U.S. banks and of
foreign banks and other foreign issuers may subject Prime Value Money
Market Fund to investment risks that are different in some respects from
those of investment in obligations of U.S. domestic issuers. Such risks
include future political and economic developments, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which
might adversely affect the payment of principal and interest on such
obligations. In addition, foreign branches of U.S. banks and foreign banks
may be subject to less stringent reserve requirements and foreign issuers
generally are subject to different accounting, auditing, reporting and
record keeping standards than those applicable to U.S. issuers. Prime Value
Money Market Fund will acquire securities issued by foreign branches of
U.S. banks or foreign issuers only when the Fund's investment adviser
believes that the risks associated with such instruments are minimal.
Among the bank obligations in which the Funds may invest are notes
issued by banks. These notes, which are exempt from registration under
federal securities laws, are not deposits of the banks and are not insured
by the Federal Deposit Insurance Corporation or any other insurer. Holders
of notes rank on a par with other unsecured and unsubordinated creditors of
the banks. Notes may be sold at par or sold on a discount basis and may
bear fixed or floating rates of interest.
Each Fund may invest in asset-backed and receivable-backed securities.
Several types of asset-backed and receivable-backed securities have been
offered to investors, including interests in pools of credit card
receivables and motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of
principal and interest on these securities are passed through to
certificate holders. In addition, asset-backed securities often carry
credit protection in the form of extra collateral, subordinate
certificates, cash reserve accounts and other enhancements. An investor's
return on these securities may be affected by early prepayment of principal
on the underlying receivables or sales contracts. Any asset-backed or
receivable-backed securities held by the Fund must comply with the
portfolio maturity and quality requirements contained in Rule 2a-7 under
the 1940 Act. Each Fund will monitor the performance of these investments
and will not acquire any such securities unless rated in the highest rating
category by at least two nationally recognized statistical rating
organizations
("NRSROs").
As stated in the Funds' Prospectuses, each Fund may invest in
obligations issued by state and local governmental entities. Municipal
securities are issued by various public entities to obtain funds for
various public purposes, including the construction of a wide range of
public facilities, the refunding of outstanding obligations, the payment of
general operating expenses and the extension of loans to public
institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance various privately operated
facilities are considered to be municipal securities and may be
4
<PAGE>
purchased by a Fund. Dividends paid by a Fund that are derived from interest
on
municipal securities would be taxable to that Fund's shareholders for federal
income tax purposes.
The SEC has adopted Rule 144A under the Securities Act of 1933, as
amended (the "1933 Act"), that allows for a broader institutional trading
market for securities otherwise subject to restrictions on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. The Funds' investment adviser anticipates that the
market
for certain restricted securities such as institutional commercial paper will
expand further as a result of this regulation and the development of automated
systems for the trading, clearance and settlement of unregistered securities
of
domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers.
The investment adviser for each Fund will monitor the liquidity of
restricted and other illiquid securities under the supervision of the Board of
Trustees. In reaching liquidity decisions with respect to Rule 144A
securities,
the Funds' investment adviser will consider, inter alia, the following
factors:
(1) the unregistered nature of a Rule 144A security; (2) the frequency of
trades
and quotes for a Rule 144A security; (3) the number of dealers wishing to
purchase or sell the Rule 144A security and the number of other potential
purchasers; (4) dealer undertakings to make a market in the Rule 144A
security;
(5) the trading markets for the Rule 144A security; and (6) the nature of the
Rule 144A security and the nature of the marketplace trades (E.G., the time
needed to dispose of the Rule 144A security, the method of soliciting offers
and
the mechanics of the transfer).
The Appendix to this Statement of Additional Information contains a
description of the relevant rating symbols used by NRSROs for commercial
obligations that may be purchased by each Fund.
INVESTMENT LIMITATIONS
The Funds' Prospectuses summarize certain investment limitations that may
not be changed without the affirmative vote of the holders of a majority of
a Fund's outstanding shares (as defined below under "Miscellaneous").
Investment limitations numbered 1 through 7 may not be changed without such
a vote of shareholders; investment limitations 8 through 13 may be changed
by a vote of the Trust's Board of Trustees at any time.
A Fund may not:
1. Purchase securities of any one issuer if as a result more
than 5% of the value of the Fund's assets would be invested in the
securities of such issuer, except that up to 25% of the value of the
Fund's total assets may be invested without regard to such 5%
limitation and provided that there is no limitation with respect to
investments in U.S. government securities.
2. Borrow money, except from banks for temporary purposes and
then in amounts not exceeding 10% of the value of a Fund's total
assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of the Fund's total assets at the time of
such borrowing. Additional investments will not be made when
borrowings exceed 5% of the Fund's assets.
3. Purchase any securities which would cause 25% or more of the
value of its total assets at the time of such purchase to be invested
in the securities of one or more issuers conducting their principal
business activities in the same industry, except that Prime Value
Money Market Fund will invest 25% or more of the value of its total
assets in obligations of issuers in the banking industry or in
obligations, such as repurchase agreements, secured by such
obligations (unless the Fund is in a temporary defensive position);
provided that there is no limitation with
5
<PAGE>
respect to investments in U.S. government securities or, in the case of
Prime Money Market Fund, in bank instruments issued by domestic banks.
4. Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies,
and may enter into repurchase agreements with respect to portfolio
securities.
5. Act as an underwriter of securities, except insofar as the
Fund may be deemed an underwriter under applicable securities laws in
selling portfolio securities.
6. Purchase or sell real estate or real estate limited
partnerships, provided that the Fund may purchase securities of
issuers which invest in real estate or interests therein.
7. Purchase or sell commodities contracts, or invest in oil,
gas or mineral exploration or development programs or in mineral
leases.
8. Knowingly invest more than 10% of the value of the Fund's
assets in securities that may be illiquid because of legal or
contractual restrictions on resale or securities for which there are
no readily available market quotations.
9. Purchase securities on margin, make short sales of
securities or maintain a short position.
10. Write or sell puts, calls, straddles, spreads or
combinations thereof.
11. Invest in securities if as a result the Fund would then have
more than 5% of its total assets in securities of companies (including
predecessors) with less than three years of continuous operation.
12. Purchase securities of other investment companies except as
permitted under the 1940 Act or in connection with a merger,
consolidation, acquisition or reorganization.
13. Invest in warrants.
In order to permit the sale of Fund shares in certain states, the
Funds may make commitments more restrictive than the investment policies
and limitations above. Should a Fund determine that any such commitments
are no longer in its best interests, it will revoke the commitment by
terminating sales of its shares in the state involved. Further, with
respect to the above-stated third limitation, each Fund will consider
wholly owned finance companies to be in the industries of their parents, if
their activities are primarily related to financing the activities of their
parents, and will divide utility companies according to their services; for
example, gas, gas transmission, electric and gas, electric, and telephone
will each be considered a separate industry.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Information on how to purchase and redeem each Fund's shares is included in
the applicable Prospectuses. The issuance of shares is recorded on a Fund's
books, and share certificates are not issued.
The regulations of the Comptroller of the Currency (the "Comptroller")
provide that funds held in a fiduciary capacity by a national bank approved by
the Comptroller to exercise fiduciary powers must be invested in accordance
with
the instrument establishing the fiduciary relationship and local law. The
Trust
believes that the purchase of Prime Value Money Market Fund and Prime Money
Market Fund shares by such national banks acting on behalf of their
fiduciary
6
<PAGE>
accounts is not contrary to applicable regulations if consistent with the
particular account and proper under the law governing the administration of
the
account.
Conflict of interest restrictions may apply to an institution's
receipt of compensation paid by a Fund on fiduciary funds that are invested
in a Fund's Class B or Class C shares. Institutions, including banks
regulated by the Comptroller and investment advisers and other money managers
subject to the jurisdiction of the SEC, the Department of Labor or state
securities commissions, are urged to consult their legal advisors before
investing fiduciary funds in a Fund's Class B or Class C shares.
Prior to effecting a redemption of shares represented by certificates,
The Shareholder Services Group, Inc. ("TSSG"), the Trust's transfer agent,
must have received such certificates at its principal office. All such
certificates must be endorsed by the redeeming shareholder or accompanied
by a signed stock power, in each instance with the signature guaranteed by
a commercial bank or a member of a major stock exchange, unless other
arrangements satisfactory to a Fund have previously been made. A Fund may
require any additional information reasonably necessary to evidence that a
redemption has been duly authorized.
Under the 1940 Act, a Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
New
York Stock Exchange ("Exchange") is closed, other than customary weekend and
holiday closings, or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is
not
reasonably practicable, or for such other periods as the SEC may permit. (A
Fund
may also suspend or postpone the recordation of the transfer of its shares
upon
the occurrence of any of the foregoing conditions.) In addition, a Fund may
redeem shares involuntarily in certain other instances if the Board of
Trustees
determines that failure to redeem may have material adverse consequences to
that
Fund's shareholders in general. Each Fund is obligated to redeem shares solely
in cash up to $250,000 or 1% of such Fund's net asset value, whichever is
less,
for any one shareholder within a 90-day period. Any redemption beyond this
amount will also be in cash unless the Board of Trustees determines that
conditions exist which make payment of redemption proceeds wholly in cash
unwise
or undesirable. In such a case, a Fund may make payment wholly or partly in
readily marketable securities or other property, valued in the same way as
that
Fund determines net asset value. See "Net Asset Value" below for an example of
when such redemption or form of payment might be appropriate. Redemption in
kind
is not as liquid as a cash redemption. Shareholders who receive a redemption
in
kind may incur transaction costs, if they sell such securities or property,
and
may receive less than the redemption value of such securities or property upon
sale, particularly where such securities are sold prior to maturity.
