THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
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. 6 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 11 /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):
<R/R> immediately upon filing pursuant to paragraph (b), or
_____on_________pursuant to paragraph (b)
X 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; Yields
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 Description
Securities Concerning 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
Lehman Brothers Institutional Funds Group Trust
The purpose of this filing is to add a new portfolio known as the Short
Duration Municipal Fund. The Prospectuses dated May 31, 1994 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, New York Municipal Money Market Fund and California
Municipal Money Market Fund and the Prospectus dated February 21, 1994 for the
Floating Rate U.S. Government Fund are not included in this filing.
Information contained herein is subject to completion or amendment.
A registration statement
relating to these securities has been filed with the
Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted prior
to the time the registration
statement becomes effective. This Prospectus shall not
constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale
of these securities in any State in
which such offer, solicitation or sale would be unlawful
prior to registration or qualification
under the securities laws of any such State.
Subject to Completion, Dated August ___, 1994
Lehman Brothers
Short Duration Municipal Fund
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the
"Trust") is an open-end, management investment company. The
shares described in this Prospectus represent interests in a
class of shares ("Premier Shares") of the Short Duration
Municipal Fund (the "Fund"), a diversified investment portfolio
of the Trust. Fund shares may not be purchased by individuals
directly, but institutional investors may purchase shares for
accounts maintained by individuals.
The Fund's investment objective is to provide a high level
of current income consistent with minimal fluctuation of net
asset value. The Fund invests substantially all of its assets in
tax-exempt obligations issued by state and local governments,
territories and possessions of the United States (including the
District of Columbia) and their political subdivisions, agencies
and instrumentalities. All or a portion of the Fund's dividends
may be a specific preference item for purposes of federal
individual and corporate alternative minimum taxes.
Lehman Brothers Inc. 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; 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 ____ ___, 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 Lehman Brothers Inc. ("Lehman
Brothers"), 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 involve certain investment risks, including
the possible loss of principal. The Fund is not a money market
fund and its net asset value will fluctuate.
___________
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
____ ____, 1994
BACKGROUND AND EXPENSE INFORMATION
The Fund currently offers four separate classes of shares,
only one of which, Premier Shares, is offered by this Prospectus.
Each class represents an equal, pro rata interest in the Fund.
Each share in each class accrues daily dividends in the same
manner as in the other classes, except that the shares of other
classes bear fees allocable to services provided to the
beneficial owners of such shares.
The purpose of the following table is to assist an investor
in understanding the various costs and expenses that an investor
in the Fund would bear directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Management
of the Fund" in this Prospectus and the Statement of Additional
Information.
Expense Summary
Annual Fund Operating Expenses
(as a percentage of average net assets)
Advisory Fees (after waivers) ___%
Rule 12b-1 fees none
Other Expenses including Administration Fees ___%
Total Fund Operating Expenses (after expense
reimbursement) _____%
The Investment Adviser and Administrator may voluntarily
waive a portion of their fees. Absent waivers or reimbursement
of expenses, Advisory Fees with respect to Premier Shares would
be ____% annually, Other Expenses would be ____% annually and the
Total Fund Operating Expenses would be ____%, of the Fund's
average daily net assets. The foregoing table has not been
audited by the Fund's independent auditors.
Example
You 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:
1 Year 3 Years
$___ $___
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL
EXPENSES AND RATE OF RETURN, WHICH MAY BE GREATER OR LESSER THAN
THOSE SHOWN.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide a high level
of current income consistent with minimal fluctuation of net
asset value. The Fund invests substantially all of its assets in
tax-exempt obligations issued by state and local governments.
The Fund is not a money market fund and its net asset value will
fluctuate.
The Fund pursues its investment objective by investing
primarily in a professionally managed portfolio of fixed income
securities issued by or on behalf of states, territories and
possessions of the United States (including the District of
Columbia) and their political subdivisions, agencies and
instrumentalities, the interest on which is exempt from regular
federal income tax ("Municipal Obligations"). Under normal
market conditions, the Fund will invest at least 80% of its net
assets in Municipal Obligations.
Although the Fund is not expected to do so, the Fund may
invest as much as 20% of its net assets in taxable investments,
which are obligations issued or guaranteed by the U.S.
government, its agencies and instrumentalities and repurchase
agreements collateralized by U.S. government securities ("Taxable
Investments"). This activity may generate taxable interest. See
"Taxation."
Ratings on Municipal Obligations
The Fund's investments in Municipal Obligations will at the
time of investment be rated within the three highest rating
categories for municipal securities by Standard & Poor's
Corporation ("Standard & Poor's") or (AAA, AA, or A) by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa, or A) or any other
comparable nationally recognized rating agency, or their
equivalent ratings or, if unrated, determined by the Investment
Adviser to be of comparable credit quality. The credit rating
assigned to Municipal Obligations by these rating agencies may
reflect the existence of guarantees, letters of credit or other
credit enhancement features available to the issuers or holders
of such Municipal Obligations.
Duration
Generally, the Fund's average portfolio duration will be no
more than three years. The individual Municipal Obligations in
which the Fund invests will have effective maturities not
exceeding five years. Unlike maturity, which indicates when the
bond repays principal, "duration" incorporates the cash flows of
all interest and principal payments and the proceeds from calls
and redemptions over the life of the bond. These payments are
multiplied by the number of years over which they are received to
produce a value that is expressed in years (i.e., the duration).
Municipal Obligations and Other Investments
Municipal Obligations. Municipal Obligations include bonds,
notes and other instruments issued by or on behalf of states,
territories and possessions of the United States (including the
District of Columbia) and their political subdivisions, agencies
or instrumentalities, the interest on which is, in the opinion of
bond counsel, exempt from regular federal income tax (i.e., the
issuers or counsel selected by the Investment Adviser, exempt
from regular federal income tax (i.e., excluded from gross income
for federal income tax purposes but no necessarily exempt from
the federal alternative minimum tax or from the personal income
taxes of any state). In addition, Municipal Obligations include
participation interests in such securities the interest on which
is, in the opinion of bond counsel for the issuers or counsel
selected by the Investment Adviser, exempt from regular federal
income tax. The definition of Municipal Obligations includes
other types of securities that currently exist or may be
developed in the future and that are, or will be, in the opinion
of counsel, as described above, exempt from regular federal
income tax, provided that investing in such securities is
consistent with the Fund's investment objective and policies.
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. While some
private activity bonds are general obligation securities, the
vast majority are revenue bonds. Consequently, the credit
quality of private activity bonds is usually directly related to
the credit standing of the corporate user of the facility
involved. Each of the Municipal Obligations described below may
take the form of either general obligation or revenue securities.
Municipal Obligations are often issued to obtain funds for
various public purposes, including the construction of a wide
range of public facilities such as bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and
sewer works. Other public purposes for which Municipal
Obligations may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses, and
obtaining funds to lend to other public institutions and
facilities. Municipal Obligations also include "private
activity" or industrial development bonds, which are issued by or
on behalf of public authorities to obtain funds for privately-
operated housing facilities, airport, mass transit or port
facilities, sewage disposal, solid waste disposal or hazardous
waste treatment or disposal facilities and certain local
facilities for water supply, gas or electricity. In addition,
proceeds of certain industrial development bonds are used for the
construction, equipment, repair or improvement of privately
operated industrial or commercial facilities. The interest
income from private activity bonds may subject certain investors
to the federal alternative minimum tax.
Municipal Leases, Certificates of Participation and Other
Participation Interests. The Fund may invest in municipal leases
and certificates of participation in municipal leases. A
municipal lease is an obligation in the form of a lease or
installment purchase which is issued by a state or local
government to acquire equipment and facilities. Income from such
obligations is generally exempt from state and local taxes in the
state of issuance. Municipal leases frequently involve special
risks not normally associated with general obligation or revenue
bonds. Leases and installment purchase or conditional sale
contracts (which normally provide for title to the leased asset
to pass eventually to the governmental issuer) have evolved as a
means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for
the issuance of debt. The debt issuance limitations are deemed
to be inapplicable because of the inclusion in many leases or
contracts of "non-appropriation" clauses that relieve the
governmental issuer of any obligation to make future payments
under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on a yearly or other
periodic basis. In addition, such leases or contracts may be
subject to the temporary abatement of payments in the event the
issuer is prevented from maintaining occupancy of the leased
premises or utilizing the leased equipment. Although the
obligation may be secured by the leased equipment or facilities,
the disposition of the property in the event of nonappropriation
or foreclosure might prove difficult, time consuming and costly,
and result in an unsatisfactory or delayed recoupment of the
Fund's original investment.
Certificates of participation represent undivided interests
in municipal leases, installment purchase agreements or other
instruments. The certificates are typically issued by a trust or
other entity which has received an assignment of the payments to
be made by the state or political subdivision under such leases
or installment purchase agreements.
Certain municipal lease obligations and certificates of
participation may be deemed illiquid for the purpose of the
Fund's 15% limitation on investments in illiquid securities.
Other municipal lease obligations and certificates of
participation acquired by the Fund may be determined by the
Investment Adviser, pursuant to guidelines adopted by the
Trustees of the Trust, to be liquid securities for the purpose of
such limitation. In determining the liquidity of municipal lease
obligations and certificates of participation, the Investment
Adviser will consider a variety of factors including: (1) the
willingness of dealers to bid for the security; (2) the number of
dealers willing to purchase or sell the obligation and the number
of other potential buyers; (3) the frequency of trades or quotes
for the obligation; and (4) the nature of marketplace trades. In
addition, the Investment Adviser will consider factors unique to
particular lease obligations and certificates of participation
affecting the marketability thereof. These include the general
creditworthiness of the issuer, the importance of the property
covered by the lease to the issuer and the likelihood that the
marketability of the obligation will be maintained throughout the
time the obligation is held by the Fund.
The Fund may also purchase participations in Municipal
Obligations held by a commercial bank or other financial
institution. Such participations provide the Fund with the right
to a pro rata undivided interest in the underlying Municipal
Obligations. In addition, such participations generally provide
the Fund with the right to demand payment, on not more than seven
days notice, of all or any part of the Fund's participation
interest in the underlying Municipal Obligation, plus accrued
interest. These demand features will be taken into consideration
in determining the effective maturity of such participations and
the average portfolio duration of the Fund. The Fund will only
invest in such participations if, in the opinion of bond counsel
for the issuers or counsel selected by the Investment Adviser,
the interest from such participations is exempt from regular
federal income tax.
Municipal Notes. Municipal Obligations purchased by the
Fund may include fixed rate notes or 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
Investment Adviser to be of comparable quality at the time of
purchase to rated instruments purchasable by the Fund. Where
necessary to determine that a note is an Eligible Security, the
Fund will require the issuer's obligation to pay the principal of
the note be backed by an unconditional 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 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 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.
Tax-Exempt Commercial Paper. Issues of commercial paper
typically represent short-term, unsecured, negotiable promissory
notes. These obligations are issued by state and local
governments and their agencies to finance working capital needs
of municipalities or to provide interim construction financing
and are paid from general or specific revenues of municipalities
or are refinanced with long-term debt. In some cases, tax-exempt
commercial paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility
arrangements offered by banks or other institutions. The Fund
will invest only in tax-exempt commercial paper rated at least
Prime-2 by Moody's or A-2 by Standard & Poor's.
Pre-Refunded Municipal Obligations. The Fund may invest in
pre-refunded Municipal Obligations. The principal of and
interest on pre-refunded Municipal Obligations are no longer paid
from the original revenue source for the Municipal Obligations.
Instead, the source of such payments is typically an escrow fund
consisting of obligations issued or guaranteed by the U.S.
government. The assets in the escrow fund are derived from the
proceeds of refunding bonds issued by the same issuer as the pre-
refunded Municipal Obligations, but usually on terms more
favorable to the issuer. Issuers of Municipal Obligations use
this advance refunding technique to obtain more favorable terms
with respect to Municipal Obligations which are not yet subject
to call or redemption by the issuer. For example, advance
refunding enables an issuer to refinance debt at lower market
interest rates, restructure debt to improve cash flow or
eliminate restrictive covenants in the indenture or other
governing instrument for the pre-refunded Municipal Obligations.
However, except for a change in the revenue source from which
principal and interest payments are made, the pre-refunded
Municipal Obligations remain outstanding on their original terms
until they mature or are redeemed by the issuer. The effective
maturity of pre-refunded Municipal Obligations will be the
redemption date if the issuer has assumed an obligation or
indicated its intention to redeem such obligations on the
redemption date. Pre-refunded Municipal Obligations are often
purchased at a price which represents a premium over their face
value.
Variable and Floating Rate Securities. The interest rates
payable on certain securities in which the Fund may invest, which
will generally be revenue obligations, are not fixed and may
fluctuate based upon changes in market rates. A variable rate
obligation has an interest rate which is adjusted at
predesignated periods. Interest on a floating rate obligation is
adjusted whenever there is a change in the market rate of
interest on which the interest rate payable is based. Variable
or floating rate obligations generally permit the holders of such
obligations to demand payment of principal from the issuer or a
third party at any time or at stated intervals. Variable and
floating rate obligations are less effective than fixed rate
instruments at locking in a particular yield. Nevertheless such
obligations may fluctuate in value in response to interest rate
changes if there is a delay between changes in market interest
rates and the interest reset date for the obligation. The Fund
will take demand features into consideration in determining the
average portfolio duration of the Fund and the effective maturity
of individual Municipal Obligations. In addition, the absence of
an unconditional demand feature exercisable within seven days
will, and the failure of the issuer or a third party to honor its
obligations under a demand or put feature might, require a
variable or floating rate obligation to be treated as illiquid
for purposes of the Fund 15% limitation on illiquid investments.
Tender Option Bonds. 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 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 arrangements.
Auction Rate Municipal Obligations. The Municipal
Obligations in which the Fund may invest include auction rate
securities. Provided that the auction mechanism is successful,
auction rate securities usually permit the holder to sell the
securities in an auction at par value at specified intervals.
The interest rate is reset by "Dutch" auction in which bids are
made by broker-dealers and other institutions for a certain
amount of securities at a specified minimum yield. The interest
rate set by the auction is the lowest interest or dividend rate
that covers all securities offered for sale. While this process
is designed to permit auction rate securities to be traded at par
value, there is the risk that the auction will fail due to
insufficient demand for the securities. The Fund will take the
next schedules auction date of auction rate securities into
consideration in determining the average portfolio duration of
the Fund and the effective maturity of individual auction rate
securities.
Zero Coupon and Capital Appreciation Bonds. The Fund may
invest in zero coupon and capital appreciation bonds, which are
debt securities issued or sold at a discount from their face
value and which do not entitle the holder to any periodic payment
of interest prior to maturity or a specified redemption date (or
cash payment date). The amount of the discount varies depending
on the time remaining until maturity or cash payment date,
prevailing interest rates, the liquidity of the security and the
perceived credit quality of the issuer. These securities may
also take the form of debt securities that have been stripped of
their unmatured interest coupons, the coupons themselves or
receipts or certificates representing interest in such stripped
debt obligations or coupons. Discount with respect to stripped
tax-exempt securities or their coupons may be taxable. The
market prices of capital appreciation bonds generally are more
volatile than the market prices of interest-bearing securities
and are likely to respond to a greater degree to changes in
interest rates than interest-bearing securities having similar
maturity and credit quality.
