Prime Money Market Fund
Prime Value Money Market Fund
Investment Portfolios Offered By
Lehman Brothers Institutional Funds Group Trust
Statement of Additional Information
May 31, 1994
This Statement of Additional Information is meant to be read in
conjunction with the Prospectuses for the Prime Money Market Fund and
Prime Value Money Market Fund portfolios, each dated May 31, 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 Money Market Fund or Prime Value
Money Market Fund portfolios should be made solely upon the
information contained herein. Copies of a Prospectus for Prime Money
Market Fund or Prime Value 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 2
Investment Objective and Policies 2
Additional Purchase and Redemption Information 7
Management of the Funds 9
Additional Information Concerning Taxes 15
Dividends 16
Additional Yield Information 16
Additional Description Concerning Shares 18
Counsel 18
Auditors 18
Financial Statements 18
Miscellaneous 19
Appendix A-1
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 portfolios, two of which are Prime
Money Market Fund and Prime Value Money Market Fund (individually, a
"Fund"; collectively, the "Funds").
Although the Funds 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 foreign banks and
corporate issuers while Prime Money Market Fund does not).
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE FUNDS'
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,
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 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 portfolios 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 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. (See
the applicable Prospectus, "Management of the Fund - Service
Organizations").
The Funds may 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 Funds 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 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 Funds 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 purchased by a Fund. Dividends paid
by a Fund that are derived from interest on such municipal securities
would be taxable to that Fund's investors 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 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
In General
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 Money Market Fund and Prime Value
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 advisers before investing fiduciary funds in a
Fund's Class B or Class C shares.
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 NYSE 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 investors 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 investor
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. Investors 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). "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 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, 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:
Name and Address
Postion with the Trust
Principal Occupations During Past 5
Years and Other Affiliations
STEVEN SPIEGEL (1)(2)
3 World Financial Center
New York, NY 10285
Chairman of the Board
and Trustee
Managing Director, Lehman Brothers;
President, Lehman Brothers Global Asset
Management Inc.; formerly Chairman,
Lehman Brothers International (Europe)
CHARLES F. BARBER (2)(3)
66 Glenwood Drive
Greenwich, CT 06830
Trustee
Consultant; formerly Chairman of the
Board, ASARCO Incorporated
BURT N. DORSETT (2)(3)
201 East 62nd Street
New York, NY 10022
Trustee
Managing Partner, Dorsett McCabe Capital
Management, Inc., an investment
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)
1100 One Penn Center
Philadelphia, PA 19103
Trustee
Partner with the law firm of Hepburn
Willcox Hamilton & Putnam
S. DONALD WILEY (2)(3)
USX Tower
Pittsburgh, PA 15219
Trustee
Vice Chairman and Trustee, H.J. Heinz
Company Foundation; prior to October
1990, Senior Vice President, General
Counsel and Secretary, H.J. Heinz
Company
PETER MEENAN(1)
260 Franklin Street
Boston, MA 02110
President
Managing Director of Lehman Brothers;
President of Lehman Brothers 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
3 World Financial Center
New York, NY 10285
Vice President and
Investment Officer
Senior Vice President and Senior Money
Market Portfolio Manager, Lehman
Brothers Global Asset Management Inc.;
formerly Product Manager with Lehman
Brothers Capital Markets Group.
MICHAEL C. KARDOK
One Exchange Place
Boston, MA 02109
Treasurer
Vice President, The Shareholder Services
Group, Inc.; prior to May 1994, Vice
President, The Boston Company Advisors,
Inc
PATRICIA L. BICKIMER
One Exchange Place
Boston, MA 02109
Secretary
Vice President and Associate General
Counsel, The Shareholder Services Group,
Inc.; prior to May 1994, Vice President and
Associate General Counsel, The Boston
Company Advisors, Inc.
___________________________
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.
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, and $94,754 in the 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.
Distributor
Lehman Brothers acts as the Distributor of each Fund's shares.