Any institution purchasing shares on behalf of separate accounts will
be required to hold the shares in a single nominee name (a "Master
Account"). Institutions investing in more than one of the Trust's
portfolios, or classes or sub-classes of shares, must maintain a separate
Master Account for each Fund's class or sub-class of shares. Sub-accounts may
be
established by name or number either when the Master Account is opened or
later.
NET ASSET VALUE
Each Fund's net asset value per share is calculated by dividing the total
value of the assets belonging to a Fund, less the value of any liabilities
charged to such Fund, by the total number of that Fund's shares outstanding
(irrespective of class or sub-class). "Assets belonging to" a Fund consist
of the consideration received upon the issuance of Fund shares together
with all income, earnings, profits and proceeds derived from the investment
thereof, including any proceeds from the sale of such investments, any
funds or payments derived from any reinvestment of such proceeds, and a
portion of any general assets of the Trust not belonging to a particular
portfolio. Assets belonging to a Fund are charged with the direct
liabilities of that Fund and with a share of the general liabilities of the
Trust allocated on a daily basis in proportion to the relative net assets
of such Fund and the Trust's other portfolios. Determinations made in good
faith and in accordance with generally
7
<PAGE>
accepted accounting principles by the Trust's Board of Trustees as to the
allocation of any assets or liabilities with respect to a Fund are conclusive.
As stated in the applicable Prospectuses, in computing the net asset
value of its shares for purposes of sales and redemptions, each Fund uses
the amortized cost method of valuation. Under this method, a Fund values
each of its portfolio securities at cost on the date of purchase and
thereafter assumes a constant proportionate amortization of any discount or
premium until maturity of the security. As a result, the value of the
portfolio security for purposes of determining net asset value normally
does not change in response to fluctuating interest rates. While the
amortized cost method seems to provide certainty in portfolio valuation, it
may result in valuations of a Fund's securities which are higher or lower
than the market value of such securities.
In connection with its use of amortized cost valuation, each Fund
limits the dollar-weighted average maturity of its portfolio to not more
than 90 days and does not purchase any instrument with a remaining maturity
of more than thirteen months (397 days) (with certain exceptions). The
Trust's Board of Trustees has also established procedures, pursuant to
rules promulgated by the SEC, that are intended to stabilize each Fund's
net asset value per share for purposes of sales and redemptions at $1.00.
Such procedures include the determination, at such intervals as the Board
deems appropriate, of the extent, if any, to which a Fund's net asset value
per share calculated by using available market quotations deviates from
$1.00 per share. In the event such deviation exceeds 1/2 of 1%, the Board
will promptly consider what action, if any, should be initiated. If the
Board believes that the amount of any deviation from a Fund's $1.00
amortized cost price per share may result in material dilution or other
unfair results to investors or existing shareholders, it will take such
steps as it considers appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity to realize capital
gains or losses or to shorten a Fund's average portfolio maturity,
redeeming shares in kind, reducing or withholding dividends, or utilizing a
net asset value per share determined by using available market quotations.
MANAGEMENT OF THE FUNDS
TRUSTEES AND OFFICERS
The Trust's trustees and executive officers, their addresses, principal
occupations during the past five years and other affiliations are as
follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS AND
NAME AND ADDRESS POSITION WITH THE TRUST
OTHER AFFILIATIONS
---------------- -----------------------
----------------------------------------------
<S> <C>
<C>
8
<PAGE>
STEVEN SPIEGEL (1)(2) Vice Chairman of the Board
Managing Director, Lehman Brothers: President
3 World Financial Center and Trustee
Lehman Brothers Global Asset Management Inc.:
New York, NY 10285
formerly Chairman. Lehman Brothers International
(Europe)
CHARLES F. Trustee
Consultant: formerly Chairman of the Board,
BARBER (2)(3)
ASARCO Incorporated
66 Glenwood Drive
Greenwich, CT 06830
BURT N. DORSETT (2)(3) Trustee
Managing Partner, Dorsett McCabe Capital
201 East 62nd Street
Management, Inc., an investment counselling firm;
New York, NY 10022
Director, Research Corporation Technologies, a
non-profit patent-clearing and licensing operation;
formerly President, Westinghouse Pension
Investments Corporation; formerly Executive Vice
President and Trustee, College Retirement Equities
Fund, Inc., a variable annuity fund; and formerly
Investment Officer, University of Rochester
EDWARD J. KAIER (2)(3) Trustee
Partner with the law firm of Hepburn Willcox
1100 One Penn Center
Hamilton & Putnam
Philadelphia, PA 19103
S. DONALD WILEY (2)(3) Trustee
Vice-Chairman and Trustee, H.J. Heinz Company
USX Tower
Foundation; prior to October 1990, Senior Vice
Pittsburgh, PA 15219
President, General Counsel and Secretary, H.J.
Heinz Company
9
<PAGE>
PETER MEENAN President
Managing Director of Lehman Brothers Inc.;
260 Franklin Street
President of Lehman Brothers Institutional Funds
Boston, MA 02110
Group Trust; Formerly, Director, Senior Executive
Vice President and Director of Institutional Fund
Services, The Boston Company Advisors, Inc. from
February 1984 to May 1993; Director, Funds
Distributor, Inc. (1982-1993); Senior Vice
President, The Boston Company Advisors, Inc.
from August 1984 to May 1993
JOHN M. WINTERS Vice President and
Senior Vice President and Senior Money Market
3 World Financial Center Investment Officer
Portfolio Manager, Lehman Brothers Global Asset
New York, NY 10285
Management Inc.; formerly Product Manager with
Lehman Brothers Capital Markets Group
MICHAEL C. KARDOK Treasurer
Vice President, The Shareholder Services Group,
One Exchange Place
Inc.; prior to May 1994 Vice President, The Boston
Boston, MA 02109
Company Advisors, Inc.
10
<PAGE>
PATRICIA L. BICKIMER Secretary
Vice President and Associate General Counsel, The
One Exchange Place
Shareholder Services Group, Inc.; prior to May
Boston, MA 02109
1994, Vice President and Associate General
Counsel, The Boston Company Advisors, Inc.
11
<PAGE>
<FN>
_____
1. Considered by the Trust to be "interested persons" of the Trust
as defined in the 1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.
</TABLE>
One trustee of the Trust, Mr. Dorsett, serves as trustee or director of
other investment companies for which Lehman Brothers and LBGAM serve as
distributor
and investment adviser.
No employee of Lehman Brothers, LBGAM, or TSSG receives
any compensation from the Trust for acting as an officer or trustee of the
Trust. The Trust pays each trustee who is not a director, officer or
employee of Lehman Brothers, LBGAM, or TSSG or any of their affiliates, a fee
of
$20,000 per annum plus $1,250 per meeting attended and reimburses them for
travel and out-of-pocket expenses.
For the fiscal year ended January 31, 1994, such fees and expenses
totalled
$9,589 for each Fund, $94,754 in ten aggregate for the Trust. As of May 13,
1994,
Trustees and officers of the Trust as a group beneficially owned less than 1%
of
the outstanding shares of each of the Funds.
By virtue of the responsibilities assumed by Lehman Brothers, LBGAM, TSSG
and their affiliates under their respective agreements with the Trust, the
Trust
itself requires no employees in addition to its officers.
INVESTMENT ADVISER
LBGAM serves as the investment adviser to each of the Funds. The investment
advisory agreements provide that LBGAM is responsible for all investment
activities of the Funds, including executing portfolio strategy, effecting
Fund
purchase and sale transactions and employs professional portfolio managers and
security analysts who provide research for the Funds.
The Investment Advisory Agreements with respect to each of the Funds will
continue in effect for a period of two years from February 5, 1993 and
thereafter from year to year provided the continuance is approved annually (i)
by the Trust's Board of Trustees or (ii) by a vote of a "majority" (as defined
in the 1940 Act) of a Fund's outstanding voting securities, except that in
either event the continuance is also approved by a majority of the Trustees of
the Trust who are not "interested persons" (as defined in the 1940 Act). Each
Investment Advisory Agreement may be terminated (i) on 60 days' written notice
by the Trustees of the Trust, (ii) by vote of holders of a majority of a
Fund's
outstanding voting securities or upon 90 days' written notice by Lehman
Brothers, or (iii) automatically in the event of its assignment (as defined in
the 1940 Act).
As compensation for LBGAM's services rendered to the Fund, the Fund pays
a
fee, computed daily and paid monthly, at the annual rate of .30% of the
average
daily net assets of the Fund. For the period February 8, 1993 (commencement of
operations) to January 31, 1994, LBGAM received net advisory fees in the
following amounts: the Prime Value Money Market Fund, $1,106,003 and the Prime
Money Market Fund, $1,165,899. Waivers by LBGAM of
12
<PAGE>
advisory fees and reimbursement of expenses to which it was entitled for
amounted to: the Prime Value Money Market Fund, $1,106,003 and $757,799,
respectively, and the Prime Money Market Fund $1,165,899 and $0, respectively.
In order to maintain competitive expense ratios during 1994 through 1997, the
investment adviser and administrator have agreed to reimburse the Funds if
total
operating expenses exceed certain levels. See "BACKGROUND AND EXPENSE
INFORMATION" in each Fund's Prospectus.
PRINCIPAL HOLDERS
At May 13, 1994, the principal holders of each Fund were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NAME AND
ADDRESS HELD OF RECORD ONLY
-------------
--- --------------------
<S> <C>
<C>
Prime Value Money Market Fund
Class A Shares Bankers Trust
Co. 13.68%
Securities
Lending
130 Liberty
Street
New York, NY
10006
Time Warner
Entertainment 9.15%
Co., L.P.