Inverse Floating Rate Instruments. The Fund may invest in
"leveraged" inverse floating rate debt instruments ("inverse
floaters"). The interest rate on an inverse floater resets in
the opposite direction from the market rate of interest to which
the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage
inherent in inverse floaters is associated with greater
volatility in their market values. Accordingly the duration of
an inverse floater may exceed its stated final maturity.
Other Investments and Practices
Repurchase Agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized
financial institutions sell U.S. Government securities or other
securities to the Fund and agree at the time of sale to
repurchase then at a mutually agreed upon time and price within
one year from the date of acquisition. To the extent that the
original seller does not repurchase the securities from the Fund,
the Fund could receive less than the repurchase price on any sale
of such securities.
Reverse Repurchase Agreements. 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 then 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. Reverse repurchase agreements involve the risk that
the market value of the securities sold by the Fund may decline
below the price of the securities the Fund is obligated to
repurchase.
Hedging Transactions. To assist in reducing fluctuations in
net asset value, the Fund may from time to time engage in certain
hedging transactions involving exchange traded options or futures
and the short sale of these securities and other acceptable
investments of the Fund to the extent that such transactions are
in conformity with applicable laws, rules and regulations.
Although the use of hedging strategies is intended to reduce the
Fund's exposure to interest rate volatility, it may cause some
fluctuation in net asset value.
Illiquid Securities. The Fund will not knowingly invest
more than 15% of the value of its total net 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 is normally 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 15% limitation on investment in illiquid
securities. The ability to sell Rule 144A securities to
qualified institutional buyers is a recent development and it is
not possible to predict how this market will mature.
When-Issued Securities. 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.
Lending of Portfolio Securities. In order to generate
additional income, the Fund may lend portfolio securities up to
one-third of the value of its total assets to broker/dealers,
banks, or other institutional borrowers of securities. The Fund
will only enter into loan arrangements with broker/dealers,
banks, or other institutions which the Investment Adviser has
determined are creditworthy under guidelines established by the
Fund's Board of Trustees and will receive collateral in the form
of cash or U.S. Government securities equal to at least 100% of
the value of the securities owned.
Portfolio Turnover. Although the Fund does not intend to
invest for the purpose of seeking short-term profits, securities
in its portfolio will be sold whenever the Fund's Investment
Adviser believes it is appropriate to do so in light of the
Fund's investment objective, without regard to the length of time
a particular security may have been held.
Securities of Other Investment Companies. The Fund may
invest in securities of other investment companies to the extent
permitted under the 1940 Act. Presently, under the 1940 Act, a
fund is permitted to hold securities of another investment
company in amounts which (a) do not exceed 3% of the total
outstanding voting stock of such company, (b) do not exceed 5% of
the value of a fund's total assets and (c) when added to all
other investment company securities held by such fund, do not
exceed 10% of the value of the fund's total assets. Investors
should note that investment by a Fund in the securities of other
investment companies would involve the payment of duplicative
fees (once with the Fund and again with the investment company in
which the Fund invests). The Fund does not intend to invest more
than 5% of its total assets in the securities of other investment
companies.
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 investment
limitation described below may not be changed without the
affirmative vote of the holders of a majority of its outstanding
shares. There can be no assurance that the Fund will achieve its
investment objective. (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 that the Fund may (i) borrow money
from banks from temporary or emergency purposes (not for
leveraging or investment) and (ii) engage in reverse repurchase
agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than
borrowings).
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. For the purposes of this restriction, state and
municipal governments and their agencies and instrumentalities
are not deemed to be industries.
* * * * *
While there can be no assurance that the Fund will be able
to maintain minimal fluctuations of net asset value or that it
will achieve its investment objective, the Fund endeavors to do
so by following the investment policies described in this
Prospectus.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
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.
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 Inc. ("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 prior to 4:00 p.m.,
Eastern time. Payment in federal funds immediately available to
the Custodian, Boston Safe Deposit & Trust Company ("Boston
Safe"), must be received before 3:00 p.m., Eastern time on the
next business day following the order. The Fund may in its
discretion reject any order for shares. Payment 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.) 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.
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.
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 at
1-800-851-3134. Shares are redeemed at the net asset value per
share next determined after Lehman Brothers' receipt of the
redemption order. 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.
Subject to the foregoing, payment for redeemed shares for
which a redemption order is received by Lehman Brothers prior to
4:00 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 next business day following the redemption order. 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."
The ability to give telephone instructions for the
redemption (and purchase or exchange) of shares is automatically
established on an investor's account. However, the Fund reserves
the right to refuse a redemption order transmitted by telephone
if it is believed advisable to do so. Procedures for redeeming
Fund shares by telephone may be modified or terminated at any
time by the Fund or Lehman Brothers. In addition, neither the
Fund, Lehman Brothers nor the Transfer Agent will be responsible
for the authenticity of telephone instructions for the purchase,
redemption or exchange of shares where the instructions are
reasonably believed to be genuine. Accordingly, the investor will
bear the risk of loss. The Fund will attempt to confirm that
telephone instructions are genuine and will use such procedures
as are considered reasonable, including the recording of
telephone instructions. To the extent that the Fund fails to use
reasonable procedures to verify the genuineness of telephone
instructions, it or its service providers may be liable for such
instructions that prove to be fraudulent or unauthorized.
Exchange Privilege
The Exchange Privilege enables an investor to exchange
shares of the Fund without charge for shares of other funds of
the Trust which have different investment objectives that may be
of interest to investors. To use the Exchange Privilege, exchange
instructions must be given to Lehman Brothers by telephone. See
"Redemption Procedures." In exchanging shares, an investor must
meet the minimum initial investment requirement of the other fund
and the shares involved must be legally available for sale in the
state where the investor resides. Before any exchange, the
investor must also obtain and should review a copy of the
prospectus of the fund into which the exchange is being made.
Prospectuses may be obtained from Lehman Brothers by calling 1-
800-368-5556. Shares will be exchanged at the net asset value
next determined after receipt of an exchange request in proper
form. The exchange of shares of one fund for shares of another
fund is treated for federal income tax purposes as a sale of the
shares given in exchange by the investor and, therefore, an
investor may realize a taxable gain or loss. The Fund reserves
the right to reject any exchange request in whole or in part. The
Exchange Privilege may be modified or terminated at any time upon
notice to investors.
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 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). 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 shares held of record at the close of business on the day of
declaration and paid monthly. Shares begin accruing dividends on
the next business day following receipt of the purchase order and
continue to accrue dividends up to and including the day that
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. Net capital gains
distributions, if any, will be made annually.
Dividends are determined in the same manner and are paid in
the same amount for each Fund share, except that shares of the
other classes bear all the expense of Rule 12b-1 distribution
fees paid. As a result, at any given time, the net yield on
shares of the other classes will be lower than the net yield on
Premier 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 the Distributor, with respect to
dividends paid.
The Shareholder Services Group, Inc. ("TSSG"), as Transfer
Agent, will send each investor or its authorized representative
an annual statement designating the amount of any dividends and
capital gains distributions, if any, made during each year and
their federal tax qualification.
TAXES
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 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 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.
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.
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.
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.
Investors will be advised at least annually as to the federal
income tax status of distributions made to them each year.
In addition to federal taxes, an investor may be subject to
state, local or foreign taxes on payments received from the Fund.
A state tax exemption may be available in some states to the
extent distributions of the Fund are derived from interest on
certain U.S. government securities or on securities issued by
public authorities in the state. The Fund will provide investors
annually with information about federal income tax consequences
of distributions made each year. Investors should be aware of
the application of their state and local tax laws to investments
in the Fund.
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 advisers with
specific reference to their own tax situation. See the Statement
of Additional Information for a further discussion of tax
consequences of investing in shares of the Fund.
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 and
Transfer Agent, and Custodian. 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 and Plan of Distribution
Lehman Brothers Inc., located at 3 World Financial Center,
New York, New York 10285, is the Distributor of the Fund. Lehman
Brothers 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.
The Trust has adopted a Plan of Distribution with respect to
Premier Shares of the Fund pursuant to Rule 12b-1 under the 1940
Act. The Plan of Distribution does not provide for the payment by
the Fund of any Rule 12b-1 fees for distribution or shareholder
services for Premier Shares but provides that Lehman Brothers may
make payments to assist in the distribution of Premier Shares out
of the other fees received by it or its affiliates from the Fund,
its past profits or any other sources available to it.
Investment Adviser - Lehman Brothers Global Asset Management Inc.
Lehman Brothers Global Asset Management Inc., 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
Holdings. Lehman Brothers is one of the leading full-line
investment firms serving the U.S. and foreign securities and
commodities markets. Lehman Brothers Global Asset Management Inc.
("LBGAM"), together with other Lehman Brothers investment
advisory affiliates, serves as investment adviser to investment
companies and private accounts and has assets under management of
approximately $____ billion as of _____ _____, 1994.
As Investment Adviser to the Fund, LBGAM manages the Fund's
portfolio in accordance with its investment objective and
policies, makes investment decisions for the Fund, places orders
to purchase and sell securities and employs professional
portfolio managers and securities analysts who provide research
services to the Fund. For its services LBGAM is entitled to
receive a monthly fee payable by the Fund at the annual rate of
____% of the value of the Fund's average daily net assets.
John M. Winters and Nicholas Rabiecki, III, each a Vice
President and Investment Officer of the Fund, are the portfolio
managers of the Fund. Mr. Winters, a Senior Vice President of
LBGAM, joined LBGAM in January 1993 to head up the Institutional
Money Market Funds' management team. Prior to joining LBGAM, Mr.
Winters was with Lehman Brothers Capital Markets Group, where he
was responsible for product management, trading and marketing of
money market instruments and medium-term securities. Mr.
Rabiecki, a Vice President and Senior Portfolio Manager of LBGAM,
joined LBGAM in July 1993 as Portfolio Manager of the Tax-Free
Money Market Funds. Previously, Mr. Rabiecki was a Senior Fixed-
Income Portfolio Manager with Chase Private Banking where he was
responsible for the short and intermediate tax-free investment
strategy and the management of the Vista Tax-Exempt Money Market
Funds, as well as the management of separately managed accounts.
Mr. Rabiecki is the portfolio manager primarily responsible for
managing the day-to-day operations of the Fund, including the
making of investment selections. Mr. Rabiecki will manage the
Fund as of commencement of operations.
Administrator and Transfer Agent - The Shareholder Services
Group, Inc.
The Shareholder Services Group, Inc. ("TSSG"), located at
One Exchange Place, 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 its services as Administrator,
TSSG is entitled to a monthly fee at the annual rate of ____% 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.
On May 6, 1994, TSSG acquired the third party mutual fund
administration business of The Boston Company Advisors, Inc., an
indirect wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"), from Mellon. In connection with this transaction,
Lehman Brothers assigned to TSSG its agreement with Mellon that
Lehman Brothers and its affiliates, consistent with any fiduciary
duties and assuming certain service quality standards are met,
would recommend TSSSG and would continue to recommend Boston Safe
as the providers of such administration and custody services as
are currently being provided by TSSG and Boston Safe to the Fund.
This agreement expires on May 21, 2000.
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.
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, certain insurance premiums, outside
auditing and legal expenses, costs of investor 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 addition, the Investment Adviser has 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.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to
investors, the "total return," "yields" and "effective yields"
for shares may be quoted. Total return and yield quotations are
computed separately for each class of shares. "Total return" for
a particular class of shares represents the change, over a
specified period of time, in the value of an investment in the
shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage. The "yield"
quoted in advertisements for a particular class of shares refers
to the income generated by an investment in such shares over a
specified period (such as a 30-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 is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
Distribution rates may also be quoted for the Fund.
Quotations of distribution rates are calculated by annualizing
the most recent distribution of net investment income for a
monthly, quarterly or other relevant period and dividing this
amount by the ending net asset value for the period for which the
distribution rates are being calculated.
The Fund's performance may be compared to that 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 Morningstar, Inc., Barron's,
IBC/Donoghue's Inc. Bond Fund Report, 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 Lipper ranking in the "Short Municipal Debt" category
may also be quoted from time to time in advertising and sales
literature.
The Fund's total return and yield figures for a class of
shares represent past performance, will fluctuate and should not
be considered as representative of future results. The
performance of any investment is generally a function of
portfolio quality and maturity, type of investment and operating
expenses. Since the shares of other classes bear all service fees
for distribution or shareholder services, the total return and
net yield of such shares can be expected at any given time to be
lower than the total return and net yield of Premier Shares. Any
fees charged by institutional investors directly to their
customers in connection with investments in Fund shares are not
reflected in the Fund's expenses, total return 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 total return and yields are described in more detail in
the Statement of Additional Information. Investors may call 1-
800-238-2560 (Premier Shares Code: 013) to obtain current
performance 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 authorized the issuance of
eight classes of shares for three of its money market portfolios,
six classes of shares for nine of its money market portfolios,
four classes of shares for two of its non-money market portfolios
and three classes of shares for its other non-money market
portfolios. The issuance of separate classes of shares is
intended to address the different service needs of different
types of investors. Each share represents interests in each Fund
in proportion to each share's net asset value, except that shares
of certain classes bear fees and expenses for certain shareholder
services or distribution and support services provided to that
class. As indicated, the shares described in this Prospectus
represent Premier Shares.
As a Massachusetts business trust, the Trust is not required
to hold annual meetings of shareholders. However, the Trust will
call a meeting of shareholders where required by law for purposes
such as 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. Investors 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.
The Trust has adopted a Plan of Distribution pursuant to
Rule 12b-1 under which shares of other classes ("Select Shares"
and two classes of shares offered directly to individual
investors) of the Fund may be sold to investors. Pursuant to the
Plan of Distribution Select Shares are sold to institutional
investors and, in addition to the Fund's other operating
expenses, bear Rule 12b-1 fees payable at an annual rate not
exceeding _____% of the average daily net asset value of the
shares beneficially owned by such investors in return for certain
administrative and shareholder services provided by Lehman
Brothers or those institutional investors. These services may
include processing purchase, exchange and redemption requests
from customers and placing orders with the Transfer Agent;
processing dividend and distribution payments from the Funds on
behalf of customers; providing information periodically to
customers showing their positions in shares; responding to
inquiries from customers concerning their investment in shares;
arranging for bank wires; and providing such other similar
services as may be reasonably requested. Lehman Brothers is also
authorized to offer two classes of shares ("Retail Shares" and
"CDSC Shares") directly to individual investors. Pursuant to the
Plan of Distribution, the Fund has agreed to pay Lehman Brothers
a monthly fee at an annual rate of up to _____% of the average
daily net asset value of Retail Shares and CDSC Shares for
distribution and other services Lehman Brothers will provide to
holders of the shares. In addition, CDSC Shares are subject to a
contingent deferred sales charge upon redemption. Shares of each
class will bear all fees paid for services provided to that class
under the Plan of Distribution. 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.
_________
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 distributors. This Prospectus does not
constitute an offering by the Trust or by the distributors in any
jurisdiction in which such offering may not lawfully be made.