Lehman Brothers, located at 3 World Financial Center,
New York, New York 10285, is a wholly-owned
subsidiary of Lehman Brothers Holdings Inc. ("Holdings").
Prior to May 31, 1994, all of the issued and
outstanding common stock (representing 92% of the voting stock)
of Holdings was held by American
Express Company ("American Express"). On May 31, 1994,
American Express distributed to holders of
common stock of American Express all outstanding
shares of common stock of Holdings. As of May 31,
1994, Nippon Life Insurance Company owned 11.2% of the
outstanding voting securities of Holdings.
Each Fund's shares are sold on a continuous basis by Lehman Brothers.
The Distributor pays the cost of printing and distributing
prospectuses to persons who are not investors 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
investors. 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.
Investment Adviser
LBGAM serves as the Investment Adviser to each of the Funds.
LBGAM, located at 3 World Financial Center,
New York, New York 10285, is a wholly-owned subsidiary
of Holdings. 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 employing 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
Investment Adviser is entitled to a fee, computed daily and paid
monthly, at the annual rate of .10% of the average daily net assets
of the Fund. For the period February 8, 1993 (commencement of
operations) to January 31, 1994, LBGAM was entitled to receive
advisory fees in the following amounts: the Prime Money Market Fund,
$1,165,899 and the Prime Value Money Market Fund, $1,106,003.
Waivers by LBGAM of advisory fees and reimbursement of expenses to
maintain the Funds' operating expenses ratios at certain levels
amounted to: the Prime Money Market Fund, $1,165,899 and $0,
respectively, and the Prime Value Money Market Fund $1,106,003 and
$757,799, respectively. In order to maintain competitive expense
ratios during 1994 and thereafter, the Investment Adviser and
Administrator have agreed to voluntary fee waivers and expense
reimbursements for each of 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 Class A Shares of
Prime Money Market Fund were as follows: Filller & Co., State Street
Bank & Trust Company, P.O. Box 351, Boston, MA 02101, 10.52% shares
held of record; Bankers Trust Co., Securities Lending, 130 Liberty
Street, New York, NY 10006, 7.63% shares held of record; and Chiquita
Brands International, Inc., 250 East Fifth Street, Cincinnati, OH
45202, 5.34% shares held of record. Principal holders of Class B
Shares of Prime Money Market Fund as of May 13, 1994 were as follows:
Harris Trust and Savings Bank, 200 West Monroe Street, Chicago, IL
60606, 87.31% shares held of record and Hare & Co., c/o Bank of New
York, Special Processing Department, One Wall Street, New York, NY
10286, 12.56% shares held of record.
Principal holders of Class A Shares of Prime Value Money Market
Fund as of May 13, 1994, were as follows: Bankers Trust Co.,
Securities Lending, 130 Liberty Street, New York, NY 10006, 13.68%
shares held of record; Time Warner Entertainment Co., L.P., 75
Rockefeller Plaza, New York, NY 10019, 9.15% shares held of record;
and Continental Bank, 231 South LaSalle, Chicago, IL 60697, 5.11%
shares held of record. At May 13, 1994, the principal holders of
Class B Shares of Prime Value Money Market Fund were as follows: Hare
& Co., c/o Bank of New York, Special Processing Department, One Wall
Street, New York, NY 10286, 83.22% shares held of record and Sun Bank
NA as Escrow Agent for Florida Healthcare Plan, 225 East Robinson
Street, Suite 358, Orlando, FL 32001, 16.77% shares held of record.
As of May 13, 1994, there were no investors in the Class C
shares of the Funds and all outstanding shares were held by Lehman
Brothers.
The investors 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 investor is the beneficial owner of
more than 25% of the outstanding shares of a Fund, such investor 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 Trust's
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 investor
problems, supervising the services of employees and monitoring the
arrangements pertaining to the Funds' agreements with Service
Organizations; (ii) prepare reports to a Fund's investors 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 is entitled to receive, 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 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 was entitled to receive
administration fees in the following amounts: the Prime Money Market
Fund, $1,165,899 and the Prime Value Money Market Fund, $1,106,003.