75
Rockefeller Plaza
New York, NY
10019
Continental
Bank 5.11%
231 South
LaSalle
Chicago, IL
60697
Class B
Shares
Class B Shares Hare & Co.
83.22%
c/o Bank of
New York
Special
Processing Dept.
One Wall
Street
New York, NY
10286
Sun Bank NA
as Escrow 16.77%
Agent for
Florida
Healthcare
Plan
225 East
Robinson Street
Suite 358
Orlando, FL
32001
Prime Money Market Fund:
Class A Shares Filler & Co.
10.52%
State Street
Bank &
Trust
Company
P.O. Box 351
13
<PAGE>
Boston, MA
02101
Bankers Trust
Co. 7.63%
Securities
Lending
130 Liberty
Street
New York, NY
10006
Chiquita
Brands Int'l, Inc. 5.34%
250 East
Fifth Street
Cincinnati,
OH 45202
Class B Shares Harris Trust
and Savings Bank 87.31%
200 West
Monroe Street
Chicago, IL
60606
Hare & Co.
12.56%
c/o Bank of
New York
Special
Processing Dept.
One Wall
Street
New York, NY
10286
</TABLE>
As of May 13, 1994, the Class C shares of the Funds had not been offered
to
the public and all outstanding shares
were held by Lehman Brothers.
The shareholders described above have indicated that they each hold their
shares on behalf of various accounts and not as beneficial owners. To the
extent
that any shareholder is the beneficial owner of more than 25% of the
outstanding
shares of a Fund, such shareholder may be deemed to be a "control person" of
that Fund for purposes of the 1940 Act.
ADMINISTRATOR AND TRANSFER AGENT
TSSG, a subsidiary of First Data Corporation, is located at One Exchange
Place,
Boston, Massachusetts 02109, and serves as the Trust's administrator and
transfer agent. As the Funds' administrator, TSSG has agreed to provide the
following services: (i) assist generally in supervising a Fund's
operations, providing and supervising the operation of an automated data
processing system to process purchase and redemption orders, providing
information concerning a Fund to its shareholders of record, handling
shareholder problems, supervising the services of employees whose principal
responsibility and function is to preserve and strengthen shareholder
relations, and monitoring the arrangements pertaining to the Funds'
agreements with Service Organizations; (ii) prepare reports to a Fund's
shareholders and prepare tax returns and reports to and filings with the
SEC; (iii) compute the respective net asset value per share of each Fund;
(iv) provide the services of certain persons who may be elected as trustees
or appointed as officers of the Trust by the Board of Trustees; and
(v) maintain the registration or qualification of a Fund's shares for sale
under state securities laws. TSSG receives as compensation for its services
rendered under an administration agreement, an administrative fee, computed
daily and paid monthly, at the annual rate of .10% of the average daily net
assets of each Fund. TSSG pays Boston Safe, the Fund's custodian, a portion
of its monthly administration fee for custody services rendered to the Funds.
Prior to May 6, 1994, The Boston Company Advisors, Inc. ("TBCA"), an
wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"), served as
administrator of the Funds. On May 6, 1994, TSSG acquired TBCA's
14
<PAGE>
third party mutual fund administation business from Mellon, and each Fund's
administration agreement with TBCA was assigned to TSSG. For the period
February
8, 1993 (commencement of operations) to January 31, 1994, TBCA received net
administration fees in the following amounts: the Prime Value Money Market
Fund,
$1,106,003 and the Prime Money Market Fund, $1,165,899. Waivers by TBCA of
administrator fees and reimbursement of expenses to which it was entitled for
amounted to: the Prime Value Money Market Fund, $1,106,003 and $192,939,
respectively, and the Prime Money Market Fund, $1,165,899 and $115,300,
respectively. In order to maintain competitive expense ratios during 1994
through 1997, the investment adviser and administrator have agreed to
reimburse
the Funds if total operating expenses exceed certain levels. See "BACKGROUND
AND
EXPENSE INFORMATION" in each Fund's Prospectus.
Under the transfer agency agreement, TSSG maintains the shareholder
account
records for the Trust, handles certain communications between shareholders and
the Trust and distributes dividends and distributions payable by the Trust and
produces statements with respect to account activity for the Trust and its
shareholders. For these services, TSSG receives a monthly fee based on average
annual assets and is reimbursed for out-of-pocket expenses.
DISTRIBUTORS
Lehman Brothers acts as a distributor of each Fund's shares. Each Fund's
shares are sold on a continuous basis by Lehman Brothers as agent. The
distributor pays the cost of printing and distributing prospectuses to
persons who are not shareholders of a Fund (excluding preparation and
printing expenses necessary for the continued registration of a Fund's
shares) and of preparing, printing and distributing all sales literature.
No compensation is payable by a Fund to Lehman Brothers for its distribution
services.
Lehman Brothers is comprised of several major operating business
units. Lehman Brothers Institutional Funds Group is the business group
within Lehman Brothers that is primarily responsible for the distribution
and client service requirements of the Trust and its shareholders. Lehman
Brothers Institutional Funds Group has been serving institutional clients'
investment needs exclusively for more than 20 years, emphasizing high
quality individualized service to clients.
CUSTODIAN
Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly owned
subsidiary of The Boston Company, Inc., is located at One Boston Place,
Boston, Massachusetts 02108, and serves as the custodian of the Trust
pursuant to a custody agreement. Under the custody agreement, Boston Safe
holds each Fund's portfolio securities and keeps all necessary accounts and
records. For its services, Boston Safe receives a monthly fee based upon
the month-end market value of securities held in custody and also receives
securities transaction charges, including out-of-pocket expenses. The
assets of the Trust are held under bank custodianship in compliance with
the 1940 Act.
SERVICE ORGANIZATIONS
15
<PAGE>
As stated in the Funds' Prospectuses, a Fund will enter into an agreement
with each financial institution which may purchase Class C shares. The Fund
will
enter into an agreement with each Service Organization whose customers
("Customers) are the beneficial owners of Class C shares that requires the
Service Organization to provide certain services to Customers in consideration
of such Fund's payment of .35% of the average daily net asset value of that
Fund's Class C shares beneficially owned by the Customers. Such services
include: (i) aggregating and processing purchase and redemption requests from
Customers and placing net purchase and redemption orders with a Fund's
distributor; (ii) processing dividend payments from a Fund on
behalf of Customers; (iii) providing information periodically to Customers
showing their positions in a Fund's shares; (iv) arranging for bank wires;
(v) responding to Customer inquiries relating to the services performed by
the Service Organization and handling correspondence; (vi) forwarding
shareholder communications from a Fund (such as proxies, shareholder
reports, annual and semi-annual financial statements, and dividend,
distribution and tax notices) to Customers; (vii) acting as shareholder of
record or nominee; and (viii) other similar account administrative
services. In addition, a Service Organization at its option, may also provide
to
its Customers of Class C shares (a) a service that invests the assets of their
accounts in shares pursuant to specific or pre-authorized instructions: (b)
provide sub-accounting with respect to shares beneficially owned by Customers
or
the information necessary for sub-accounting: and (c) provide checkwriting
services. Service Organizations that purchase Class C shares
will also provide assistance in connection with the support of the
distribution
of Class C shares to its Customers, including marketing assistance and the
forwarding to Customers of sales literature and advertising provided by a
distributor of the shares.
Holders of Class B shares of a Fund will receive the services set
forth in (i), and (v) and may receive one or more of the services set
forth in (ii), (iii), (iv), (vi) and (viii) above. In consideration of the
services to be rendered in connection with this Class of shares pursuant to
an agreement between the Fund and the Service Organization, the Fund will
pay the Service Organization .25% of the average daily net asset value of the
Class B shares held by the Service Organization. A Service Organization, at
its
option, may also provide to its Customers of Class B shares services
including: (a) acting as shareholder of record and as nominee: (b) providing
Customers with a service that invests the assets of their accounts in shares
pursuant to specific or pre-authorized instruction: (c) provide sub-accounting
with respect to shares beneficially owned by Customers or the information
necessary for sub-accounting: (d) providing information periodically to
Customers showing their position in shares: (e) arranging for bank wires: (f)
forwarding shareholder communications from the fund (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution, and tax notices) to Customers: (g) providing reasonable
assistance
in connection with the distribution of shares to Customers: and (h) providing
such other similar services as the Fund may reasonably request to the extent
Service Organization is permitted to do so under applicable statutes, rules,
or regulations.
Each Fund's agreements with Service Organizations are governed by a
Shareholder Services Plan (the "Plan") that has been adopted by the Trust's
Board of Trustees pursuant to an exemptive order granted by the SEC. Under
this Plan, the Board of Trustees reviews, at least quarterly, a written
report of the amounts expended under each Fund's agreements with Service
Organizations and the purposes for which the expenditures were made. In
addition, a Fund's arrangements with Service Organizations must be approved
annually by a majority of the Trust's trustees, including a majority of the
trustees who are not "interested persons" of the Trust as defined in the
1940 Act and have no direct or indirect financial interest in such
arrangements (the "Disinterested Trustees").
The Board of Trustees has approved each Fund's arrangements with
Service Organizations based on information provided by the Trust's service
contractors that there is a reasonable likelihood that the arrangements
will benefit such Fund and its shareholders by affording the Fund greater
flexibility in connection with the servicing of the accounts of the
beneficial owners of its shares in an efficient manner. Any material
amendment to a Fund's arrangements with Service Organizations must be
approved by a majority of the Trust's Board of Trustees (including a
majority of the Disinterested
16
<PAGE>
Trustees). So long as a Fund's arrangements with Service Organizations are in
effect, the selection and nomination of the members of the Trust's Board of
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trust will be committed to the discretion of such non-interested trustees.