TABLE OF CONTENTS
Page
Background and Expense Information 3
Investment Objective and Policies 4
Purchase, Redemption and Exchange of Shares 12
Dividends 15
Taxes 16
Management of the Fund 17
Performance Information 20
Description of Shares 21
Short Duration Municipal Fund
PROSPECTUS
_____ ____, 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.
Lehman Brothers
Short Duration Municipal Fund
An Investment Portfolio Offered By
Lehman Brothers Institutional Funds Group Trust
Lehman Brothers Institutional Funds Group Trust (the
"Trust") is an open-end, management investment company. The
shares described in this Prospectus represent interests in a
class of shares ("Select Shares") of the Short Duration Municipal
Fund (the "Fund"), a diversified investment portfolio of the
Trust. Fund shares may not be purchased by individuals directly,
but institutional investors may purchase shares for accounts
maintained by individuals.
The Fund's investment objective is to provide a high level
of current income consistent with minimal fluctuation of net
asset value. The Fund invests substantially all of its assets in
tax-exempt obligations issued by state and local governments,
territories and possessions of the United States (including the
District of Columbia) and their political subdivisions, agencies
and instrumentalities. All or a portion of the Fund's dividends
may be a specific preference item for purposes of federal
individual and corporate alternative minimum taxes.
Lehman Brothers Inc. 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; 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 ____ ___, 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 Lehman Brothers Inc. ("Lehman
Brothers"), 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 involve certain investment risks,
including the possible loss of principal. The Fund is not a
money market Fund and its net asset value will fluctuate.
___________
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
_____ ____, 1994
BACKGROUND AND EXPENSE INFORMATION
The Fund currently offers four separate classes of shares,
only one of which, Select Shares, is offered by this Prospectus.
Each class represents an equal, pro rata interest in the Fund.
Each share in each class accrues daily dividends in the same
manner as in the other classes, except that Select Shares bear
fees allocable to services provided to the beneficial owners of
such shares. See "Management of the Fund-Service Organizations."
The purpose of the following table is to assist an investor
in understanding the various costs and expenses that an investor
in the Fund would bear directly or indirectly. Certain
institutions may also charge their clients fees in connection
with investments in Select Shares, which fees are not reflected
in the table below. For more complete descriptions of the
various costs and expenses, see "Management of the Fund" in this
Prospectus and the Statement of Additional Information.
Expense Summary
Annual Fund Operating Expenses
(as a percentage of average net assets)
Advisory Fees (after waivers) ___%
Rule 12b-1 fees ___%
Other Expenses including Administration Fees ___%
Total Fund Operating Expenses (after expense
reimbursement) _____%
The Investment Adviser and Administrator may voluntarily
waive a portion of their fees. Absent waivers or reimbursement
of expenses, Advisory Fees with respect to Select Shares would be
____% annually, Other Expenses would be ____% annually and the
Total Fund Operating Expenses would be ____%, of the Fund's
average daily net assets. The foregoing table has not been
audited by the Fund's independent auditors.
Example
You 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:
1 Year 3 Years
$___ $___
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL
EXPENSES AND RATE OF RETURN, WHICH MAY BE GREATER OR LESSER THAN
THOSE SHOWN.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide a high level
of current income consistent with minimal fluctuation of net
asset value. The Fund invests substantially all of its assets in
tax-exempt obligations issued by state and local governments.
The Fund is not a money market fund and its net asset value will
fluctuate.
The Fund pursues its investment objective by investing
primarily in a professionally managed portfolio of fixed income
securities issued by or on behalf of states, territories and
possessions of the United States (including the District of
Columbia) and their political subdivisions, agencies and
instrumentalities, the interest on which is exempt from regular
federal income tax ("Municipal Obligations"). Under normal
market conditions, the Fund will invest at least 80% of its net
assets in Municipal Obligations.
Although the Fund is not expected to do so, the Fund may
invest as much as 20% of its net assets in taxable investments,
which are obligations issued or guaranteed by the U.S.
government, its agencies and instrumentalities and repurchase
agreements collateralized by U.S. government securities ("Taxable
Investments"). This activity may generate taxable interest. See
"Taxation."
Ratings on Municipal Obligations
The Fund's investments in Municipal Obligations will at the
time of investment be rated within the three highest rating
categories for municipal securities by Standard & Poor's
Corporation ("Standard & Poor's") (AAA, AA, or A) or by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa, or A) or any other
comparable nationally recognized rating agency, or their
equivalent ratings or, if unrated, determined by the Investment
Adviser to be of comparable credit quality. The credit rating
assigned to Municipal Obligations by these rating agencies may
reflect the existence of guarantees, letters of credit or other
credit enhancement features available to the issuers or holders
of such Municipal Obligations.
Duration
Generally, the Fund's average portfolio duration will be no
more than three years. The individual Municipal Obligations in
which the Fund invests will have effective maturities not
exceeding five years. Unlike maturity, which indicates when the
bond repays principal, "duration" incorporates the cash flows of
all interest and principal payments and the proceeds from calls
and redemptions over the life of the bond. These payments are
multiplied by the number of years over which they are received to
produce a value that is expressed in years (i.e., the duration).
Municipal Obligations and Other Investments
Municipal Obligations. Municipal Obligations include bonds,
notes and other instruments issued by or on behalf of states,
territories and possessions of the United States (including the
District of Columbia) and their political subdivisions, agencies
or instrumentalities, the interest on which is, in the opinion of
bond counsel for the issuers or counsel selected by the
Investment Adviser, exempt from regular federal income tax (i.e.,
the issuers or counsel selected by the Investment Adviser, exempt
from regular federal income tax (i.e., excluded from gross income
for federal income tax purposes but no necessarily exempt from
the federal alternative minimum tax or from the personal income
taxes of any state). In addition, Municipal Obligations include
participation interests in such securities the interest on which
is, in the opinion of bond counsel for the issuers or counsel
selected by the Investment Adviser, exempt from regular federal
income tax. The definition of Municipal Obligations includes
other types of securities that currently exist or may be
developed in the future and that are, or will be, in the opinion
of counsel, as described above, exempt from regular federal
income tax, provided that investing in such securities is
consistent with the Fund's investment objective and policies.
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. While some
private activity bonds are general obligation securities, the
vast majority are revenue bonds. Consequently, the credit
quality of private activity bonds is usually directly related to
the credit standing of the corporate user of the facility
involved. Each of the Municipal Obligations described below may
take the form of either general obligation or revenue securities.
Municipal Obligations are often issued to obtain funds for
various public purposes, including the construction of a wide
range of public facilities such as bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and
sewer works. Other public purposes for which Municipal
Obligations may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses, and
obtaining funds to lend to other public institutions and
facilities. Municipal Obligations also include "private
activity" or industrial development bonds, which are issued by or
on behalf of public authorities to obtain funds for privately-
operated housing facilities, airport, mass transit or port
facilities, sewage disposal, solid waste disposal or hazardous
waste treatment or disposal facilities and certain local
facilities for water supply, gas or electricity. In addition,
proceeds of certain industrial development bonds are used for the
construction, equipment, repair or improvement of privately
operated industrial or commercial facilities. The interest
income from private activity bonds may subject certain investors
to the federal alternative minimum tax.
Municipal Leases, Certificates of Participation and Other
Participation Interests. The Fund may invest in municipal leases
and certificates of participation in municipal leases. A
municipal lease is an obligation in the form of a lease or
installment purchase which is issued by a state or local
government to acquire equipment and facilities. Income from such
obligations is generally exempt from state and local taxes in the
state of issuance. Municipal leases frequently involve special
risks not normally associated with general obligation or revenue
bonds. Leases and installment purchase or conditional sale
contracts (which normally provide for title to the leased asset
to pass eventually to the governmental issuer) have evolved as a
means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for
the issuance of debt. The debt issuance limitations are deemed
to be inapplicable because of the inclusion in many leases or
contracts of "non-appropriation" clauses that relieve the
governmental issuer of any obligation to make future payments
under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on a yearly or other
periodic basis. In addition, such leases or contracts may be
subject to the temporary abatement of payments in the event the
issuer is prevented from maintaining occupancy of the leased
premises or utilizing the leased equipment. Although the
obligation may be secured by the leased equipment or facilities,
the disposition of the property in the event of nonappropriation
or foreclosure might prove difficult, time consuming and costly,
and result in an unsatisfactory or delayed recoupment of the
Fund's original investment.
Certificates of participation represent undivided interests
in municipal leases, installment purchase agreements or other
instruments. The certificates are typically issued by a trust or
other entity which has received an assignment of the payments to
be made by the state or political subdivision under such leases
or installment purchase agreements.
Certain municipal lease obligations and certificates of
participation may be deemed illiquid for the purpose of the
Fund's 15% limitation on investments in illiquid securities.
Other municipal lease obligations and certificates of
participation acquired by the Fund may be determined by the
Investment Adviser, pursuant to guidelines adopted by the
Trustees of the Trust, to be liquid securities for the purpose of
such limitation. In determining the liquidity of municipal lease
obligations and certificates of participation, the Investment
Adviser will consider a variety of factors including: (1) the
willingness of dealers to bid for the security; (2) the number of
dealers willing to purchase or sell the obligation and the number
of other potential buyers; (3) the frequency of trades or quotes
for the obligation; and (4) the nature of marketplace trades. In
addition, the Investment Adviser will consider factors unique to
particular lease obligations and certificates of participation
affecting the marketability thereof. These include the general
creditworthiness of the issuer, the importance of the property
covered by the lease to the issuer and the likelihood that the
marketability of the obligation will be maintained throughout the
time the obligation is held by the Fund.
The Fund may also purchase participations in Municipal
Obligations held by a commercial bank or other financial
institution. Such participations provide the Fund with the right
to a pro rata undivided interest in the underlying Municipal
Obligations. In addition, such participations generally provide
the Fund with the right to demand payment, on not more than seven
days notice, of all or any part of the Fund's participation
interest in the underlying Municipal Obligation, plus accrued
interest. These demand features will be taken into consideration
in determining the effective maturity of such participations and
the average portfolio duration of the Fund. The Fund will only
invest in such participations if, in the opinion of bond counsel
for the issuers or counsel selected by the Investment Adviser,
the interest from such participations is exempt from regular
federal income tax.
Municipal Notes. Municipal Obligations purchased by the
Fund may include fixed rate notes or 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
Investment Adviser to be of comparable quality at the time of
purchase to rated instruments purchasable by the Fund. Where
necessary to determine that a note is an Eligible Security, the
Fund will require the issuer's obligation to pay the principal of
the note be backed by an unconditional 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 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 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.
Tax-Exempt Commercial Paper. Issues of commercial paper
typically represent short-term, unsecured, negotiable promissory
notes. These obligations are issued by state and local
governments and their agencies to finance working capital needs
of municipalities or to provide interim construction financing
and are paid from general or specific revenues of municipalities
or are refinanced with long-term debt. In some cases, tax-exempt
commercial paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility
arrangements offered by banks or other institutions. The Fund
will invest only in tax-exempt commercial paper rated at least
Prime-2 by Moody's or A-2 by Standard & Poor's.
Pre-Refunded Municipal Obligations. The Fund may invest in
pre-refunded Municipal Obligations. The principal of and
interest on pre-refunded Municipal Obligations are no longer paid
from the original revenue source for the Municipal Obligations.
Instead, the source of such payments is typically an escrow fund
consisting of obligations issued or guaranteed by the U.S.
government. The assets in the escrow fund are derived from the
proceeds of refunding bonds issued by the same issuer as the pre-
refunded Municipal Obligations, but usually on terms more
favorable to the issuer. Issuers of Municipal Obligations use
this advance refunding technique to obtain more favorable terms
with respect to Municipal Obligations which are not yet subject
to call or redemption by the issuer. For example, advance
refunding enables an issuer to refinance debt at lower market
interest rates, restructure debt to improve cash flow or
eliminate restrictive covenants in the indenture or other
governing instrument for the pre-refunded Municipal Obligations.
However, except for a change in the revenue source from which
principal and interest payments are made, the pre-refunded
Municipal Obligations remain outstanding on their original terms
until they mature or are redeemed by the issuer. The effective
maturity of pre-refunded Municipal Obligations will be the
redemption date if the issuer has assumed an obligation or
indicated its intention to redeem such obligations on the
redemption date. Pre-refunded Municipal Obligations are often
purchased at a price which represents a premium over their face
value.
Variable and Floating Rate Securities. The interest rates
payable on certain securities in which the Fund may invest, which
will generally be revenue obligations, are not fixed and may
fluctuate based upon changes in market rates. A variable rate
obligation has an interest rate which is adjusted at
predesignated periods. Interest on a floating rate obligation is
adjusted whenever there is a change in the market rate of
interest on which the interest rate payable is based. Variable
or floating rate obligations generally permit the holders of such
obligations to demand payment of principal from the issuer or a
third party at any time or at stated intervals. Variable and
floating rate obligations are less effective than fixed rate
instruments at locking in a particular yield. Nevertheless such
obligations may fluctuate in value in response to interest rate
changes if there is a delay between changes in market interest
rates and the interest reset date for the obligation. The Fund
will take demand features into consideration in determining the
average portfolio duration of the Fund and the effective maturity
of individual Municipal Obligations. In addition, the absence of
an unconditional demand feature exercisable within seven days
will, and the failure of the issuer or a third party to honor its
obligations under a demand or put feature might, require a
variable or floating rate obligation to be treated as illiquid
for purposes of the Fund 15% limitation on illiquid investments.
Tender Option Bonds. 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 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 arrangements.
Auction Rate Municipal Obligations. The Municipal
Obligations in which the Fund may invest include auction rate
securities. Provided that the auction mechanism is successful,
auction rate securities usually permit the holder to sell the
securities in an auction at par value at specified intervals.
The interest rate is reset by "Dutch" auction in which bids are
made by broker-dealers and other institutions for a certain
amount of securities at a specified minimum yield. The interest
rate set by the auction is the lowest interest or dividend rate
that covers all securities offered for sale. While this process
is designed to permit auction rate securities to be traded at par
value, there is the risk that the auction will fail due to
insufficient demand for the securities. The Fund will take the
next schedules auction date of auction rate securities into
consideration in determining the average portfolio duration of
the Fund and the effective maturity of individual auction rate
securities.
Zero Coupon and Capital Appreciation Bonds. The Fund may
invest in zero coupon and capital appreciation bonds, which are
debt securities issued or sold at a discount from their face
value and which do not entitle the holder to any periodic payment
of interest prior to maturity or a specified redemption date (or
cash payment date). The amount of the discount varies depending
on the time remaining until maturity or cash payment date,
prevailing interest rates, the liquidity of the security and the
perceived credit quality of the issuer. These securities may
also take the form of debt securities that have been stripped of
their unmatured interest coupons, the coupons themselves or
receipts or certificates representing interest in such stripped
debt obligations or coupons. Discount with respect to stripped
tax-exempt securities or their coupons may be taxable. The
market prices of capital appreciation bonds generally are more
volatile than the market prices of interest-bearing securities
and are likely to respond to a greater degree to changes in
interest rates than interest-bearing securities having similar
maturity and credit quality.