Waivers by TBCA of administration fees and reimbursement of expenses
to maintain the Funds' operating expense ratios at certain levels
amounted to: the Prime Money Market Fund, $1,165,899 and $115,300,
respectively, and the Prime Value Money Market Fund, $1,106,003 and
$192,939, respectively. In order to maintain competitive expense
ratios during 1994 and thereafter, 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 investors and the Trust, distributes dividends
and distributions payable by the Trust and produces statements with
respect to account activity for the Trust and its investors. For
these services, TSSG receives a monthly fee based on average net
assets and is reimbursed for out-of-pocket expenses.
Custodian
Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly
owned subsidiary of TBCA, which is a wholly-owned subsidiary of
Mellon, 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 from TSSG 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 purchase Class B
or Class C shares. 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 such Fund's payment of .25% or .35%, respectively,
of the average daily net asset value of the respective Class
beneficially owned by the Customers. Such services with respect to
the Class C shares 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 investor
communications from a Fund (such as proxies, investor 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 the 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), (vii) and (viii) above. A Service Organization, at its option,
may also provide to its Customers of Class B shares services
including: (a) providing Customers with a service that invests the
assets of their accounts in shares pursuant to specific or pre-
authorized instruction; (b) providing sub-accounting with respect to
shares beneficially owned by Customers or the information necessary
for sub-accounting; (c) providing reasonable assistance in connection
with the distribution of shares to Customers; and (d) providing such
other similar services as the Fund may reasonably request to the
extent the 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 under Rule 12b-1 of the 1940 Act.
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 investors 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, the following service fees were paid by the Prime
Money Market Fund: Class B shares, $127,731 and Class C shares,
$161. 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, $21,438 and Class C
shares, $0.
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
investors, 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 investor 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%) 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%) of the remaining average annual net assets.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations
generally affecting a Fund and its investors 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 investors or
possible legislative changes, and the discussion here and in the
applicable Prospectuses is not intended as a substitute for careful
tax planning. Investors should consult their tax advisers 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 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.
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 investors. In such
event, dividend distributions to investors 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 investors 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 investors under such laws may differ from the
treatment under federal income tax laws. Investors are advised to
consult their tax advisers 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, (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 investors. 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 and in accordance with the
formulas prescribed by the SEC. The seven-day yield for each 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) with
respect to each class of a Fund's shares 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.
Based on the period ended January 31, 1994, the yields and
effective yields for each of the Funds were as follows:
7-day
Yield
7-day
Effecti
ve
Yield
30-
day
Yield
30-day
Effect
ive
Yield
Prime Money Market Fund
Class A Shares
3.14%
3.19%
3.17%
3.22%
Class B Shares
2.89%
2.93%
2.92%
2.96%
Class C Shares
2.79%
2.83%
2.82%
2.86%
Class A Shares**
3.01%
3.05%
3.04%
3.08%
Class B Shares**
2.76%
2.80%
2.79%
2.83%
Class C Shares**
2.66%
2.69%
2.69%
2.72%
Prime Value Money Market Fund
Class A Shares
3.19%
3.24%
3.22%
3.27%
Class B Shares
2.94%
2.98%
2.97%
3.01%
Class C Shares
2.84%
2.88%
2.87%
2.91%
Class A Shares**
3.06%
3.10%
3.09%
3.13%
Class B Shares**
2.81%
2.85%
2.84%
2.88%
Class C Shares**
2.71%
2.74%
2.74%
2.77%
**without fee waivers and/or expense reimbursements
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 investors,
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 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 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. Investors 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 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 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 auditors, 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 "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 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 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.
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 F-1+ 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 F-1+, 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 F-1+ 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.
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 A-1+ 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.
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