For the period February 8, 1993 (commencement of operations) to
January 31, 1994, the following service fees were paid by the Prime Value
Money Market Fund: Class B shares, $____ and Class C shares, $____. For the
period February 8, 1993 (commencement of operations) to January 31, 1994, the
following service fees were paid by the Prime Money market Fund: Class B
shares,
$____ and Class C shares, $____.
EXPENSES
A Fund's expenses include taxes, interest, fees and salaries of the Trust's
trustees and officers who are not directors, officers or employees of the
Trust's service contractors, SEC fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory purposes and
for distribution to shareholders, advisory and administration fees, charges
of the custodian and of the transfer and dividend disbursing agent, Service
Organization fees, certain insurance premiums, outside auditing and legal
expenses, costs of shareholder reports and shareholder meetings and any
extraordinary expenses. The Funds also pay for brokerage fees and
commissions (if any) in connection with the purchase and sale of portfolio
securities. LBGAM and TSSG have agreed that if, in any fiscal year, the
expenses borne by a Fund exceed the applicable expense limitations imposed by
the securities regulations of any state in which shares of that Fund are
registered or qualified for sale to the public, it will reimburse that Fund
for
any excess to the extent required by such regulations in the same proportion
that each of their fees bears to the Fund's aggregate fees for investment
advice and administrative services. Unless otherwise required by law, such
reimbursement would be accrued and paid on the same basis that the advisory
and
administration fees are accrued and paid by that Fund. To each Fund's
knowledge,
of the expense limitations in effect on the date of this Statement of
Additional
Information, none is more restrictive than two and one-half percent (2 1/2%)
of
the first $30 million of a Fund's average annual net assets, two percent (2%)
of
the next $70 million of the average annual net assets and one and one-half
percent (1 1/2%) of the remaining average annual net assets.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations generally
affecting a Fund and its shareholders that are not described in the Funds'
Prospectuses. No attempt is made to present a detailed explanation of the
tax treatment of a Fund or its shareholders or possible legislative
changes, and the discussion here and in the applicable Prospectuses is not
intended as a substitute for careful tax planning.
As stated in each Prospectus, each Fund qualified as a regulated
investment
company under the Code and intends to so qualify in future years. In order to
so
qualify under the Code for a taxable year, a Fund must satisfy the
distribution
requirement described in the Prospectuses, derive at least 90% of its gross
income for the year from certain qualifying sources, comply with certain
diversification tests and derive less than 30% of its gross income for the
year from the sale or other disposition of securities and certain other
investments held for less than three months. Interest (including original
issue plus accrued market discount) received by a Fund at maturity or
disposition of a security held for less than three months will not be
treated as gross income derived from the sale or other disposition of such
security within the meaning of the 30% requirement. However, any income in
excess of such interest will be treated as gross income from the sale or
other disposition of securities for this purpose.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail currently to distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income
(excess of capital gains over capital losses). Each Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar
year to avoid liability for this excise tax.
17
<PAGE>
If for any taxable year a Fund does not qualify for tax treatment as a
regulated investment company, all of that Fund's taxable income will be
subject to tax at regular corporate rates without any deduction for
distributions to Fund shareholders. In such event, dividend distributions
to shareholders would be taxable as ordinary income to the extent of that
Fund's earnings and profits, and would be eligible for the dividends
received deduction in the case of corporate shareholders.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or 31% of gross proceeds
realized upon sale paid to its shareholders who have failed to provide a
correct tax identification number in the manner required, or who are
subject to withholding by the Internal Revenue Service for failure properly
to include on their return payments of taxable interest or dividends, or
who have failed to certify to a Fund that they are not subject to backup
withholding when required to do so or that they are "exempt recipients."
Although each Fund expects to qualify each year as a "regulated
investment
company" and to be relieved of all or substantially all federal income tax,
depending upon the extent of its activities in states and localities in
which its offices are maintained, in which its agents or independent
contractors are located or in which it is otherwise deemed to be conducting
business, a Fund may be subject to the tax laws of such states or
localities. In addition, in those states and localities which have income
tax laws, the treatment of the Fund and its shareholders under such laws
may differ from the treatment under federal income tax laws. Shareholders
are advised to consult their tax advisors concerning the application of
state and local taxes.
DIVIDENDS
Each Fund's net investment income for dividend purposes consists of
(i) interest accrued and original issue discount earned on that Fund's
assets, (ii) plus the amortization of market discount and minus the
amortization of market premium on such assets, and (iii) less accrued
expenses directly attributable to that Fund and the general expenses (E.G.,
legal, accounting and trustees' fees) of the Trust prorated to such Fund on
the basis of its relative net assets. Any realized short-term capital gains
may also be distributed as dividends to Fund shareholders. In addition, a
Fund's Class B and Class C shares bear exclusively the expense of fees paid
to Service Organizations with respect to the relevant Class of shares. See
"Management of the Funds--Service Organizations."
The Trust uses its best efforts to maintain the net asset value per
share of each Fund at $1.00. As a result of a significant expense or
realized or unrealized loss incurred by a Fund, it is possible that a
Fund's net asset value per share may fall below $1.00.
ADDITIONAL YIELD INFORMATION
The "yields" and "effective yields" are calculated separately for each
class of shares of each Fund. The seven-day yield for each class or
sub-class of shares in a Fund is calculated by determining the net change
in the value of a hypothetical preexisting account in a Fund having a
balance of one share of the Class involved at the beginning of the period,
dividing the net change by the value of the account at the beginning of the
period to obtain the base period return, and multiplying the base period
return by 365/7. The net change in the value of an account in a Fund
includes the value of additional shares purchased with dividends from the
original share and dividends declared on the original share and any such
additional shares, net of all fees charged to all shareholder accounts in
proportion to the length of the base period and the Fund's average account
size, but does not include gains and losses or unrealized appreciation and
depreciation. In addition, the effective annualized yield may be computed
on a compounded basis (calculated as described above) by adding 1 to the
base period return, raising the sum to a power equal to 365/7, and
subtracting 1 from the result. Similarly, based on the calculations
described above, 30-day (or one-month) yields and effective yields may also
be calculated.
18
<PAGE>
For the 7-day period ended January 31, 1994 the yields for Class A, B and
C
shares of the Prime Value Money Market Fund, were 3.19%, 2.94% and 2.84%,
respectively and the effective yields were 3.24%, 2.98% and 2.88%,
respectively. For the same period, the yields for Class A, B, and C shares of
the Prime Money Market Fund, were 3.14%, 2.89% and 2.79%, respectively and the
effective yields were 3.19%, 2.93% and 2.83%, respectively. Without such fee
waivers or expense reimbursements the 7-day yields and effective yields for
Class A, B and C shares of the Prime Value Money Market Fund would have been
3.06% and 3.10%, 2.81% and 2.85%, and 2.71% and 2.74%, respectively. The
yields and effective yields for Class A, B and C shares of the Prime Money
Market Fund would have been 3.01% and 3.05%, 2.76% and 2.80%, and 2.66% and
2.69%, respectively.
For the 30-day period ended January 31, 1994, the yields for Class A, B
and C shares of the Prime Value Money Market Fund, were 3.22%, 2.97% and
2.87%,
respectively and the effective yields were____%, ____% and____%, respectively.
For the same period, the yields for Class A, B and C shares of the Prime Money
Market Fund were 3.17%, 2.92% and 2.82%, respectively and the effective yields
were____%, ____% and____%, respectively. Without such fee waivers or expense
reimbursements the 30-day yields for Class A, B and C shares of the Prime
Value
Money Market Fund would have been 3.09%, 2.84% and 2.74% respectively, and the
effective yields would have been____%, ____% and____%, respectively. The
yields
for Class A, B and C shares of the Prime Money Market Fund would have been
3.04%, 2.79% and 2.69%, respectively, and the effective yields would have
been____%, ____% and____%, respectively.
Class B and Class C Shares bear the expenses of fees paid to Service
Organizations. As a result, at any given time, the net yield of Class B and
Class C Shares could be up to .25% and .35% lower than the net yield of
Class A Shares, respectively.
From time to time, in advertisements or in reports to shareholders, a
Fund's yield may be quoted and compared to that of other money market funds
or accounts with similar investment objectives and to stock or other
relevant indices. For example, the yield of the Fund may be compared to the
IBC/Donoghue's MONEY FUND AVERAGE, which is an average compiled by
IBC/Donoghue's MONEY FUND REPORT-R- of Holliston, MA 01746, a widely
recognized independent publication that monitors the performance of money
market funds, or to the average yields reported by the BANK RATE MONITOR
from money market deposit accounts offered by the 50 leading banks and
thrift institutions in the top five standard metropolitan statistical
areas.
Yield will fluctuate, and any quotation of yield should not be
considered as representative of the future performance of the Fund. Since
yields fluctuate, yield data cannot necessarily be used to compare an
investment in a Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance and yield are generally functions of the kind and quality of
the investments held in a portfolio, portfolio maturity, operating expenses
and market conditions. Any fees charged by banks with respect to Customer
accounts investing in shares of a Fund will not be included in yield
calculations; such fees, if charged, would reduce the actual yield from
that quoted.
ADDITIONAL DESCRIPTION CONCERNING FUND SHARES
The Trust does not presently intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more trustees. To
the extent required by law, the Trust will assist in shareholder
communication in such matters.