Inverse Floating Rate Instruments. The Fund may invest in
"leveraged" inverse floating rate debt instruments ("inverse
floaters"). The interest rate on an inverse floater resets in
the opposite direction from the market rate of interest to which
the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage
inherent in inverse floaters is associated with greater
volatility in their market values. Accordingly the duration of
an inverse floater may exceed its stated final maturity.
Other Investments and Practices
Repurchase Agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized
financial institutions sell U.S. government securities or other
securities to the Fund and agree at the time of sale to
repurchase then at a mutually agreed upon time and price within
one year from the date of acquisition. To the extent that the
original seller does not repurchase the securities from the Fund,
the Fund could receive less than the repurchase price on any sale
of such securities.
Reverse Repurchase Agreements. 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 then 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. Reverse repurchase agreements involve the risk that
the market value of the securities sold by the Fund may decline
below the price of the securities the Fund is obligated to
repurchase.
Hedging Transactions. To assist in reducing fluctuations in
net asset value, the Fund may from time to time engage in certain
hedging transactions involving exchange traded options or futures
and the short sale of these securities and other acceptable
investments of the Fund to the extent that such transactions are
in conformity with applicable laws, rules and regulations.
Although the use of hedging strategies is intended to reduce the
Fund's exposure to interest rate volatility, it may cause some
fluctuation in net asset value.
Illiquid Securities. The Fund will not knowingly invest
more than 15% of the value of its total net 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 is normally 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 15% limitation on investment in illiquid
securities. The ability to sell Rule 144A securities to
qualified institutional buyers is a recent development and it is
not possible to predict how this market will mature.
When-Issued Securities. 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.
Lending of Portfolio Securities. In order to generate
additional income, the Fund may lend portfolio securities up to
one-third of the value of its total assets to broker/dealers,
banks, or other institutional borrowers of securities. The Fund
will only enter into loan arrangements with broker/dealers,
banks, or other institutions which the Investment Adviser has
determined are creditworthy under guidelines established by the
Fund's Board of Trustees and will receive collateral in the form
of cash or U.S. Government securities equal to at least 100% of
the value of the securities owned.
Portfolio Turnover. Although the Fund does not intend to
invest for the purpose of seeking short-term profits, securities
in its portfolio will be sold whenever the Fund's Investment
Adviser believes it is appropriate to do so in light of the
Fund's investment objective, without regard to the length of time
a particular security may have been held.
Securities of Other Investment Companies. The Fund may
invest in securities of other investment companies to the extent
permitted under the 1940 Act. Presently, under the 1940 Act, a
fund is permitted to hold securities of another investment
company in amounts which (a) do not exceed 3% of the total
outstanding voting stock of such company, (b) do not exceed 5% of
the value of a fund's total assets and (c) when added to all
other investment company securities held by such fund, do not
exceed 10% of the value of the fund's total assets. Investors
should note that investment by a Fund in the securities of other
investment companies would involve the payment of duplicative
fees (once with the Fund and again with the investment company in
which the Fund invests). The Fund does not intend to invest more
than 5% of its total assets in the securities of other investment
companies.
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 investment
limitation described below may not be changed without the
affirmative vote of the holders of a majority of its outstanding
shares. There can be no assurance that the Fund will achieve its
investment objective. (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 that the Fund may (i) borrow money
from banks from temporary or emergency purposes (not for
leveraging or investment) and (ii) engage in reverse repurchase
agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than
borrowings).
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. For the purposes of this restriction, state and
municipal governments and their agencies and instrumentalities
are not deemed to be industries.
* * * * *
While there can be no assurance that the Fund will be able
to maintain minimal fluctuations of net asset value or that it
will achieve its investment objective, the Fund endeavors to do
so by following the investment policies described in this
Prospectus.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
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.
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 Inc. ("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 prior to 4:00 p.m.,
Eastern time. Payment in federal funds immediately available to
the Custodian, Boston Safe Deposit & Trust Company ("Boston
Safe"), must be received before 3:00 p.m., Eastern time on the
next business day following the order. The Fund may in its
discretion reject any order for shares. Payment 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.) 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.
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 Select
Shares. See also "Management of the Fund-Service Organizations".
Institutions, including banks regulated by the Comptroller of the
Currency and investment adviser and other money managers subject
to the jurisdiction of the Securities and Exchange Commission,
the Department of Labor or state commissions, are urged to
consult their legal advisers before investing fiduciary funds in
Select 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 at
1-800-851-3134. Shares are redeemed at the net asset value per
share next determined after Lehman Brothers' receipt of the
redemption order. 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.
Subject to the foregoing, payment for redeemed shares for
which a redemption order is received by Lehman Brothers prior to
4:00 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 next business day following the redemption order. 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."
The ability to give telephone instructions for the
redemption (and purchase or exchange) of shares is automatically
established on an investor's account. However, the Fund reserves
the right to refuse a redemption order transmitted by telephone
if it is believed advisable to do so. Procedures for redeeming
Fund shares by telephone may be modified or terminated at any
time by the Fund or Lehman Brothers. In addition, neither the
Fund, Lehman Brothers nor the Transfer Agent will be responsible
for the authenticity of telephone instructions for the purchase,
redemption or exchange of shares where the instructions are
reasonably believed to be genuine. Accordingly, the investor will
bear the risk of loss. The Fund will attempt to confirm that
telephone instructions are genuine and will use such procedures
as are considered reasonable, including the recording of
telephone instructions. To the extent that the Fund fails to use
reasonable procedures to verify the genuineness of telephone
instructions, it or its service providers may be liable for such
instructions that prove to be fraudulent or unauthorized.
Exchange Privilege
The Exchange Privilege enables an investor to exchange
shares of the Fund without charge for shares of other funds of
the Trust which have different investment objectives that may be
of interest to investors. To use the Exchange Privilege, exchange
instructions must be given to Lehman Brothers by telephone. See
"Redemption Procedures." In exchanging shares, an investor must
meet the minimum initial investment requirement of the other fund
and the shares involved must be legally available for sale in the
state where the investor resides. Before any exchange, the
investor must also obtain and should review a copy of the
prospectus of the fund into which the exchange is being made.
Prospectuses may be obtained from Lehman Brothers by calling 1-
800-368-5556. Shares will be exchanged at the net asset value
next determined after receipt of an exchange request in proper
form. The exchange of shares of one fund for shares of another
fund is treated for federal income tax purposes as a sale of the
shares given in exchange by the investor and, therefore, an
investor may realize a taxable gain or loss. The Fund reserves
the right to reject any exchange request in whole or in part. The
Exchange Privilege may be modified or terminated at any time upon
notice to investors.
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 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). 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 shares held of record at the close of business on the day of
declaration and paid monthly. Shares begin accruing dividends on
the next business day following receipt of the purchase order and
continue to accrue dividends up to and including the day that
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. Net capital gains
distributions, if any, will be made annually.
Dividends are determined in the same manner and are paid in
the same amount for each Fund share, except that Select Shares
bear all the expense of Rule 12b-1 distribution fees paid with
respect to such shares. As a result, at any given time, the net
yield on Select Shares will be lower than the net yield on
Premier Shares and higher than the net yield on Retail 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 the Distributor, with respect to
dividends paid.
The Shareholder Services Group, Inc. ("TSSG"), as Transfer
Agent, will send each investor or its authorized representative
an annual statement designating the amount of any dividends and
capital gains distributions, if any, made during each year and
their federal tax qualification.
TAXES
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 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 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.
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.
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.
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.
Investors will be advised at least annually as to the federal
income tax status of distributions made to them each year.
In addition to federal taxes, an investor may be subject to
state, local or foreign taxes on payments received from the Fund.
A state tax exemption may be available in some states to the
extent distributions of the Fund are derived from interest on
certain U.S. government securities or on securities issued by
public authorities in the state. The Fund will provide investors
annually with information about federal income tax consequences
of distributions made each year. Investors should be aware of
the application of their state and local tax laws to investments
in the Fund.
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 advisers with
specific reference to their own tax situation. See the Statement
of Additional Information for a further discussion of tax
consequences of investing in shares of the Fund.
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 and
Transfer Agent, and Custodian. 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 and Plan of Distribution
Lehman Brothers Inc., located at 3 World Financial Center,
New York, New York 10285, is the Distributor of the Fund. Lehman
Brothers 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.
Investment Adviser - Lehman Brothers Global Asset Management Inc.
Lehman Brothers Global Asset Management Inc., 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
Holdings. Lehman Brothers is one of the leading full-line
investment firms serving the U.S. and foreign securities and
commodities markets. Lehman Brothers Global Asset Management Inc.
("LBGAM"), together with other Lehman Brothers investment
advisory affiliates, serves as investment adviser to investment
companies and private accounts and has assets under management of
approximately $___ billion as of ____ ____, 1994.
As Investment Adviser to the Fund, LBGAM manages the Fund's
portfolio in accordance with its investment objective and
policies, makes investment decisions for the Fund, places orders
to purchase and sell securities and employs professional
portfolio managers and securities analysts who provide research
services to the Fund. For its services LBGAM is entitled to
receive a monthly fee payable by the Fund at the annual rate of
____% of the value of the Fund's average daily net assets.
John M. Winters and Nicholas Rabiecki, III, each a Vice
President and Investment Officer of the Fund, are the portfolio
managers of the Fund. Mr. Winters a Senior Vice President of
LBGAM, joined LBGAM in January 1993 to head up the Institutional
Money Market Funds' management team. Prior to joining LBGAM, Mr.
Winters was with Lehman Brothers Capital Markets Group, where he
was responsible for product management, trading and marketing of
money market instruments and medium-term securities. Mr.
Rabiecki, a Vice President and Senior Portfolio Manager of LBGAM,
joined LBGAM in July 1993 as Portfolio Manager of the Tax-Free
Money Market Funds. Previously, Mr. Rabiecki was a Senior Fixed-
Income Portfolio Manager with Chase Private Banking where he was
responsible for the short and intermediate tax-free investment
strategy and the management of the Vista Tax-Exempt Money Market
Funds, as well as the management of separately managed accounts.
Mr. Rabiecki is the portfolio manager primarily responsible for
managing the day-to-day operations of the Fund, including the
making of investment selections. Mr. Rabiecki will manage the
Fund as of commencement of operations.
Administrator and Transfer Agent - The Shareholder Services
Group, Inc.
The Shareholder Services Group, Inc. ("TSSG"), located at
One Exchange Place, 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 its services as Administrator,
TSSG is entitled to a monthly fee at the annual rate of ____% 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.
On May 6, 1994, TSSG acquired the third party mutual fund
administration business of The Boston Company Advisors, Inc., an
indirect wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"), from Mellon. In connection with this transaction,
Lehman Brothers assigned to TSSG its agreement with Mellon that
Lehman Brothers and its affiliates, consistent with any fiduciary
duties and assuming certain service quality standards are met,
would recommend TSSG and would continue to recommend Boston Safe
as the providers of such administration and custody services as
are currently being provided by TSSG and Boston Safe to the Fund.
This agreement expires on May 21, 2000.
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
Under a Plan of Distribution (the "Plan") adopted pursuant
to Rule 12b-1 under the 1940 Act, Select Shares bear fees ("Rule
12b-1 fees") payable by the Fund at the aggregate rate of up to
____% (on an annualized basis) of the average daily net asset
value of such shares to Lehman Brothers for providing certain
services to the Fund and the Select Shares. Lehman Brothers may
retain all the payments made to it under the Plan or may enter
into agreements with and make payments of up to ____% to
investors such as banks, savings and loan associations and other
financial institutions ("Service Organizations") for the
provision of a portion of such services. These services, which
are described more fully in the Statement of Additional
Information under "Management of the Fund-Service Organizations,"
include aggregating and processing purchase and redemption
requests from shareholders showing their positions in shares;
arranging for bank wires; responding to shareholder inquiries
relating to the services provided by Lehman Brothers or the
Service Organization and handling correspondence; and acting as
shareholder of record and nominee. The Plan of Distribution also
allows Lehman Brothers to use its own resources to provide
distribution services and shareholder services. Under the terms
of the agreements, Service Organizations are required to provide
to their shareholders a schedule of any fees that they change
shareholders in connection with their investments in Select
Shares.
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, certain insurance premiums, outside
auditing and legal expenses, costs of investor 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 addition, the Investment Adviser has 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.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to
investors, the "total return," "yields" and "effective yields"
for shares may be quoted. Total return and yield quotations are
computed separately for each class of shares. "Total return" for
a particular class of shares represents the change, over a
specified period of time, in the value of an investment in the
shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage. The "yield"
quoted in advertisements for a particular class of shares refers
to the income generated by an investment in such shares over a
specified period (such as a 30-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 is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
Distribution rates may also be quoted for the Fund.
Quotations of distribution rates are calculated by annualizing
the most recent distribution of net investment income for a
monthly, quarterly or other relevant period and dividing this
amount by the ending net asset value for the period for which the
distribution rates are being calculated.
The Fund's performance may be compared to that 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 Morningstar, Inc., Barron's,
IBC/Donoghue's Inc. Bond Fund Report, 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 Lipper ranking in the "Short Municipal Debt" category
may also be quoted from time to time in advertising and sales
literature.
The Fund's total return and yield figures for a class of
shares represent past performance, will fluctuate and should not
be considered as representative of future results. The
performance of any investment is generally a function of
portfolio quality and maturity, type of investment and operating
expenses. Since the shares of other classes bear all service fees
for distribution or shareholder services, the total return and
net yield of such shares can be expected at any given time to be
lower than the total return and net yield of Premier Shares. Any
fees charged by institutional investors directly to their
customers in connection with investments in Fund shares are not
reflected in the Fund's expenses, total return 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 total return and yields are described in more detail in
the Statement of Additional Information. Investors may call 1-
800-238-2560 (Select Shares Code: ____) to obtain current
performance 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 authorized the issuance of
eight classes of shares for three of its money market portfolios,
six classes of shares for nine of its money market portfolios,
four classes of shares for two of its non-money market portfolios
and three classes of shares for its other non-money market
portfolio. The issuance of separate classes of shares is
intended to address the different service needs of different
types of investors. Each share represents interests in each Fund
in proportion to each share's net asset value, except that shares
of certain classes bear fees and expenses for certain shareholder
services or distribution and support services provided to that
class. As indicated, the shares described in this Prospectus
represent Premier Shares.
As a Massachusetts business trust, the Trust is not required
to hold annual meetings of shareholders. However, the Trust will
call a meeting of shareholders where required by law for purposes
such as 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. Investors 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.
In addition to Select Shares, the Fund currently offers
Premier Shares and Retail Shares. Premier Shares are sold to
institutions that have not entered into servicing or other
agreements with the Fund in connection with their investments and
pay no 12b-1 distribution or shareholder service fee. Lehman
Brothers is also authorized to offer two classes of shares
("Retail Shares" and "CDSC Shares") directly to individual
investors. Pursuant to the Plan of Distribution, the Fund has
agreed to pay Lehman Brothers a monthly fee at an annual rate of
up to _____% of the average daily net asset value of Retail
Shares and CDSC Shares for distribution and other services Lehman
Brothers will provide to holders of the shares. In addition,
CDSC Shares are subject to a contingent deferred sales charge
upon redemption. Shares of each class will bear all fees paid
for services provided to that class under the Plan of
Distribution. 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.
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 distributors. This Prospectus does not
constitute an offering by the Trust or by the distributors in any
jurisdiction in which such offering may not lawfully be made.
TABLE OF CONTENTS
Page
Background and Expense Information 3
Investment Objective and Policies 4
Purchase, Redemption and Exchange of Shares 12
Dividends 15
Taxes 16
Management of the Fund 17
Performance Information 20
Description of Shares 21
Short Duration Municipal Fund
PROSPECTUS
_____ ____, 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.
Lehman Brothers
Short Duration Municipal Fund
This Prospectus describes the Lehman Brothers Short Duration
Municipal Fund (the "Fund"), a diversified portfolio of the
Lehman Brothers Institutional Funds Group Trust (the "Trust"), an
open-end, management investment company. This Prospectus
describes two classes of shares, Retail Shares and CDSC Shares,
offered by the Fund.
The Fund's investment objective is to provide a high level
of current income consistent with minimal fluctuation of net
asset value. The Fund invests substantially all of its assets in
tax-exempt obligations issued by state and local governments,
territories and possessions of the United States (including the
District of Columbia) and their political subdivisions, agencies
and instrumentalites. All or a portion of the Fund's dividends
may be a specific preference item for purposes of federal
individual and corporate alternative minimum taxes.
Lehman Brothers Inc. 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. Yield and other information may be obtained
through a Lehman Brothers Investment Representative or by calling
1-800-861-4171.
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 ____ ___, 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 Shareholder Services
Group, Inc. ("TSSG"), the Fund's Transfer Agent, at 1-800-861-
4171. The Statement of Additional Information is incorporated in
its entirety by reference into this Prospectus.
Shares of the Fund involve certain investment risks,
including the possible loss of principal. The Fund is not a
money market fund and its net asset value will fluctuate.
___________
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
_____ ____, 1994
BENEFITS TO INVESTORS
The Fund offers investors several important benefits:
* a professionally managed portfolio of tax-exempt
obligations issued by state and local governments.
* investment liquidity through convenient purchase and
redemption procedures.
* a convenient way to invest without the administrative
burdens normally associated with the direct ownership of
securities.
* automatic dividend reinvestment feature, plus exchange
privilege with the shares of certain other funds in the Lehman
Brothers Group of Funds.
BACKGROUND AND EXPENSE INFORMATION
The Fund currently offers four separate classes of shares,
two of which, Retail Shares and CDSC Shares, are offered by this
Prospectus. Each class represents an equal, pro rata interest in
the Fund. Retail Shares are available on a no-load basis to all
retail investors except for investors who are investing through a
CDSC Fund Exchange (as defined under "Purchase, Redemption and
Exchange of Shares"). CDSC Shares are available to retail
investors who are investing through a CDSC Fund Exchange and are
subject to a contingent deferred sales charge upon redemption
("CDSC") as defined below. Each share in each class accrues
daily dividends in the same manner as in the other classes,
except that Retail Shares and CDSC Shares bear fees payable by
the Fund to Lehman Brothers for advertising, marketing and
distributing such shares and CDSC Shares bear a CDSC. See
"Management of the Fund-Distributor and Plan of Distribution."
In addition, Retail Shares and CDSC Shares bear certain class
specific expenses, such as transfer agency and printing costs,
which are not born by the Fund's other classes of shares.
The purpose of the following table is to assist an investor
in understanding the various costs and expenses that an investor
in the Fund would bear directly or indirectly. In the case of
the CDSC Shares, the Expense Summary assumes payment of the
maximum CDSC. For more complete descriptions of the various
costs and expenses, see "Management of the Fund" in this
Prospectus and the Statement of Additional Information.
Expense Summary
Shareholder Transaction Expenses
Maximum CDSC
(as a percentage of proceeds)*
Retail
Shares
None
CDSC
Shares
2.00%
Annual Fund Operating Expenses
(as a percentage of average net
assets)
Advisory Fees (after waivers)
______%
______%
Rule 12b-1 fees (after waivers)
______%
______%
Other Expenses - including
Administration Fees
(after waivers)
______%
______%
Total Fund Operating Expenses
(after expense reimbursement)
_______%
______%
________________________
*The Fund's CDSC Shares are subject to a maximum CDSC of 2% of
redemption proceeds during the first year after the date of
purchase, 1% of redemption proceeds during the second year, and
no CDSC thereafter. The Fund's CDSC Shares will be deemed to
have been purchased on the same date as the shares of the fund
which have been exchanged through a CDSC Fund Exchange. The CDSC
set forth in the table above is the maximum charge imposed on
redemptions of CDSC Shares, and investors may pay an actual CDSC
of less than 2%. See "Purchase, Redemption and Exchange of
Shares."
The Investment Adviser and Administration may voluntarily
waive a portion of their fees. Absent waivers or reimbursement of
expenses, Advisory Fees would be ____% with respect to Retail
Shares and ____% with respect to CDSC Shares annually, Other
Expenses would be ____% with respect to Retail Shares and _____%
with respect to CDSC Shares annually and the Total Fund Operating
Expenses would be ____% with respect to Retail Shares and _____%
with respect to CDSC Shares, of the Fund's average daily net
assets. The foregoing table has not been audited by the Fund's
independent auditors.
Example
You 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:
Retail Shares:
1 Year
3 Years
(assuming complete redemption at
the end of each time period)
$_____
$______
CDSC Shares:
Assuming complete redemption at
the end of each time period*
$_____
$_____
Assuming no redemption
$_____
$ _____
_______________
*Assumes deduction at the time of redemption of the maximum CDSC
applicable for that time period.
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL
EXPENSES AND RATE OF RETURN, WHICH MAY BE GREATER OR LESSER THAN
THOSE SHOWN.
Long-term shareholders in mutual funds with Rule 12b-1 fees, such
as the Fund, may pay more than the economic equivalent of the
maximum front-end sales charge permitted by rules of the National
Association of Securities Dealers, Inc.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide a high level
of current income consistent with minimal fluctuation of net
asset value. The Fund invests substantially all of its assets in
tax-exempt obligations issued by state and local governments.
The Fund is not a money market fund and its net asset value will
fluctuate.
The Fund pursues its investment objective by investing
primarily in a professionally managed portfolio of fixed income
securities issued by or on behalf of states, territories and
possessions of the United States (including the District of
Columbia) and their political subdivisions, agencies and
instrumentalities, the interest on which is exempt from regular
federal income tax ("Municipal Obligations"). Under normal
market conditions, the Fund will invest at least 80% of its net
assets in Municipal Obligations.
Although the Fund is not expected to do so, the Fund has the
authority to invest as much as 20% of its net assets in taxable
investments, which are obligations issued or guaranteed by the
U.S. government, its agencies and instrumentalities and
repurchase agreements collateralized by U.S. government
securities ("Taxable Investments"). This activity may generate
taxable interest. See "Taxation."
Ratings on Municipal Obligations
The Fund's investments in Municipal Obligations will at the
time of investment be rated within the three highest rating
categories for municipal securities by Standard & Poor's
Corporation ("Standard & Poor's") (AAA, AA or A) or by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa, or A) or any other
comparable nationally-recognized rating agency, or their
equivalent ratings or, if unrated, determined by the Investment
Adviser to be of comparable credit quality. The credit rating
assigned to Municipal Obligations by these rating agencies may
reflect the existence of guarantees, letters of credit or other
credit enhancement features available to the issuers or holders
of such Municipal Obligations.
Duration
Generally, the Fund's average portfolio duration will be no
more than three years. The individual Municipal Obligations in
which the Fund invests will have effective maturities not
exceeding five years. Unlike maturity, which indicates when the
bond repays principal, "duration" incorporates the cash flows of
all interest and principal payments and the proceeds from calls
and redemptions over the life of the bond. Thses payments are
multiplied by the number of years over which they are received to
produce a value that is expressed in years (i.e., the duration).
Municipal Obligations and Other Investments
Municipal Obligations. Municipal Obligations include bonds,
notes and other instruments issued by or on behalf of states,
territories and possessions of the United States (including the
District of Columbia) and their political subdivisions, agencies
or instrumentalities, the interest on which is, in the opinion of
bond counsel, exempt from regular federal income tax (i.e.,
excluded from gross income for federal income tax purposes but
not necessarily exempt from the federal alternative minimum tax
or from the personal income taxes of any state). In addition,
Municipal Obligations include participation interests in such
securities the interest on which is, in the opinion of bond
counsel for the issuers or counsel selected by the Investment
Adviser, exempt from regular federal income tax. The definition
of Municipal Obligations includes other types of securities that
currently exist or may be developed in the future and that are,
or will be, in the opinion of counsel, as described above, exempt
from regular federal income tax, provided that investing in such
securities is consistent with the Fund's investment objective and
policies.
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. While some
private activity bonds are general obligation securities, the
vast majority are revenue bonds. Consequently, the credit
quality of private activity bonds is usually directly related to
the credit standing of the corporate user of the facility
involved. Each of the Municipal Obligations described below may
take the form of either general obligation or revenue securities.
Municipal Obligations are often issued to obtain funds for
various public purposes, including the construction of a wide
range of public facilities such as bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and
sewer works. Other public purposes for which Municipal
Obligations may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses, and
obtaining funds to lend to other public institutions and
facilities. Municipal Obligations also include "private
activity" or industrial development bonds, which are issued by or
on behalf of public authorities to obtain funds for privately-
operated housing facilities, airport, mass transit or port
facilities, sewage disposal, solid waste disposal or hazardous
waste treatment or disposal facilities and certain local
facilities for water supply, gas or electricity. In addition,
proceeds of certain industrial development bonds are used for the
construction, equipment, repair or improvement of privately
operated industrial or commercial facilities. The interest
income from private activity bonds may subject certain investors
to the federal alternative minimum tax.
Municipal Leases, Certificates of Participation and Other
Participation Interests. The Fund may invest in municipal leases
and certificates of participation in municipal leases. A
municipal lease is an obligation in the form of a lease or
installment purchase which is issued by a state or local
government to acquire equipment and facilities. Income from such
obligations is generally exempt from state and local taxes in the
state of issuance. Municipal leases frequently involve special
risks not normally associated with general obligation or revenue
bonds. Leases and installment purchase or conditional sale
contracts (which normally provide for title to the leased asset
to pass eventually to the governmental issuer) have evolved as a
means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for
the issuance of debt. The debt issuance limitations are deemed
to be inapplicable because of the inclusion in many leases or
contracts of "non-appropriation" clauses that relieve the
governmental issuer of any obligation to make future payments
under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on a yearly or other
periodic basis. In addition, such leases or contracts may be
subject to the temporary abatement of payments in the event the
issuer is prevented from maintaining occupancy of the leased
premises or utilizing the leased equipment. Although the
obligation may be secured by the leased equipment or facilities,
the disposition of the property in the event of nonappropriation
or foreclosure might prove difficult, time consuming and costly,
and result in an unsatisfactory or delayed recoupment of the
Fund's original investment.
Certificates of participation represent undivided interests
in municipal leases, installment purchase agreements or other
instruments. The certificates are typically issued by a trust or
other entity which has received an assignment of the payments to
be made by the state or political subdivision under such leases
or installment purchase agreements.
Certain municipal lease obligations and certificates of
participation may be deemed illiquid for the purpose of the
Fund's 15% limitation on investments in illiquid securities.
Other municipal lease obligations and certificates of
participation acquired by the Fund may be determined by the
Investment Adviser, pursuant to guidelines adopted by the
Trustees of the Trust, to be liquid securities for the purpose of
such limitation. In determining the liquidity of municipal lease
obligations and certificates of participation, the Investment
Adviser will consider a variety of factors including: (1) the
willingness of dealers to bid for the security; (2) the number of
dealers willing to purchase or sell the obligation and the number
of other potential buyers; (3) the frequency of trades or quotes
for the obligation; and (4) the nature of marketplace trades. In
addition, the Investment Adviser will consider factors unique to
particular lease obligations and certificates of participation
affecting the marketability thereof. These include the general
creditworthiness of the issuer, the importance of the property
covered by the lease to the issuer and the likelihood that the
marketability of the obligation will be maintained throughout the
time the obligation is held by the Fund.
The Fund may also purchase participations in Municipal
Obligations held by a commercial bank or other financial
institution. Such participations provide the Fund with the right
to a pro rata undivided interest in the underlying Municipal
Obligations. In addition, such participations generally provide
the Fund with the right to demand payment, on not more than seven
days notice, of all or any part of the Fund's participation
interest in the underlying Municipal Obligation, plus accrued
interest. These demand features will be taken into consideration
in determining the effective maturity of such participations and
the average portfolio duration of the Fund. The Fund will only
invest in such participations if, in the opinion of bond counsel
for the issuers or counsel selected by the Investment Adviser,
the interest from such participations is exempt from regular
federal income tax.
Municipal Notes. Municipal Obligations purchased by the
Fund may include fixed rate notes or 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
Investment Adviser to be of comparable quality at the time of
purchase to rated instruments purchasable by the Fund. Where
necessary to determine that a note is an Eligible Security, the
Fund will require the issuer's obligation to pay the principal of
the note be backed by an unconditional 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 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 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.
Tax-Exempt Commercial Paper. Issues of commercial paper
typically represent short-term, unsecured, negotiable promissory
notes. These obligations are issued by state and local
governments and their agencies to finance working capital needs
of municipalities or to provide interim construction financing
and are paid from general or specific revenues of municipalities
or are re-financed with long-term debt. In some cases, tax-
exempt commercial paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility
arrangements offered by banks or other institutions. The Fund
will invest only in tax-exempt commercial paper rated at least
Prime-2 by Moody's or A-2 by Standard & Poor's.
Pre-Refunded Municipal Obligations. The Fund may invest in
pre-refunded Municipal Obligations. The principal of and
interest on pre-refunded Municipal Obligations are no longer paid
from the original revenue source for the Municipal Obligations.
Instead, the source of such payments is typically an escrow fund
consisting of obligations issued or guaranteed by the U.S.
government. The assets in the escrow fund are derived from the
proceeds of refunding bonds issued by the same issuer as the pre-
refunded Municipal Obligations, but usually on terms more
favorable to the issuer. Issuers of Municipal Obligations use
this advance refunding technique to obtain more favorable terms
with respect to Municipal Obligations which are not yet subject
to call or redemption by the issuer. For example, advance
refunding enables an issuer to refinance debt at lower market
interest rates, restructure debt to improve cash flow or
eliminate restrictive covenants in the indenture or other
governing instrument for the pre-refunded Municipal Obligations.
However, except for a change in the revenue source from which
principal and interest payments are made, the pre-refunded
Municipal Obligations remain outstanding on their original terms
until they mature or are redeemed by the issuer. The effective
maturity of pre-refunded Municipal Obligations will be the
redemption date if the issuer has assumed an obligation or
indicated its intention to redeem such obligations on the
redemption date. Pre-refunded Municipal Obligations are often
purchased at a price which represents a premium over their face
value.