As stated in the Funds' Prospectuses, holders of shares in a Fund in
the Trust will vote in the aggregate and not by class or sub-class on all
matters, except where otherwise required by law and except that only a
Fund's Class B and Class C shares, as the case may be, will be entitled to
vote on matters submitted to a vote of shareholders pertaining to that
Fund's arrangements with Service Organizations with respect to the relevant
Class of shares. (See "Management of the Funds --
19
<PAGE>
Service Organizations.") Further, shareholders of each of the Trust's
portfolios
will vote in the aggregate and not by portfolio except as otherwise required
by
law or when the Board of Trustees determines that the matter to be voted upon
affects only the interests of the shareholders of a particular portfolio. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted
by the provisions of such Act or applicable state law, or otherwise, to the
holders of the outstanding securities of an investment company such as the
Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each
portfolio affected by the matter. Rule 18f-2 further provides that a
portfolio shall be deemed to be affected by a matter unless it is clear
that the interests of each portfolio in the matter are identical or that
the matter does not affect any interest of the portfolio. Under the Rule,
the approval of an investment advisory agreement or any change in a
fundamental investment policy would be effectively acted upon with respect
to a portfolio only if approved by the holders of a majority of the
outstanding voting securities of such portfolio. However, the Rule also
provides that the ratification of the selection of independent accountants,
the approval of principal underwriting contracts and the election of
trustees are not subject to the separate voting requirements and may be
effectively acted upon by shareholders of the investment company voting
without regard to portfolio.
COUNSEL
Willkie Farr & Gallagher, 153 East 53rd Street, New York, New York 10022,
serves as counsel to the Trust and will pass upon the legality of the
shares offered hereby. Willkie Farr & Gallagher also acts as counsel to
Lehman Brothers.
AUDITORS
Ernst & Young, independent auditors, serve as auditors to each Fund and render
an opinion on the Fund's financial statements. Ernst & Young has offices at
200
Clarendon Street, Boston, Massachusetts 02116-5072.
FINANCIAL STATEMENTS
The Trust's Annual Report for the fiscal period ended January 31, 1994 is
incorporated into this Statement of Additional Information by reference in its
entirety.
MISCELLANEOUS
SHAREHOLDER VOTE
As used in this Statement of Additional Information and the Funds'
Prospectuses, a "majority of the outstanding shares" of a Fund or of
any other portfolio means the lesser of (1) 67% of that Fund's shares
(irrespective of class) or of the portfolio represented at a meeting at
which the holders of more than 50% of the outstanding shares of that Fund
or portfolio are present in person or by proxy, or (2) more than 50% of the
outstanding shares of a Fund (irrespective of class) or of the portfolio.
SHAREHOLDER AND TRUSTEE LIABILITY
The Trust is organized as a trust under the laws of the Commonwealth of
Massachusetts. Shareholders of such a trust may, under certain
circumstances, be held personally liable (as if they were partners) for the
obligations of the trust. The Declaration of Trust of the Trust provides
that shareholders shall not be subject to any personal liability for the
acts or obligations of the Trust and that every note, bond, contract, order
or other undertaking made by the Trust shall contain a
20
<PAGE>
provision to the effect that the shareholders are not personally liable
thereunder. The Declaration of Trust provides for indemnification out of the
trust property of a Fund of any shareholder of the Fund held personally liable
solely by reason of being or having been a shareholder and not because of any
acts or omissions or some other reason. The Declaration of Trust also provides
that the Trust shall, upon request, assume the defense of any claim made
against
any shareholder for any act or obligation of the Trust and satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss
beyond the amount invested in a Fund on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet
its obligations.
The Trust's Declaration of Trust provides further that no trustee of
the Trust shall be personally liable for or on account of any contract,
debt, tort, claim, damage, judgment or decree arising out of or connected
with the administration or preservation of the trust estate or the conduct
of any business of the Trust, nor shall any trustee be personally liable to
any person for any action or failure to act except by reason of bad faith,
willful misfeasance, gross negligence in performing duties, or by reason of
reckless disregard for the obligations and duties as trustee. It also
provides that all persons having any claim against the trustees or the
Trust shall look solely to the trust property for payment. With the
exceptions stated, the Declaration of Trust provides that a trustee is
entitled to be indemnified against all liabilities and expenses reasonably
incurred in connection with the defense or disposition of any proceeding in
which the trustee may be involved or may be threatened with by reason of
being or having been a trustee, and that the trustees have the power, but
not the duty, to indemnify officers and employees of the Trust unless such
persons would not be entitled to indemnification if they were in the
position of trustee.
21
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
COMMERCIAL PAPER AND BANK MONEY MARKET INSTRUMENTS
S&P. Commercial paper with the greatest capacity for timely payment is
rated A by Standard & Poor's Corporation ("S&P"). Issues within this
category are further redefined with designations 1, 2 and 3 to indicate the
relative degree of safety; A-1, the highest of the three, indicates the
degree of safety is either overwhelming or very strong; A-2 indicates that
capacity for timely repayment is strong.
MOODY'S. Moody's Investors Service, Inc. ("Moody's") employs the
designations of Prime-1, Prime-2 and Prime-3 to indicate the relative
capacity of the rated issuers to repay punctually. Prime-1 issues have a
superior capacity for repayment. Prime-2 issues have a strong capacity for
repayment, but to a lesser degree than Prime-1.
IBCA. Commercial paper rated A.1+ by IBCA Limited or its affiliate IBCA
Inc. (together, "IBCA") are obligations supported by the highest capacity
for timely repayment. Commercial paper rated A.1 has a very strong capacity
for timely repayment. Commercial paper rated A.2 has a strong capacity for
timely repayment, although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
FITCH. Fitch Investors Services, Inc. ("Fitch") employs the rating F1+
to indicate issues regarded as having the strongest degree of assurance for
timely payment. The rating F-1 reflects an assurance of timely payment only
slightly less in degree than issues rated F1+, while the rating F-2
indicates a satisfactory degree of assurance for timely payment, although
the margin of safety is not as great as indicated by the F1+ and F-1
categories.
DUFF & PHELPS. Duff & Phelps, Inc. ("Duff & Phelps") employs the
designation of Duff 1 with respect to top grade commercial paper and bank
money-market instruments. Duff 1+ indicates the highest certainty of timely
payment: short-term liquidity is clearly outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations. Duff 1- indicates
high certainty of timely payment. Duff 2 indicates good certainty of timely
payment: liquidity factors and company fundamentals are sound.
THOMSON BANKWATCH. The TBW Short-Term Ratings apply to commercial paper,
other senior short-term obligations and deposit obligations of the entities
to which the rating has been assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that
have a maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an
untimely payment of principal or interest.
TBW-1 The highest category indicates a very high degree of
likelihood that principal and interest will be paid on
a timely basis.
TBW-2 The second highest category; while the degree of
safety regarding timely repayment of principal and
interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1."
TBW-3 The lowest investment grade category; indicates that
while more susceptible to adverse developments (both
internal and external) than obligations with higher
ratings, capacity to service principal and interest in
a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
22
<PAGE>
NOTE: VARIOUS NRSROS UTILIZE RANKINGS WITHIN RATING CATEGORIES
INDICATED BY A + OR -. THE FUNDS, IN ACCORDANCE WITH INDUSTRY PRACTICE,
RECOGNIZE SUCH RANKINGS WITHIN CATEGORIES AS GRADATIONS, VIEWING THE
EXAMPLE S&P'S RATINGS OF A1+ AND A-1 AS BEING IN S&P'S HIGHEST RATING
CATEGORY.
CORPORATE BONDS
S&P. Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated AA have a strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
MOODY'S. Bonds rated Aaa by Moody's are judged to be of the best quality.
Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. Bonds rated Aa are judged to be of high
quality by all standards. They are rated lower than the best bonds because
the margins of protection may not be as large or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa
securities. Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating
system. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end
of its generic rating category.
IBCA. Bonds rated AAA by IBCA are obligations for which there is the
lowest expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial such that adverse changes in
business, economic or financial conditions are unlikely to increase
investment risk significantly. Bonds rated AA are obligations for which
there is a very low expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in
business, economic or financial conditions may increase investment risk,
albeit not very significantly.
FITCH. Bonds rated AAA by Fitch are considered to be investment grade and
of the highest quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events. Bonds rated AA are considered to be
investment grade and of very high credit quality. The obligor's ability to
pay interest and repay principal is very strong, although not quite as
strong as bonds rated AAA.
DUFF & PHELPS. Bonds rated AAA by Duff & Phelps are deemed to be of the
highest credit quality: the risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt. AA indicates high
credit quality: protection factors are strong, and risk is modest but may
vary slightly from time to time because of economic conditions.
23
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
FORM N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Included in Part A:
Portfolio of Investments, January 31, 1994
Statements of Assets and Liabilities, January 31, 1994
Statements of Operations, for the period ended
January 31, 1994
Statements of Changes in Net Assets, for the period ended January
31, 1994
Financial Highlights for a Share outstanding throughout the period
Notes to Financial Statements
Report of Independent Auditors
Tax Information, for the year ended January 31, 1994 (unaudited)
(2) Included in Part B: Financial Statements for the fiscal year
ended January 31, 1994 for the Prime Money Market Fund, Prime Value
Money Market Fund, Government Obligations Money Market Fund, 100%
Government Obligations Money Market Fund, Treasury Instruments Money
Market Fund, Treasury Instruments Money Market Fund II, 100% Treasury
Instruments Money Market Fund, Tax-Free Money Market Fund, Municipal
Money Market Fund and California Municipal Money Market Fund is filed
herein.