Variable and Floating Rate Securities. The interest rates
payable on certain securities in which the Fund may invest, which
will generally be revenue obligations, are not fixed and may
fluctuate based upon changes in market rates. A variable rate
obligation has an interest rate which is adjusted at
predesignated periods. Interest on a floating rate obligation is
adjusted whenever there is a change in the market rate of
interest on which the interest rate payable is based. Variable
or floating rate obligations generally permit the holders of such
obligations to demand payment of principal from the issuer or a
third party at any time or at stated intervals. Variable and
floating rate obligations are less effective than fixed rate
instruments at locking in a particular yield. Nevertheless such
obligations may fluctuate in value in response to interest rate
changes if there is a delay between changes in market interest
rates and the interest reset date for the obligation. The Fund
will take demand features into consideration in determining the
average portfolio duration of the Fund and the effective maturity
of individual Municipal Obligations. In addition, the absence of
an unconditional demand feature exercisable within seven days
will, and the failure of the issuer or a third party to honor its
obligations under a demand or put feature might, require a
variable or floating rate obligation to be treated as illiquid
for purposes of the Fund 15% limitation on illiquid investments.
Tender Option Bonds. 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 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 arrangements.
Auction Rate Municipal Obligations. The Municipal
Obligations in which the Fund may invest include auction rate
securities. Provided that the auction mechanism is successful,
auction rate securities usually permit the holder to sell the
securities in an auction at par value at specified intervals.
The interest rate is reset by "Dutch" auction in which bids are
made by broker-dealers and other institutions for a certain
amount of securities at a specified minimum yield. The interest
rate set by the auction is the lowest interest or dividend rate
that covers all securities offered for sale. While this process
is designed to permit auction rate securities to be traded at par
value, there is the risk that the auction will fail due to
insufficient demand for the securities. The Fund will take the
next schedules auction date of auction rate securities into
consideration in determining the average portfolio duration of
the Fund and the effective maturity of individual auction rate
securities.
Zero Coupon and Capital Appreciation Bonds. The Fund may
invest in zero coupon and capital appreciation bonds, which are
debt securities issued or sold at a discount from their face
value and which do not entitle the holder to any periodic payment
of interest prior to maturity or a specified redemption date (or
cash payment date). The amount of the discount varies depending
on the time remaining until maturity or cash payment date,
prevailing interest rates, the liquidity of the security and the
perceived credit quality of the issuer. These securities may
also take the form of debt securities that have been stripped of
their unmatured interest coupons, the coupons themselves or
receipts or certificates representing interest in such stripped
debt obligations or coupons. Discount with respect to stripped
tax-exempt securities or their coupons may be taxable. The
market prices of capital appreciation bonds generally are more
volatile than the market prices of interest-bearing securities
and are likely to respond to a greater degree to changes in
interest rates than interest-bearing securities having similar
maturity and credit quality.
Inverse Floating Rate Instruments. The Fund may invest in
"leveraged" inverse floating rate debt instruments ("inverse
floaters"). The interest rate on an inverse floater resets in
the opposite direction from the market rate of interest to which
the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage
inherent in inverse floaters is associated with greater
volatility in their market values. Accordingly the duration of
an inverse floater may exceed its stated final maturity.
Other Investments and Practices
Repurchase Agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized
financial institutions sell U.S. Government securities or other
securities to the Fund and agree at the time of sale to
repurchase then at a mutually agreed upon time and price within
one year from the date of acquisition. To the extent that the
original seller does not repurchase the securities from the Fund,
the Fund could receive less than the repurchase price on any sale
of such securities.
Reverse Repurchase Agreements. 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 then 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. Reverse repurchase agreements involve the risk that
the market value of the securities sold by the Fund may decline
below the price of the securities the Fund is obligated to
repurchase.
Hedging Transactions. To assist in reducing fluctuations in
net asset value, the Fund may from time to time engage in certain
hedging transactions involving exchange traded options or futures
and the short sale of these securities and other acceptable
investments of the Fund to the extent that such transactions are
in conformity with applicable laws, rules and regulations.
Although the use of hedging strategies is intended to reduce the
Fund's exposure to interest rate volatility, it may cause some
fluctuation in net asset value.
Illiquid Securities. The Fund will not knowingly invest
more than 15% of the value of its total net 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 is normally 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 15% limitation on investment in illiquid
securities. The ability to sell Rule 144A securities to
qualified institutional buyers is a recent development and it is
not possible to predict how this market will mature.
When-Issued Securities. 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.
Lending of Portfolio Securities. In order to generate
additional income, the Fund may lend portfolio securities up to
one-third of the value of its total assets to broker/dealers,
banks, or other institutional borrowers of securities. The Fund
will only enter into loan arrangements with broker/dealers,
banks, or other institutions which the Investment Adviser has
determined are creditworthy under guidelines established by the
Fund's Board of Trustees and will receive collateral in the form
of cash or U.S. Government securities equal to at least 100% of
the value of the securities owned.
Portfolio Turnover. Although the Fund does not intend to
invest for the purpose of seeking short-term profits, securities
in its portfolio will be sold whenever the Fund's Investment
Adviser believes it is appropriate to do so in light of the
Fund's investment objective, without regard to the length of time
a particular security may have been held.
Securities of Other Investment Companies. The Fund may
invest in securities of other investment companies to the extent
permitted under the 1940 Act. Presently, under the 1940 Act, a
fund is permitted to hold securities of another investment
company in amounts which (a) do not exceed 3% of the total
outstanding voting stock of such company, (b) do not exceed 5% of
the value of a fund's total assets and (c) when added to all
other investment company securities held by such fund, do not
exceed 10% of the value of the fund's total assets. Investors
should note that investment by a Fund in the securities of other
investment companies would involve the payment of duplicative
fees (once with the Fund and again with the investment company in
which the Fund invests). The Fund does not intend to invest more
than 5% of its total assets in the securities of other investment
companies.
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 investment
limitation described below may not be changed without the
affirmative vote of the holders of a majority of its outstanding
shares. There can be no assurance that the Fund will achieve its
investment objective. (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 that the Fund may (i) borrow money
from banks from temporary or emergency purposes (not for
leveraging or investment) and (ii) engage in reverse repurchase
agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than
borrowings).
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. For the purposes of this restriction, state and
municipal governments and their agencies and instrumentalities
are not deemed to be industries.
* * * * *
While there can be no assurance that the Fund will be able
to maintain minimal fluctuations of net asset value or that it
will achieve its investment objective, the Fund endeavors to do
so by following the investment policies described in this
Prospectus.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
Purchase Procedures
Purchases of Retail and CDSC Shares must be made through a
brokerage account maintained through Lehman Brothers or a broker
or dealer (each an "Introducing Broker") that (i) clears
securities transactions through Lehman Brothers on a fully
disclosed basis or (ii) has entered into an agreement with Lehman
Brothers with respect to the sale of Fund shares. The Fund
reserves the right to reject any purchase order and to suspend
the offering of shares for a period of time.
The minimum initial investment in Retail and CDSC Shares of
the Fund is $25,000 and the minimum subsequent investment is
$1,000. There are no minimum investment requirements for
employees of Lehman Brothers. The Fund reserves the right at any
time to vary the initial and subsequent investment minimums. No
certificates are issued for Fund shares.
The Fund's shares are sold continuously at their net asset
value next determined after a purchase order is received by
Lehman Brothers or an Introducing Broker and becomes effective.
A purchase order becomes effective when Lehman Brothers or an
Introducing Broker receives, or converts the purchase amount
into, federal funds (i.e., monies of member banks within the
Federal Reserve System held on deposit at a Federal Reserve
Bank). When orders for the purchase of Fund shares are paid for
in federal funds, or are placed by an investor with sufficient
federal funds or cash balance in the investor's brokerage account
with Lehman Brothers or the Introducing Broker, the order becomes
effective on the day of receipt if received prior to 4:00 p.m.,
Eastern time, on any day the Fund calculates its net asset value.
See "Valuation of Shares-Net Asset Value." Purchase orders
received after 4:00 p.m., Eastern time, are effective as of the
time the net asset value is next determined. When orders for the
purchase of Fund shares are paid for other than in federal funds,
Lehman Brothers or the Introducing Broker, acting on behalf of
the investor, will complete the conversion into, or itself
advance, federal funds, and the order becomes effective on the
day following its receipt by Lehman Brothers or the Introducing
Broker. Shares purchased begin to accrue income dividends on the
next business day following the day that the purchase order
becomes effective.
The Fund's Retail Shares are available for purchase on a no-
load basis to all investors. Investors who are investing through
a CDSC Fund Exchange (as defined below) are subject to a CDSC
upon redemption, as described below under "Redemption
Procedures." Investors who are investing in the Fund in
connection with a CDSC Fund Exchange may purchase only CDSC
Shares pursuant to such exchange. For purposes of this
Prospectus, a "CDSC Fund Exchange" is an exchange of shares of
another fund in the Lehman Brothers Group of Funds which is
subject to a CDSC upon redemption for shares in one of the Funds.
Redemption Procedures
Holders of Retail Shares may redeem their shares without
charge on any day the Fund calculates its net asset value.
Holders of CDSC Shares may also redeem their shares on any day
the Fund calculates its net asset value, subject to any
applicable CDSC as described below. See "Valuation of Shares."
Redemption requests received in proper form prior 4:00 p.m.,
Eastern time, are priced at the net asset value per share
determined on that day. Redemption requests received after 4:00
p.m., Eastern time, are priced at the net asset value as next
determined. The Fund normally transmits redemption proceeds for
credit to the shareholder's account at Lehman Brothers or the
Introducing Broker at no charge (other than any applicable CDSC
in the case of CDSC Shares) on the business day following receipt
of a redemption request. Generally, these funds will not be
invested for the shareholder's benefit without specific
instruction, and Lehman Brothers or the Introducing Broker will
benefit from the use of temporarily un-invested funds. A
shareholder who pays for Fund shares by personal check will be
credited with the proceeds of a redemption of those shares only
after the purchase check has been collected, which may take up to
15 days or more. A shareholder who anticipates the need for more
immediate access to his or her investment should purchase shares
with federal funds by bank wire or with a certified or cashier's
check.
A Fund account that is reduced by a shareholder to a value
of $1,000 or less ($500 for IRAs and Self-Employed Retirement
Plans) may be subject to redemption by that Fund, but only after
the shareholder has been given at least 60 days in which to
increase the account balance to more than $1,000 ($500 for IRAs
and Self-Employed Retirement Plans). In addition, the Fund may
redeem shares involuntarily or suspend the right of redemption as
permitted under the 1940 Act, as described in the Statement of
Additional Information under "Additional Purchase and Redemption
Information."
Fund shares may be redeemed in one of the following ways:
Redemption Through Lehman Brothers or an Introducing Broker
Redemption requests may be made through Lehman Brothers or
an Introducing Broker.
Redemption By Mail
Shares may be redeemed by submitting a written request for
redemption to:
Lehman Brothers Funds
c/o The Shareholder Services Group, Inc.
P.O. Box 9184
Boston, Massachusetts 02209-9184
A written redemption request to the Fund's Transfer Agent
must (a) state the number of shares to be redeemed, (b) indicate
the name of the Fund from which such shares are to be redeemed,
(c) identify the shareholder's account number and (d) be signed
by each registered owner exactly as the shares are registered.
Any signature appearing on a redemption request must be
guaranteed by a domestic bank, a savings and loan institution, a
domestic credit union, a member bank of the Federal Reserve
System or a member firm of a national securities exchange. The
Fund's Transfer Agent may require additional supporting documents
for redemptions made by corporations, executors, administrators,
trustees and guardians. A redemption request will not be deemed
to be properly received until the Fund's Transfer Agent receives
all required documents in proper form.
Contingent Deferred Sales Charge on CDSC Shares
A CDSC payable to Lehman Brothers is imposed on any
redemption of CDSC Shares, however effected, that causes the
current value of a shareholder's CDSC Share account to fall below
the dollar amount of all payments by the shareholder for the
purchase of CDSC Shares ("purchase payments") during the
preceding two years. No charge is imposed to the extent that the
net asset value of the CDSC Shares redeemed does not exceed (a)
the current net asset value of CDSC Shares purchased through
reinvestment of dividends or capital gains distributions, plus
(b) the current net asset value of CDSC Shares purchased more
than two years prior to the redemption, plus (c) increases in the
net asset value of the shareholder's CDSC Shares above the
purchase payments made during the preceding two years.
In circumstances in which the CDSC is imposed, the amount of
the charge will depend on the number of years since the
shareholder made the purchase payment from which the amount is
being redeemed. Solely for purposes of determining the number of
years since a purchase payment was made, all purchase payments
made during a month will be aggregated and deemed to have been
made on the last Friday of the preceding Lehman Brothers
statement month. The Fund's CDSC Shares will be deemed to have
been purchased on the same date as the shares of the funds which
have been exchanged through a CDSC Fund Exchange. The following
table sets forth the rates of the CDSC for redemptions of CDSC
Shares:
Year since Purchase Payment
Was Made
CDSC
First
2.00%
Second
1.00%
Third
0.00%
The purchase payment from which a redemption of CDSC Shares
is made is assumed to be the earliest purchase payment from which
a full redemption has not already been effected. In the case of
redemptions of shares of other funds in the Lehman Brothers Group
of Funds issued in exchange for CDSC Shares of a Fund, the term
"purchase payments" refers to the purchase payments for the
shares given in exchange. In the event of an exchange of shares
of funds with differing CDSC schedules, the shares will be, in
all cases, subject to the higher CDSC schedule. See "Exchange
Privilege."
Waivers of CDSC. The CDSC will be waived on: (a) exchanges
(see "Exchange Privilege"); (b) redemptions of shares following
the death or disability of the shareholder; (c) redemptions of
shares in connection with certain post-retirement distributions
and withdrawals from retirement plans or IRAs; (d) involuntary
redemptions; (e) redemption proceeds from other funds in the
Lehman Brothers Group of Funds that are reinvested within 30 days
of the redemption; (f) redemptions of shares in connection with a
combination of any investment company with the Fund by merger,
acquisition of assets or otherwise; and (g) redemptions of shares
owned by employees of Lehman Brothers and its affiliates.
Exchange Privilege
Shares of the Fund may be exchanged without charge for
shares of the same class of the following funds:
* Lehman Brothers Daily Income Fund
* Lehman Brothers Government Obligations Money Market
Fund
* Lehman Brothers Municipal Income Fund
* New York Municipal Money Market Fund
* California Municipal Money Market Fund
* Short Duration U.S. Government Fund
* Lehman Selected Growth Stock Fund
Exchanges may be made on any day on which both funds
determine their net asset value. Before engaging in an exchange
transaction, a shareholder should read carefully the portions of
the Prospectus describing the fund into which the exchange will
occur. An exchange is treated as a sale of a security for tax
purposes on which a gain or loss may be recognized.
Holders of CDSC Shares may exchange their shares without the
imposition of an exchange fee. In the event holders of CDSC
Shares of the Fund exchange all or a portion of their CDSC Shares
for shares in any of the funds listed above imposing a CDSC
higher than that imposed by the Fund on the CDSC Shares, the
exchanged shares will be subject to the higher applicable CDSC.
Upon an exchange, the new shares will be deemed to have been
purchased on the same date as the CDSC Shares which have been
exchanged.
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 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. Birthday (observed), Presidents' Day, Good
Friday, Memorial Day Independence Day (observed), Labor Day,
Columbus Day, (observed) Veterans Day, Thanksgiving Day and
Christmas Day. 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). Generally, the Fund's investments are
valued at market value or, in the absence of a market value with
respect to any securities, at fair value using methods determined
in good faith by the Investment Adviser under the supervision of
the Trustees and may include yield equivalents or a pricing
matrix. Further information regarding the Fund's valuation
policies is contained in the Statement of Additional 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.
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.
Retail Shares and CDSC Shares bear certain class specific
expenses, such as transfer agency and printing costs, which are
not born by the Fund's other classes of shares. 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 and
paid monthly. Shares begin accruing dividends on the next
business day following receipt of the purchase order and continue
to accrue dividends up to and including the day that such shares
are redeemed. Unless a shareholder instructs the Fund to pay
dividends or capital gains distributions in cash and credit them
to the shareholder's account at Lehman Brothers, dividends and
distributions from the Fund will be reinvested automatically in
additional shares of the Fund at net asset value. Net capital
gains distributions, if any, will be made annually.
The Fund's Transfer Agent will send each investor or its
authorized representative an annual statement designating the
amount of dividends and capital gains distributions, if any, made
during each year and their federal tax qualification.
TAXES
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 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 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.
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.
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.
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.
Investors will be advised at least annually as to the federal
income tax status of distributions made to them each year.
In addition to federal taxes, an investor may be subject to
state, local or foreign taxes on payments received from the Fund.
A state tax exemption may be available in some states to the
extent distributions of the Fund are derived from interest on
certain U.S. government securities or on securities issued by
public authorities in the state. The Fund will provide investors
annually with information about federal income tax consequences
of distributions made each year. Investors should be aware of
the application of their state and local tax laws to investments
in the Fund.
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 advisers with
specific reference to their own tax situation. See the Statement
of Additional Information for a further discussion of tax
consequences of investing in shares of the Fund.
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 and
Transfer Agent, and Custodian. 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 and Plan of Distribution
Lehman Brothers Inc., located at 3 World Financial Center,
New York, New York 10285, is the Distributor of the Fund. Lehman
Brothers 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 the 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. Lehman Brothers is
one of the leading full-line investment firms serving the U.S.
and foreign securities and commodities markets.
The Trust has adopted a plan of distribution with respect to
the Retail Shares and CDSC Shares of the Fund (the "Plan of
Distribution") pursuant to Rule 12b-1 under the 1940 Act. Under
the Plan of Distribution, the Fund has agreed with respect to
such class to pay Lehman Brothers monthly for advertising,
marketing and distributing its shares at an annual rate of up to
____% of its average daily net assets. Under the Plan of
Distribution, Lehman Brothers may retain all or a portion of the
payments made to it pursuant to the Plan and may make payments to
its Investment Representatives or Introducing Brokers that engage
in the sale of Fund shares. The Plan of Distribution also
provides that Lehman Brothers may make payments to assist in the
distribution of the Retail or CDSC Shares out of the other fees
received by it or its affiliates from the Fund, its past profits
or any other sources available to it. From time to time, Lehman
Brothers may waive receipt of fees under the Plan of Distribution
for the Fund while retaining the ability to be paid under such
Plan thereafter. The fees payable to Lehman Brothers under the
Plan of Distribution for advertising, marketing and distributing
Retail or CDSC Shares of the Fund and payments by Lehman Brothers
to its Investment Representatives or Introducing Brokers are
payable without regard to actual expenses incurred. Lehman
Brothers Investment Representatives and any other person entitled
to receive compensation for selling Retail or CDSC Shares of the
Fund may receive different levels of compensation for selling one
particular class of shares over another in the Fund.
Investment Adviser - Lehman Brothers Global Asset Management Inc.
Lehman Brothers Global Asset Management Inc., 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
Holdings. Lehman Brothers Global Asset Management Inc.
("LBGAM"), together with other Lehman Brothers investment
advisory affiliates, serves as investment adviser to investment
companies and private accounts and has assets under management of
approximately $____ billion as of __________, 1994.
As Investment Adviser to the Fund, LBGAM manages the Fund's
portfolio in accordance with its investment objective and
policies, makes investment decisions for the Fund, places orders
to purchase and sell securities and employs professional
portfolio managers and securities analysts who provide research
services to the Fund. For its services LBGAM is entitled to
receive a monthly fee payable by the Fund at the annual rate of
____% of the value of the Fund's average daily net assets.
John M. Winters and Nicholas Rabiecki, III, each a Vice
President and Investment Officer of the Fund, are the portfolio
managers of the Fund. Mr. Winters, a Senior Vice President of
LBGAM, joined LBGAM in January 1993 to head up the Institutional
Money Market Funds' management team. Prior to joining LBGAM, Mr.
Winters was with Lehman Brothers Capital Markets Group, where he
was responsible for product management, trading and marketing of
money market instruments and medium-term securities. Mr.
Rabiecki, a Vice President and Senior Portfolio Manager of LBGAM,
joined LBGAM in July 1993 as Portfolio Manager of the Tax-Free
Money Market Funds. Previously, Mr. Rabiecki was a Senior Fixed-
Income Portfolio Manager with Chase Private Banking where he was
responsible for the short and intermediate term tax-free
investment strategy and the management of the Vista Tax-Exempt
Money Market Funds, as well as the management of separately
managed accounts. Mr. Rabiecki is the portfolio manager
primarily responsible for managing the day-to-day operations of
the Fund, including the making of investment selections. Mr.
Rabiecki will manage the Fund as of commencement of operations.
Administrator and Transfer Agent - The Shareholder Services
Group, Inc.
The Shareholder Services Group, Inc. ("TSSG"), located at
One Exchange Place, 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 its services as Administrator,
TSSG is entitled to a monthly fee at the annual rate of ____% 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.
On May 6, 1994, TSSG acquired the third party mutual fund
administration business of The Boston Company Advisors, Inc., an
indirect wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"), from Mellon. In connection with this transaction,
Lehman Brothers assigned to TSSG its agreement with Mellon that
Lehman Brothers and its affiliates, consistent with any fiduciary
duties and assuming certain service quality standards are met,
would recommend TSSG and would continue to recommend Boston Safe
as the providers of such administration and custody services as
are currently being provided by TSSG and Boston Safe to the Fund.
This agreement expires on May 21, 2000.
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.
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, certain insurance premiums, outside
auditing and legal expenses, costs of investor 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 addition, the Investment Adviser has 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.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to
investors, the "total return," "yields" and "effective yields"
for shares may be quoted. Total return and yield quotations are
computed separately for each class of shares. "Total return" for
a particular class of shares represents the change, over a
specified period of time, in the value of an investment in the
shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage. The "yield"
quoted in advertisements for a particular class of shares refers
to the income generated by an investment in such shares over a
specified period (such as a 30-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 is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
Distribution rates may also be quoted for the Fund.
Quotations of distribution rates are calculated by annualizing
the most recent distribution of net investment income for a
monthly, quarterly or other relevant period and dividing this
amount by the ending net asset value for the period for which the
distribution rates are being calculated.
The Fund's performance may be compared to that 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 Morningstar, Inc., Barron's,
IBC/Donoghue's Inc. Bond Fund Report, USA Today, The Wall Street
Journal and The New York Times, Business Week, Forbes, Fortune,
Institutional Investor, Investors Daily, Money, reports prepared
by Lipper Analytical Services, Inc. and publications of a local
or regional nature. The Fund's Lipper ranking in the "Short
Municipal Debt" category may also be quoted from time to time in
advertising and sales literature.
The Fund's total return and yield figures for a class of
shares represent past performance, will fluctuate and should not
be considered as representative of future results. The
performance of any investment is generally a function of
portfolio quality and maturity, type of investment and operating
expenses. Since the shares of other classes bear all service fees
for distribution or shareholder services and, in certain classes,
class related expenses, the total return and net yield of such
shares can be expected at any given time to be lower than the
total return and net yield of Premier Shares. The methods used
to compute the Fund's total return and yields are described in
more detail in the Statement of Additional Information. Current
performance information may be obtained through a Lehman Brothers
Investment Representative or by calling 1-800-861-4171.
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 has authorized the issuance
of eight classes of shares for three of its money market
portfolios, six classes of shares for nine of its money market
portfolios, four classes of shares for two of its non-money
market portfolios, including the Fund, and three classes of
shares for its other non-money market portfolios. The issuance
of separate classes of shares is intended to address the
different service needs of different types of investors. Each
share represents interests in each Fund in proportion to each
share's net asset value, except that shares of certain classes
bear fees and expenses for certain shareholder services or
distribution and support services provided to that class and
certain other class related expenses. As indicated, the shares
described in this Prospectus represent Retail Shares and CDSC
Shares.
As a Massachusetts business trust, the Trust is not required
to hold annual meetings of shareholders. However, the Trust will
call a meeting of shareholders where required by law for purposes
such as 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. Investors 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.
In addition to Retail Shares and CDSC Shares, the Fund
currently offers Premier Shares and Select Shares, both of which
are sold to institutional investors. Premier Shares are sold to
institutions that have not entered into servicing or other
agreements with the Fund in connection with their investments and
pay no Rule 12b-1 distribution or shareholder service fee.
Select Shares of the Fund are sold under a Plan of Distribution
adopted pursuant to Rule 12b-1 to institutional investors and
bear fees payable at a rate not exceeding .____% (on an
annualized basis) of the average daily net asset value of the
shares beneficially owned by such investors in return for certain
administrative and shareholder services provided by Lehman
Brothers or the institutional investors. These services may
include processing purchase, exchange and redemption requests
from shareholders and placing orders with the Transfer Agent;
processing dividend and distribution payments from the Fund on
behalf of shareholders; providing information periodically to
shareholders showing their positions in shares; responding to
inquiries from shareholders concerning their investment in
shares; arranging for bank wires; and providing such other
similar services as may be reasonably requested. Select Shares
will bear all fees paid for services provided to that class under
the Plan of Distribution.
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 distributors. This Prospectus does not
constitute an offering by the Trust or by the distributors in any
jurisdiction in which such offering may not lawfully be made.
TABLE OF CONTENTS
Page
Background and Expense Information 3
Investment Objective and Policies 5
Purchase, Redemption and Exchange of Shares 14
Dividends 18
Taxes 19
Management of the Fund 20
Performance Information 23
Description of Shares 24
Short Duration Municipal Fund
PROSPECTUS
_____ ____, 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 1-800-861-4171.
Lehman Brothers Institutional Funds Group
Trust
Short Duration Municipal Fund
Statement of Additional Information
____ __, 1994
This Statement of Additional Information is meant to be read in
conjunction with the Prospectuses for the Short Duration Municipal Fund, each
dated ____ __, 1994, as amended or supplemented from time to time (the
"Prospectuses"), and is incorporated by reference in its entirety into the
Prospectuses. Because this Statement of Additional Information is not itself a
prospectus, no investment in shares of the Short Duration Municipal Fund
should be made solely upon the information contained herein. Copies of the
Prospectuses 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, Redemption and Exchange
Information
10
Management of the Fund
12
Additional Information Concerning Taxes
17
Dividends
19
Additional Performance Information
20
Additional Description Concerning Shares
21
Counsel
22
Auditors
22
Miscellaneous
22
Appendix
A-1
THE TRUST
Lehman Brothers Institutional Funds Group Trust (the "Trust") is a
no-load, open-end management investment company. The Trust is a diversified
investment portfolio and currently includes a family of portfolios, one of
which is the Short Duration Municipal Fund (the "Fund"). The Fund is
currently authorized to offer four 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 Select Shares bear fees payable by the Fund to
Lehman Brothers or institutional investors for services they provide to the
beneficial owners of such shares and Retail Shares and CDSC Shares bear fees
payable by the Fund to Lehman Brothers for advertising, marketing and
distributing such shares and CDSC Shares bear a CDSC. In addition, Retail
Shares and CDSC Shares bear certain class specific expenses, such as transfer
agency and printing costs, which are not born by the Fund's other classes of
shares.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE FUND'S PROSPECTUSES
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 INFORMATION DESCRIBING THEM BY CONTACTING LEHMAN
BROTHERS AT 1-800-368-5556.
INVESTMENT OBJECTIVE AND POLICIES
As stated in the Fund's Prospectuses, the investment objective of the
Fund is to provide a high level of current income consistent with minimal
fluctuation of net asset value. The Fund is not a money market fund and its
net asset value will fluctuate. The Fund invests primarily in a portfolio
consisting of tax-exempt obligations issued by state and local governments.
The following policies supplement the description of the Fund's investment
objective and policies as contained in the Prospectuses.
Portfolio Transactions
Subject to the general control of the Trust's Board of Trustees, 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
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.
Although the Fund will not seek profits through short-term trading, LBGAM may,
on behalf of the Fund, dispose of any portfolio security prior to its maturity
if it believes such disposition is advisable.
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 Fund, 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 the Fund 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 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 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 company portfolios 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 or reverse repurchase agreements
with Lehman Brothers, LBGAM or any affiliated person (as such term is defined
in the Investment Company Act of 1940, as amended (the "1940 Act")) or any of
them, except to the extent permitted by the Securities and Exchange Commission
(the "SEC"). Subject to the above considerations, Lehman Brothers may act as a
main broker for the Fund. For it to effect any portfolio transactions for the
Fund, the commissions, fees or other remuneration received by it must be
reasonable and fair compared to the commissions, fees or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. Furthermore, with respect to such transactions,
securities, deposits and repurchase agreements, the Fund will not give
preference to Service Organizations with which the Fund enters into
agreements. (See the Prospectuses, "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 in the Fund's interest.
Types of Investments
The Fund pursues its investment objective by investing at least 80% of
its net assets in fixed income securities issued by or on behalf of states,
territories and possessions of the United States (including the District of
Columbia) and their political subdivisions, agencies and instrumentalities,
the interest on which is exempt from regular federal income tax ("Municipal
Obligations"). The Fund's investments in Municipal Obligations will at the
time of investment be rated within the three highest rating categories for
municipal securities by Standard & Poor's Corporation ("Standard & Poor's")
(AAA, AA, or A) or by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, or
A) or any other comparable nationally recognized rating agency, or their
equivalent ratings or, if unrated, determined by the Investment Adviser to be
of comparable credit quality.
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 Fund nor the Fund's Investment Adviser
will review independently the underlying proceedings relating to the issuance
of Municipal Obligations or the bases for such opinions.
As described in the Fund's Prospectuses, 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
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 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 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, the Fund may invest in other types
of tax-exempt instruments such as municipal bonds, private activity bonds and
pollution control bonds.
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 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 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
the Fund's Investment Adviser will review independently the underlying
proceedings related to the creation of any tax-exempt derivatives or the bases
for such opinions.
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 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 Fund's
Prospectuses. The non-governmental user of facilities financed by private
activity bonds is also considered to be an "issuer."
Additional Information on Investment Practices
Repurchase Agreements. The repurchase price under the repurchase
agreements described in the Prospectuses with respect to the Fund generally
equals the price paid by the 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 certain 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.