Financial Statements for the six-months ended July 31, 1993 for
the Prime Money Market Fund, Prime Value Money Market Fund, Government
Obligations Money Market Fund, 100% Government Obligations Money Market
Fund, Treasury Instruments Money Market Fund, Treasury Instruments Money
Market Fund II, 100% Treasury Instruments Money Market Fund, Municipal
Money Market Fund, Tax-Free Money Market Fund and California Municipal
Money Market Fund are incorporated herein by reference to Post-Effective
Amendment No. 2 to the Registrant's Registration Statement on Form N-1A
filed with the Commission on August 30, 1993.
(b) Exhibits:
(1) (a) Declaration of Trust of Registrant dated November 16, 1992
is incorporated herein by reference to Exhibit (1) to the
Registrant's Initial Registration Statement on Form N-1A filed
with the Securities and Exchange Commission on December 28, 1992.
(b) Amendment No. 1 to Declaration of Trust of Registrant
is incorporated herein by reference to Exhibit (1)(b) to Pre-
Effective Amendment No. 3 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on January 19, 1993.
(c) Designation and Establishment of Series is incorporated
herein by reference to Exhibit (1)(c) to Pre-Effective Amendment
No. 5 to the Registrant's Registration Statement on Form N-1A
filed with the Commission on February 5, 1993.
(d) Form of Certificate pertaining to Classification
of Shares dated February 18, 1994 is
incorporated herein by reference to Exhibit (1)(d)
to Post-Effective Amendment No. 4 to the Registrant's
Registration Statement on Form
N-1A filed with the Commission on February 18,
1994.
(2) (a) By-Laws of Registrant dated November 16, 1992 are
incorporated herein by reference to Exhibit (2) to the Registrant's
Initial Registration Statement on Form N-1A filed with the Securities
and Exchange Commission on December 28, 1992.
(b) Amended By-Laws of Registrant are incorporated herein by
reference to Exhibit (2)(b) to Pre- Effective Amendment No. 3 to the
Registrant's Registration Statement on Form N-1A filed with the
Commission on January 19, 1993.
(c) Amended and Restated By-Laws of Registrant are incorporated
herein by reference to Exhibit (2)(c) to Pre-Effective Amendment
No. 5 to the Registrant's Registration Statement on Form N-1A
filed with the Commission on February 5, 1993.
(3) Not Applicable
(4) Specimen Share Certificate is incorporated herein by
reference to Exhibit (4) to Pre- Effective Amendment No. 5 to the
Registrant's Registration Statement on Form N-1A filed with the
Commission on February 5, 1993.
(5) (a) Investment Advisory Agreement between Registrant and
Lehman Brothers Global Asset Management Inc. ("LBGAM"), relating to
each investment portfolio (collectively, the "Funds") of Registrant
is incorporated herein by reference to Exhibit (5)(a) to Post-
Effective Amendment No. 1 to the Registrant's Registration Statement
on Form N-1A filed with the Commission on June 21, 1993.
(b) Investment Advisory Agreement between Registrant and
Lehman Brothers Global Asset Management Inc. ("LBGAM"), relating to the
Floating Rate U.S. Government Fund is incorporated herein by
reference to Exhibit (5)(b) to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form N-1A filed with
the Commission on February 18, 1994.*
(c) Investment Advisory Agreement between Registrant and
Lehman Brothers Global Asset Management Inc. ("LBGAM"), relating to the
Short Duration U.S. Government Fund is incorporated herein by
reference to Exhibit (5)(c) to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form N-1A filed with
the Commission on February 18, 1994.
(d) Sub-Investment Advisory Agreement between Registrant
and Shearson Lehman Advisors ("Shearson"), relating to each investment
portfolio (collectively, the "Funds") of Registrant is
incorporated herein by reference to Exhibit (5)(b) to Post-
Effective Amendment No. 1 to the Registrant's Registration Statement
on Form N-1A filed with the Commission on June 21, 1993.
(6) (a) Distribution Agreement between Registrant and Lehman
Brothers, a division of Shearson Lehman Brothers Inc. is incorporated
herein by reference to Exhibit (6)(a) to Post-Effective Amendment
No. 1 to the Registrant's Registration Statement on Form N-1A filed
with the Commission on June 21, 1993.
(b) Distribution Agreement between Registrant and Funds
Distributor Inc. is incorporated herein by reference to Exhibit
(6)(b) to Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed with the Commission
on June 21, 1993.
(7) Not Applicable.
(8) (a) Custody Agreement between Registrant and Boston Safe
Deposit and Trust Company is incorporated herein by reference to
Exhibit (8) to Post- Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed with the Commission on
June 21, 1993.
(b) Custody Agreement dated November 10, 1993
between Registrant and Boston Safe Deposit
and Trust Company will be filed by Amendment.
*The Floating Rate U.S. Government Fund changed its name from U.S
Government Floating Rate Fund.
(9) (a) Administration Agreement between Registrant and The
Boston Company Advisors, Inc. is incorporated herein by reference to
Exhibit (9)(a) to Post-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A filed with
the Commission on June 21, 1993.
(b) Assignment of Administration Agreement dated April 21,
1994 between Registrant and The Boston Company Advisors, Inc. to The
Shareholder Services Group, Inc. is filed herein.
(c) Form of Transfer Agency Agreement and Registrar
Agreement dated February 1, 1993 between Registrant and The
Shareholder Services Group, Inc. is incorporated herein by reference
to Exhibit (9)(b) to Pre-Effective Amendment No. 5 to the
Registrant's Registration Statement on Form N-1A filed with the
Commission on February 5, 1993.
(d) Transfer Agency and Registrar Agreement dated November 10,
1993 between Registrant and The Shareholder Services Group, Inc.
will be filed by Amendment.
(10) (a) Opinion and Consent of Counsel is incorporated herein by
reference to Exhibit (10)(a) to Pre- Effective Amendment No. 5 to
the Registrant's Registration Statement on Form N-1A filed with the
Commission on February 5, 1993.
(b) Opinion and Consent of Massachusetts Counsel is
incorporated herein by reference to Exhibit (10)(b) to Pre-
Effective Amendment No. 5 to the Registrant's Registration Statement
on Form N-1A filed with the Commission on February 5, 1993.
(c) Opinion of Massachusetts Counsel is incorporated
herein by reference to Exhibit (10)(c) to Post-
Effective Amendment No. 4 to the Registrant's
Registration Statement on Form N-1A filed with the
Commission on February 18, 1994.
(11) (a) Consent of Independent Accountants is incorporated
herein by reference to Exhibit (11) to Pre-Effective Amendment No.
5 to the Registrant's Registration Statement on Form N-1A filed
with the Commission on February 5, 1993.
(b) Consent of Independent Accountants is
filed herein.
(c) Power of Attorney is incorporated herein
by reference to Exhibit (11)(b) to Post-Effective
Amendment No. 3 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on
December 21, 1993.
(d) Consent of Counsel is filed herein.
(12) Not Applicable.
(13) (a) Purchase Agreement between Registrant and Shearson
Lehman Brothers Inc. is incorporated herein by reference to Exhibit
(13) to Post- Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed with the Commission
on June 21, 1993.
(b) Purchase Agreement dated March 2, 1994 between Registrant
and Lehman Brothers Inc., relating to the Floating Rate U.S.
Government Fund is filed herein.
(c) Purchase Agreement dated March 2, 1994 between Registrant
and Lehman Brothers, Inc., relating to the Short Duration U.S.
Government Fund is filed herein.
(14) Not Applicable.
(15) (a) Form of Shareholder Services Plan pursuant to Rule 12b-1
is incorporated herein by reference to Exhibit (15)(a) to Pre-
Effective Amendment No. 5 to the Registrant's Registration Statement on
Form N- 1A filed with the Commission on February 5, 1993.
(b) Form of Shareholder Services Plan pursuant to Rule 12b-1
for Class D Shares is incorporated herein by reference to Exhibit
(15)(b) to Post- Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed with the Commission
on June 21, 1993.
(c) Form of Shareholder Servicing Agreement for Class B
Shares is incorporated herein by reference to Exhibit (15)(b) to
Pre-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on February 5,
1993.
(d) Form of Shareholder Servicing Agreement for Class C
Shares is incorporated herein by reference to Exhibit (15)(c) to
Pre-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on February 5,
1993.
(e) Form of Shareholder Servicing Agreement for Class D
Shares is incorporated herein by reference to Exhibit (15)(e) to
Post-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on June 21,
1993.
(f) Form of Plan of Distribution for Class A Shares, Class
B Shares and Class C Shares for the Floating Rate U.S. Government
Fund is incorporated herein by reference to Exhibit (15)(f) to Post-
Effective Amendment No.3 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on December 21,
1993.*
*As of March 1994, Class A Shares are referred to as "Premier
Shares", Class B Shares are referred to as "Select Shares" and
Class C Shares are referred to as "Retail Shares."
(g) Form of Plan of Distribution for Class A Shares, Class
B Shares and Class C Shares for the Short Duration U.S. Government
Fund is incorporated herein by reference to Exhibit (15)(g) to Post-
Effective Amendment No.3 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on December 21,
1993.*
(h) Form of Shareholder Servicing Agreement for
Class B Shares of the non-money market portfolios is
incorporated herein by reference to Exhibit (15)(h) to
Post-Effective Amendment No. 4 to the Registrant's
Registration Statement on Form N-1A filed with the
Commission on February 18, 1994.
(16) (a) Not Applicable.
Item 25. Persons Controlled by or under Common Control with
Registrant
Registrant is controlled by its Board of Trustees.
*As of March 1994, Class A Shares are referred to as "Premier
Shares", Class B Shares are referred to as "Select Shares" and
Class C Shares are referred to as "Retail Shares."
Item 26. Number of Holders of Securities
The following information is as of May 13, 1994:
Title of
Class
Number of
Record
Holders
(Class A
Shares)
Number of
Record
Holders
(Class B
Shares)
Number of
Record
Holders
(Class C
Shares)
Number of
Record
Holders
(Class D
Shares)
Prime Money
Market Fund
231
7
1
0
Prime Value
Money Market
Fund
143
4
1
0
Government
Obligations
Money Market
Fund
31
3
1
0
100%
Government
Obligations
Money Market
Fund
4
2
1
0
Treasury
Instruments
Money Market
Fund
2
1
1
0
Treasury
Instruments
II Money
Market Fund
38
18
1
0
100% Treasury
Instruments
Money Market
Fund
10
2
1
0
Tax-Free
Money Market
Fund
15
2
1
0
Municipal
Money Market
Fund
49
2
1
0
California
Municipal
Money Market
Fund
8
2
1
0
Item 27. Indemnification
Under Section 4.3 of Registrant's Declaration of Trust, as
amended, any past or present Trustee or officer of Registrant (including
persons who serve at Registrant's request as directors, officers or
trustees of another organization in which Registrant has any interest as
a shareholder, creditor or otherwise [hereinafter referred to as a
"Covered Person"]) is indemnified to the fullest extent permitted by law
against liability and all expenses reasonably incurred by him in
connection with any action, suit or proceeding to which he may be a
party or otherwise involved by reason of his being or having been a
Covered Person. This provision does not authorize indemnification when
it is determined, in the manner specified in the Declaration of Trust,
that such Covered Person has not acted in good faith in the reasonable
belief that his actions were in or not opposed to the best interests of
Registrant. Moreover, this provision does not authorize indemnification
when it is determined, in the manner specified in the Declaration of
Trust, that such Covered Person would otherwise be liable to Registrant
or its shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of his duties. Expenses may be paid to
Registrant in advance of the final disposition of any action, suit or
proceedings upon receipt of an undertaking by such Covered Person to
repay such expenses to Registrant in the event that it is ultimately
determined that indemnification of such expenses is not authorized under
the Declaration of Trust and the Covered Person either provides security
for such undertaking or insures Registrant against losses from such
advances or the disinterested Trustees or independent legal counsel
determines, in the manner specified in the Declaration of Trust, that
there is reason to believe the Covered Person will be found to be
entitled to indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be
permitted to Trustees, officers and controlling persons of Registrant
pursuant to the foregoing provisions, or otherwise, Registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a Trustee, officer
or controlling person of Registrant in the successful defense of any
action, suit or proceeding) is asserted by such Trustee, officer or
controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
(a) Investment Adviser
Lehman Brothers Global Asset Management Inc. ("LBGAM"), which
serves as investment adviser to the Registrant's portfolios, is a wholly
owned subsidiary of Lehman Brothers Holdings Inc. ("Holdings"). All of
the issued and outstanding common stock of Holdings (representing 92% of
the voting stock) is held by American Express Company. LBGAM is an
investment adviser registered under the Investment Advisers Act of 1940
(the "Advisers Act") and serves as investment counsel for individuals
with substantial capital, executors, trustees and institutions. It also
serves as investment adviser, sub-investment adviser, administrator or
sub-administrator to numerous investment companies.
The list required by this Item 28 of officers and directors of
LBGAM, together with information as to any other business profession,
vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by
reference to Schedules A and D of Form ADV filed by LBGAM pursuant to
the Advisers Act (SEC File No. 801-42006).
Item 29. Principal Underwriters
(a) Lehman Brothers, acts as distributor for the shares of
Registrant's portfolios. Lehman Brothers currently acts as distributor
for Lehman Brothers Funds, Inc.,The USA High Yield Fund N.V., The Latin
American Bond Fund N.V., Mexican Short-Term Investment Portfolio N.V.,
Garzarelli Sector Analysis Portfolio N.V., The Mexican Appreciation Fund
N.V., The Mexico Premium Income Portfolio N.V., Offshore Portfolios,
International Currency Portfolios, Lehman Brothers Series I Mortgage-
Related Securities Portfolio N.V., TBC Enhanced Tactical Asset
Allocation Portfolio N.V., U.S. Tactical Asset Allocation Portfolio
N.V., Short-Term World Income Portfolio (Cayman), TBC Portfolio of
Fixed-Income Securities, U.S. Tactical Asset Allocation Portfolio
(Cayman), Offshore Daily Dividend Fund N.V. and the Global Advisors
Portfolio N.V. and various series of unit investment trusts.
(b) Lehman Brothers is a wholly-owned subsidiary of Lehman
Brothers Holdings Inc. The information required by this Item 29 with
respect to each director, officer and partner of Lehman Brothers is
incorporated by reference to Schedule A of Form BD filed by Lehman
Brothers pursuant to the Securities Exchange Act of 1934 (SEC File No.
8-12324).
(c) Not Applicable.
Item 30. Location of Accounts and Records
(1) Lehman Brothers Institutional Funds Group Trust
260 Franklin Street
Boston, Massachusetts 02110
(2) Lehman Brothers Global Asset Management Inc.
American Express Tower
World Financial Center
New York, New York 10285
(3) The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(4) Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
Item 31. Management Services
Not Applicable
Item 32. Undertakings
Registrant hereby undertakes as follows:
(1) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a
trustee or trustees of Registrant when requested in writing to do so by
the holders of at least 10% of Registrant's outstanding shares.
Registrant undertakes further, in connection with the meeting, to comply
with the provisions of Section 16(c) of the Investment Company Act of
1940, as amended, relating to communications with the shareholders of
certain common-law trusts.
(2) Registrant hereby undertakes to file a Post-Effective
Amendment, using financial statements which may not be certified, for
the Short Duration U. S. Government Fund and Floating Rate U.S.
Government Fund within four to six months from the effective date of
this Post-Effective Amendment.
Exhibit Index
Exhibit
No. Exhibit
(9) (b) Assignment of Administration Agreement
dated April 21, 1994 between Registrant and
The Boston Company Advisors, Inc. to The Shareholder
Services Group, Inc.
(11) (b) Consent of Independent Accountants.
(11) (d) Consent of Counsel.
(13) (b) Purchase Agreement dated March 2, 1994 between Registrant
and Lehman Brothers Inc., relating to the Floating Rate U.S.
Government Fund.
(13) (c) Purchase Agreement dated March 2, 1994 between
Registrant and Lehman Brothers, Inc., relating to the Short
Duration U.S. Government Fund.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
Registrant certifies that this Post-Effective Amendment No. 5 to the
Registration Statement meets the requirements for effectiveness pursuant
to Rule 485(b) of the Securities Act of 1933, as amended, and the
Registrant has duly caused this Post-Effective Amendment No. 5 to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts on the 27th day of May, 1994.
LEHMAN BROTHERS
INSTITUTIONAL
FUNDS GROUP TRUST
By: /s/ Peter Meenan
Peter Meenan
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 5 to the Registration Statement of Lehman
Brothers Institutional Funds Group Trust has been signed below by the
following persons in the capacities and on the dates indicated.
Signature
Title
Date
*
Steven Spiegel
Chairman of the Board and
Trustee
May 27, 1994
*
Trustee
May 27, 1994
Charles F. Barber
*
Trustee
May 27, 1994
Burt N. Dorsett
*
Trustee
May 27, 1994
Edward J. Kaier
*
Trustee
May 27, 1994
S. Donald Wiley
*
Michael C. Kardok
Treasurer (Chief Financial
and Accounting Officer)
May 27, 1994
*By: /s/ Peter Meenan
Peter Meenan
Attorney-In-Fact
ifg\newpros\edgar2\pea5.doc\1
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ifg\newpros\edgar2\pea5.doc
The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
Gentlemen:
This letter acknowledges the consent of Lehman Brothers Institutional
Funds Group Trust (the "Fund") to the assignment of the Administration
Agreement dated February 3, 1993 between The Boston Company Advisors, Inc.
("Boston Advisors") and the Fund, as amended (collectively, the "Agreement")
to The Shareholder Services Group, Inc. ("TSSG"). This acknowledgment will be
effective upon the consummation of the proposed acquisition of The Boston
Company Inc.'s third party mutual fund administration business by TSSG (the
"Proposed Transaction"). We understand that, effective upon the completion of
the Proposed Transaction, TSSG will assume all of Boston Advisors' rights and
obligations under the Agreement accruing after that date and that The Boston
Company, Inc. and its affiliates, including Boston Advisors, will no longer be
liable under the Agreement or responsible for any acts or omissions of TSSG
occurring after that time.
Sincerely,
Lehman Brothers Institutional Funds Group Trust
By: /s/ Patricia L. Bickimer
Name: Patricia L. Bickimer
Title: Secretary
Date: April 21, 1994
shared/domestic/users/cap/lbconsent
Exhibit 11 (d)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
Firm under the caption "Counsel" in the Statement of Additional Information
that is included in Post-Effective Amendment No. 5 to the Registration
Statement on Form N-1A under the Securities Act of 1933, as amended, of Lehman
Brothers Institutional Funds Group Trust.
/s/ Willkie, Farr, &
Gallagher
Willkie, Farr, & Gallagher
New York, NY
May 19, 1994
ifg\newpros\edgar2\consent.doc
PURCHASE AGREEMENT
Lehman Brothers Institutional Funds Group Trust (the "Trust"), a
Massachusetts business trust, and Lehman Brothers Inc. (the "Distributor"),
hereby agree as follows:
1. The Trust hereby offers the Distributor and the Distributor hereby
purchases ten shares at $1.00 per share in such classes of the Trust's
Floating Rate U.S. Government Fund with a par value of $.001 per share (the
"Portfolio") as determined by Distributor. The shares are the "initial
shares" of the Portfolio. The Distributor hereby acknowledges receipt of a
purchase confirmation reflecting the purchase of ten shares, and the Trust
hereby acknowledges receipt from the Distributor of funds in the amount of $10
in full payment for the shares.
2. The Distributor represents and warrants to the Trust that the shares
are being acquired for investment purposes and not for the purpose of
distribution.
3. The Distributor agrees that if it or any direct or indirect
transferee of the shares redeems the shares prior to the fifth anniversary of
the date that the Trust begins its investment activities, the Distributor will
pay to the Trust an amount equal to the number resulting from multiplying the
Trust's total unamortized organizational expenses by a fraction, the numerator
of which is equal to the number of shares redeemed by the Distributor or such
transferee and the denominator of which is equal to the number of shares
outstanding as of the date of such redemption, as long as the administrative
position of the staff of the Securities and Exchange Commission requires such
reimbursement.
4. The Trust represents that a copy of its Declaration of Trust, dated
November 25, 1992, is on file in the Office of the Secretary of the
Commonwealth of Massachusetts.
5. This Agreement has been executed on behalf of the Trust by the
undersigned officer of the Trust in his capacity as an officer of the Trust.
The obligations of this Agreement shall be binding only upon the assets and
property of the Portfolio and not upon the assets and property of any other
portfolio of the Trust and shall not be binding upon any Trustee, officer or
shareholder of a Portfolio or the Trust individually.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 2nd day of March, 1994.
LEHMAN BROTHERS INSTITUTIONAL
FUNDS GROUP TRUST
Attest:
By: /s/ Elizabeth Russell By: /s/ Peter Meenan
Name: Elizabeth Russell Name: Peter Meenan
Title: Assistant Secretary Title: President
Attest: LEHMAN BROTHERS INC.
By: /s/ Elizabeth Russell By: /s/ Peter Meenan
Name: Elizabeth Russell Name: Peter Meenan
Title: Assistant Secretary Title: President
PURCHASE AGREEMENT
Lehman Brothers Institutional Funds Group Trust (the "Trust"), a
Massachusetts business trust, and Lehman Brothers Inc. (the "Distributor"),
hereby agree as follows:
1. The Trust hereby offers the Distributor and the Distributor hereby
purchases ten shares at $1.00 per share in such classes of the Trust's Short
Duration U.S. Government Fund with a par value of $.001 per share (the
"Portfolio") as determined by Distributor. The shares are the "initial
shares" of the Portfolio. The Distributor hereby acknowledges receipt of a
purchase confirmation reflecting the purchase of ten shares, and the Trust
hereby acknowledges receipt from the Distributor of funds in the amount of $10
in full payment for the shares.
2. The Distributor represents and warrants to the Trust that the shares
are being acquired for investment purposes and not for the purpose of
distribution.
3. The Distributor agrees that if it or any direct or indirect
transferee of the shares redeems the shares prior to the fifth anniversary of
the date that the Trust begins its investment activities, the Distributor will
pay to the Trust an amount equal to the number resulting from multiplying the
Trust's total unamortized organizational expenses by a fraction, the numerator
of which is equal to the number of shares redeemed by the Distributor or such
transferee and the denominator of which is equal to the number of shares
outstanding as of the date of such redemption, as long as the administrative
position of the staff of the Securities and Exchange Commission requires such
reimbursement.
4. The Trust represents that a copy of its Declaration of Trust, dated
November 25, 1992, is on file in the Office of the Secretary of the
Commonwealth of Massachusetts.
5. This Agreement has been executed on behalf of the Trust by the
undersigned officer of the Trust in his capacity as an officer of the Trust.
The obligations of this Agreement shall be binding only upon the assets and
property of the Portfolio and not upon the assets and property of any other
portfolio of the Trust and shall not be binding upon any Trustee, officer or
shareholder of a Portfolio or the Trust individually.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 2nd day of March, 1994.
LEHMAN BROTHERS INSTITUTIONAL
FUNDS GROUP TRUST
Attest:
By: /s/ Elizabeth Russell By: /s/ Peter Meenan
Name: Elizabeth Russell Name: Peter Meenan
Title: Assistant Secretary Title: President
Attest: LEHMAN BROTHERS INC.
By: /s/ Elizabeth Russell By: /s/ Peter Meenan
Name: Elizabeth Russell Name: Peter Meenan
Title: Assistant Secretary Title: President
ifg/newpros/edgar2/purchas2.doc
PURCHASE AGREEMENT
Lehman Brothers Institutional Funds Group Trust (the "Trust"), a
Massachusetts business trust, and Lehman Brothers Inc. (the "Distributor"),
hereby agree as follows:
1. The Trust hereby offers the Distributor and the Distributor hereby
purchases ten shares at $1.00 per share in such classes of the Trust's
Floating Rate U.S. Government Fund with a par value of $.001 per share (the
"Portfolio") as determined by Distributor. The shares are the "initial
shares" of the Portfolio. The Distributor hereby acknowledges receipt of a
purchase confirmation reflecting the purchase of ten shares, and the Trust
hereby acknowledges receipt from the Distributor of funds in the amount of $10
in full payment for the shares.
2. The Distributor represents and warrants to the Trust that the shares
are being acquired for investment purposes and not for the purpose of
distribution.
3. The Distributor agrees that if it or any direct or indirect
transferee of the shares redeems the shares prior to the fifth anniversary of
the date that the Trust begins its investment activities, the Distributor will
pay to the Trust an amount equal to the number resulting from multiplying the
Trust's total unamortized organizational expenses by a fraction, the numerator
of which is equal to the number of shares redeemed by the Distributor or such
transferee and the denominator of which is equal to the number of shares
outstanding as of the date of such redemption, as long as the administrative
position of the staff of the Securities and Exchange Commission requires such
reimbursement.
4. The Trust represents that a copy of its Declaration of Trust, dated
November 25, 1992, is on file in the Office of the Secretary of the
Commonwealth of Massachusetts.
5. This Agreement has been executed on behalf of the Trust by the
undersigned officer of the Trust in his capacity as an officer of the Trust.
The obligations of this Agreement shall be binding only upon the assets and
property of the Portfolio and not upon the assets and property of any other
portfolio of the Trust and shall not be binding upon any Trustee, officer or
shareholder of a Portfolio or the Trust individually.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 2nd day of March, 1994.
LEHMAN BROTHERS INSTITUTIONAL
FUNDS GROUP TRUST
Attest:
By: /s/ Elizabeth Russell By: /s/ Peter Meenan
Name: Elizabeth Russell Name: Peter Meenan
Title: Assistant Secretary Title: President
Attest: LEHMAN BROTHERS INC.
By: /s/ Elizabeth Russell By: /s/ Peter Meenan
Name: Elizabeth Russell Name: Peter Meenan
Title: Assistant Secretary Title: President
PURCHASE AGREEMENT
Lehman Brothers Institutional Funds Group Trust (the "Trust"), a
Massachusetts business trust, and Lehman Brothers Inc. (the "Distributor"),
hereby agree as follows:
1. The Trust hereby offers the Distributor and the Distributor hereby
purchases ten shares at $1.00 per share in such classes of the Trust's Short
Duration U.S. Government Fund with a par value of $.001 per share (the
"Portfolio") as determined by Distributor. The shares are the "initial
shares" of the Portfolio. The Distributor hereby acknowledges receipt of a
purchase confirmation reflecting the purchase of ten shares, and the Trust
hereby acknowledges receipt from the Distributor of funds in the amount of $10
in full payment for the shares.
2. The Distributor represents and warrants to the Trust that the shares
are being acquired for investment purposes and not for the purpose of
distribution.
3. The Distributor agrees that if it or any direct or indirect
transferee of the shares redeems the shares prior to the fifth anniversary of
the date that the Trust begins its investment activities, the Distributor will
pay to the Trust an amount equal to the number resulting from multiplying the
Trust's total unamortized organizational expenses by a fraction, the numerator
of which is equal to the number of shares redeemed by the Distributor or such
transferee and the denominator of which is equal to the number of shares
outstanding as of the date of such redemption, as long as the administrative
position of the staff of the Securities and Exchange Commission requires such
reimbursement.
4. The Trust represents that a copy of its Declaration of Trust, dated
November 25, 1992, is on file in the Office of the Secretary of the
Commonwealth of Massachusetts.
5. This Agreement has been executed on behalf of the Trust by the
undersigned officer of the Trust in his capacity as an officer of the Trust.
The obligations of this Agreement shall be binding only upon the assets and
property of the Portfolio and not upon the assets and property of any other
portfolio of the Trust and shall not be binding upon any Trustee, officer or
shareholder of a Portfolio or the Trust individually.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 2nd day of March, 1994.
LEHMAN BROTHERS INSTITUTIONAL
FUNDS GROUP TRUST
Attest:
By: /s/ Elizabeth Russell By: /s/ Peter Meenan
Name: Elizabeth Russell Name: Peter Meenan
Title: Assistant Secretary Title: President
Attest: LEHMAN BROTHERS INC.
By: /s/ Elizabeth Russell By: /s/ Peter Meenan
Name: Elizabeth Russell Name: Peter Meenan
Title: Assistant Secretary Title: President
ifg/newpros/edgar2/purchas2.doc
CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS
We consent to the references made to our firm under the captions
"Financial Highlights" in each Prospectus and "Independent Auditors" in
each Statement of Additional Information, and to the incorporation by
reference, in this Post-Effective Amendment Number 5 to Registration
Statement Number 33-55034, dated May 31, 1994, of The Lehman Brothers
Institutional Funds Group Trust, of our report dated March 16, 1994.
ERNST & YOUNG
Boston, Massachusetts
May 26, 1994
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ifg\newpros\edgar2\pea5.doc