Reverse Repurchase Agreements. The Fund may also enter into reverse
repurchase agreements. These transactions are similar to borrowing cash. In
a reverse repurchase agreement the Fund transfers possession of a portfolio
instrument to another person, such as a financial institution, broker, or
dealer, in return for a percentage of the instrument's market value in cash,
and agrees that on a stipulated date in the future the Fund will repurchase
the portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may be
deemed to be disadvantageous, but the ability to enter into reverse repurchase
agreements does not ensure that the Fund will be able to avoid selling
portfolio instruments at a disadvantageous time. When effecting reverse
repurchase agreements, liquid assets of the Fund, in a dollar amount
sufficient to make payment for the obligations to be purchased, are segregated
at the trade date. These assets are marked to market daily and are maintained
until the transaction is settled.
When-Issued Transactions. As stated in the Fund's Prospectuses, the
Fund may purchase securities on a "when-issued" or "delayed delivery" 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, 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 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
might be affected in the event its commitments to purchase when-issued
securities exceed 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.
Lending of Portfolio Securities. The Fund has the ability to lend
securities in an amount up to one-third of the value of their respective total
assets from their respective portfolios to brokers, dealers and other
financial organizations. The Fund may not lend its portfolio securities to
Lehman Brothers or its affiliates without specific authorization from the SEC.
Loans of portfolio securities by the 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 and will be
marked to market daily. From time to time, the 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 Fund of its portfolio securities, the Fund would continue to
accrue interest on loaned securities and would also earn income on loans. Any
cash collateral received by the Fund in connection with such loans would be
invested in short-term U.S. government obligations.
Options Transactions. The Fund is authorized to engage in transactions
involving put and call options. The Fund may purchase a put option, for
example, in an effort to protect the value of a security that it owns against
a substantial decline in market value, if the Investment Adviser believes that
a defensive posture is warranted for a portion of the Fund's portfolio. In
addition, in seeking to protect certain portfolio securities against a decline
in market value at a time when put options on those particular securities are
not available for purchase, the Fund may purchase a put option on securities
it does not hold. Although changes in the value of the put option should
generally offset changes in the value of the securities being hedged, the
correlation between the two values may not be as close in the latter type of
transaction as in a transaction in which the Fund purchases a put option on an
underlying security it owns.
The Fund may purchase call options on securities it intends to acquire
to hedge against an anticipated market appreciation in the price of the
underlying securities. If the market price does rise as anticipated in such a
situation, the Fund will benefit from that rise only to the extent that the
rise exceeds the premiums paid. If the anticipated rise does not occur or if
it does not exceed the premium, the Fund will bear the expense of the option
premiums and transaction costs without gaining an offsetting benefit. The
Fund's ability to purchase put and call options may be limited by the tax and
regulatory requirements which apply to a regulated investment company.
Futures Contracts and Options on Futures Contracts. The Fund may enter
into interest rate futures contracts on Municipal Obligations. A futures
contract on securities, is an agreement to purchase or sell an agreed amount
of securities at a set price for delivery on an agreed future date. The Fund
may purchase a futures contract as a hedge against an anticipated decline in
interest rates, and resulting increase in market price, of securities the Fund
intends to acquire. The Fund may sell a futures contract as a hedge against
an anticipated increase in interest rates, and resulting decline in market
price, of securities the Fund owns.
The Fund may purchase call and put options on futures contracts on
Municipal Obligations that are traded on U.S. commodity exchanges. An option
on a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract (a long position if the
option is a call and short position if the option is a put) at a specified
exercise price at any time during the option put exercise period. The writer
of the option is required upon exercise to assume an offsetting futures
position (a short position if the option is a call and a long position if the
option is a put). Upon the exercise of the option, the assumption of
offsetting futures positions by the writer and holder of the option will be
accompanied by delivery of the accumulated cash balance in the writer's
futures margin account that represents the amount by which the market price of
the futures contract at exercise exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract.
The Fund's ability to enter into transactions in futures contracts and
options on futures contracts may be limited by the tax requirements for
qualification as a regulated investment company. The Fund will not purchase
an option if, as a result of the purchase, more than 20% of its total assets
would be invested in premiums for options and options on futures. In
addition, the Fund may not sell futures contracts or purchase related options
if immediately after the sale the sum of the amount of initial margin deposits
on the Fund's existing futures and options on futures and for premiums paid
for the related options would exceed 5% of the market value of the Fund's
total assets, after taking into account unrealized profits and unrealized
losses on any such contracts the Fund has entered into, except that, in the
case of an option that is in-the-money at the time of purchase, the in-the-
money amount may be excluded in computing the 5% limitation.
The Fund will purchase put options on futures contracts primarily to
hedge their portfolios of Municipal Obligations against the risk of rising
interest rates, and the consequential decline in the prices of Municipal
Obligations it owns. The Fund will purchase call options on futures contracts
to hedge the Fund's portfolio against a possible market advance at a time when
the Fund is not fully invested in Municipal Obligations.
Short Sales. The Fund may make short sales of only those securities
which are listed on a national securities exchange. A short sale is a
transaction in which the Fund sells a security it does not own in anticipation
that the market price of that security will decline. The Fund expects to make
short sales as a form of hedging to offset potential declines in securities
positions it holds.
To complete a short sale, the Fund must arrange through a broker to
borrow the securities to be delivered to the buyer. The proceeds received by
the Fund from the short sale are retained by the broker until the Fund
replaces the borrowed securities. In borrowing the securities to be delivered
to the buyer, the Fund becomes obligated to replace the securities borrowed at
their market price at the time of replacement, whatever that price may be.
The Fund may have to pay a premium to borrow the securities and must pay any
dividends or interest payable on the securities until they are replaced.
The Fund's obligation to replace the securities borrowed in connection
with a short sale will be secured by collateral deposited with the broker,
which collateral consists of cash or U.S. government securities. In addition,
the Fund will place in a segregated account with the Custodian an amount of
cash, or U.S. government securities or other liquid high grade debt
obligations equal to the difference, if any, between (a) the market value of
the securities sold at the time they were sold short and (b) any cash or U.S.
government securities deposited as collateral with the broker in connection
with the short sale (not including the proceeds of the short sale). Until it
replaces the borrowed securities, a Fund will maintain the segregated account
daily at a level such that the amount deposited in the account plus the amount
deposited with the broker (not including the proceeds from the short sale)
will equal the current market value of the securities sold short and will not
be less than the market value of the securities at the time they were sold
short.
The Fund will not enter into a short sale of securities if, as a result
of the sale, the total market value of all securities sold short by the Fund
would exceed 25% of the value of the Fund's assets. In addition, the Fund may
not sell short the securities of any single issuer to the extent the value of
the securities of such issuer exceeds the lesser of 2.0% of the value of the
Fund's net assets or 2.0% of the securities of any class of any issuer.
The Fund may make short sales "against the box" without complying with
the limitations described above. In a short sale against the box transaction,
the Fund, at the time of the sale, owns or has the immediate and unconditional
right to acquire at no additional cost the identical security sold.
Illiquid Securities. The Fund may not invest more than 15% of its
respective 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. The 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 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 NRSROs for securities that
may be purchased by the Fund.
Portfolio Turnover. The Fund will not attempt to set or meet a
portfolio turnover rate since any turnover would be incidental to transactions
undertaken in an attempt to achieve the Fund's investment objective.
Investment Limitations
The Prospectuses summarize 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 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.
The Fund may not:
1. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, 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 (b) such 5% limitation shall not apply to repurchase
agreements collateralized by obligations of the U.S. government, its agencies
or instrumentalities.
2. Borrow money, except that the Fund may (i) borrow money from banks
for temporary or emergency purposes (not for leveraging or investment) and
(ii) engage in reverse repurchase agreements or dollar roll transactions;
provided that (i) and (ii) in combination do not exceed one-third of the value
of the Fund's total assets (including the amount borrowed) less liabilities
(other than borrowings). For purposes of this investment restriction, short
sales, swap transactions, options, futures contracts and options on futures
contracts, and forward commitment transactions shall not constitute
borrowings.
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. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but the Fund may make margin
deposits in connection with transactions in options, futures and options on
futures.
9. Knowingly invest more than 15% 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.
10. Write or sell puts, calls, straddles, spreads or combinations
thereof in excess of 5% of its total assets.
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 in excess of 5%
of its total assets, 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 Fund
may make commitments more restrictive than the investment policies and
limitations above. Should the 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.
ADDITIONAL PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
In General
Information on how to purchase and redeem Fund shares is included in the
Prospectuses. The issuance of Fund shares is recorded on the Fund's books, and
share certificates are not issued unless expressly requested in writing.
Certificates are not issued for fractional shares.
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 Select 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 Select shares.
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 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
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 that Fund's shareholders in general. The 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 Funds or classes must maintain
a separate Master Account for each Fund and class of shares. Sub-accounts may
be established by name or number either when the Master Account is opened or
later.
The Fund normally transmits payment of redemption proceeds for credit to
the shareholder's account at Lehman Brothers or the Introducing Broker on the
business day following receipt of the redemption request but, in any event,
payment will be made within seven days thereafter.
The Prospectus describes special redemption procedures for certain
shareholders who engage in purchases of Retail Shares or CDSC Shares through
Lehman Brothers or an Introducing Broker, under which Fund shares are redeemed
automatically to satisfy debit balances arising in the shareholder's account
on the settlement date of other securities transactions. A shareholder may
choose not to redeem Fund shares automatically by notifying Lehman Brothers or
the Introducing Broker, and by making payment for securities purchased by the
settlement date, which is usually five business days after the trade date.
Net Asset Value
The Fund's net asset value per share is calculated by dividing the total
value of the assets belonging to the Fund, less the value of any liabilities
charged to the Fund, by the total 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 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 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 by 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 Prospectuses, portfolio securities for which market
quotations are readily available will be valued on the basis of quotations
provided by dealers in such securities or furnished by a pricing service.
Portfolio securities for which market quotations are not readily available and
other assets will be valued at fair value using methods determined in good
faith by the Investment Adviser under the supervision of the Trustees and may
include yield equivalents or a pricing matrix.
Exchange Privilege
Holders of the Fund's CDSC Shares may exchange all or part of their CDSC
Shares for shares of certain other funds in the Lehman Brothers Group of
Funds, as indicated in the Prospectus, to the extent such shares are offered
for sale in the shareholder's state of residence. Exchanges may be made on
any day on which both funds determine their net asset value. There currently
is no charge for this service, and exchanges are made on the basis of relative
net asset value per share at the time of exchange. CDSC Shares of the Fund
exchanged for shares of another fund will be subject to the higher applicable
CDSC of the two funds and, for purposes of calculating CDSC rates, will be
deemed to have been held since the date the CDSC Shares being exchanged were
purchased.
The exchange privilege enables holders of the Fund's CDSC Shares to
acquire shares in a fund with different investment objectives when they
believe that a shift between funds is an appropriate investment decision.
This privilege is available to shareholders residing in any state in which the
fund shares being acquired may legally be sold. Prior to any exchange, the
shareholder should obtain and review a copy of the current prospectus of each
fund into which an exchange is to be made. Prospectuses may be obtained from
any Lehman Brothers Investment Representative.
Exercise of the exchange privilege is treated as a sale and repurchase
for federal income tax purposes and, depending on the circumstances, a short-
or long-term capital gain or loss may be realized. The price of the shares of
the fund into which shares are exchanged will be the new cost basis for tax
purposes.
Upon receipt of proper instructions and all necessary supporting
documents, the Fund's CDSC Shares submitted for exchange are redeemed at the
then-current net asset value and the proceeds immediately invested in shares
of the fund being acquired subject to any applicable CDSC. Lehman Brothers
reserves the right to reject any exchange request. The exchange privilege may
be modified or terminated at any time after notice to shareholders.
MANAGEMENT OF THE FUND
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
Position with the
Trust
Principal Occupations During Past 5
Years and Other Affiliations
CLINT J. KENDRICK (1)
3 World Financial
Center
New York, NY 10285
Chairman of the Board
and Trustee
Chief Operating Officer, Lehman
Brothers Global Asset Management
Inc.; formerly President and Chief
Executive Officer, Hyperion Capital
Managment; formerly President and
Director, Alliance Capital
Management.
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 counseling 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
260 Franklin Street
Boston, MA 02110
President
Managing Director of Lehman
Brothers since May 1993, Senior
Executive Vice President and
Director of Institutional Funds
Services, The Boston Company-
Advisers, Inc., from February 1984
to May 1993; Senior Vice President,
The Boston Company, Inc. from
August 1984 to May 1993; Director,
The Boston Company Advisers, Inc.
JOHN M. WINTERS
3 World Financial
Center
New York, NY 10285
Vice President and
Investment Officer
Senior Vice President, Lehman
Brothers
NICHOLAS RABIECKI, III
3 World Financial
Center
New York, NY 10285
Vice President and
Investment Officer
Vice President and Senior Portfolio
Manager of LBGAM; prior to July
1993, Senior Fixed Income Portfolio
Manager of Chase Private Banking
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 an "interested person" 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.
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. LBGAM, 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. 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
employing professional portfolio managers and security analysts who provide
research for the Fund.
The Investment Advisory Agreement with respect to the Fund will continue
in effect for a period of two years from ___ __, 1994 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 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 .__% of the
average daily net assets of the Fund. In order to maintain a competitive
expense ratio during 1994 and thereafter, the Investment Adviser and
Administrator have agreed to waive fees or reimburse the Fund if total
operating expenses exceed certain levels. See "Background and Expense
Information" in the Prospectuses.
Administrator and Transfer Agent
As the Fund's administrator, The Shareholder Services Group, Inc.
("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 respective 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 Fund 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 .__% 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 and thereafter, the
Investment Adviser and Administrator have agreed to waive fees or reimburse
the Fund if total operating expenses exceed certain levels. See "Background
and Expense Information" in the Prospectus.
Under the transfer agency agreement, TSSG maintains the investor account
records for the Trust, handles certain communications between investors 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
investors. 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 the distributor of Fund shares. Lehman Brothers
is a wholly owned subsidiary of Holdings. The Fund's shares are sold on a
continuous basis by Lehman Brothers as agent, although it is not obliged to
sell any particular amount of shares. 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 Fund 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.
Plan of Distribution
The Fund is currently authorized to offer Premier Shares, Select Shares
and two classes of shares offered directly to individual investors ("Retail
Shares" and "CDSC Shares"). As stated in the Fund's Prospectuses, the Board
of Trustees of the Trust has adopted plans of distribution (the "Plan of
Distribution" or "Plan") applicable to Select Shares, Retail Shares and CDSC
Shares of the Fund pursuant to Rule 12b-1 under the 1940 Act.
Premier Shares are sold to institutional investors that have not entered
into servicing or other agreements with the Fund in connection with their
investments and pay no Rule 12b-1 distribution or shareholder service fee.
However, the Plan provides that Lehman Brothers may make payments to assist in
the distribution of Premier Shares out of the other fees received by it or its
affiliates from the Fund, its past profits or any other sources available to
it. Pursuant to the Plan of Distribution, Select Shares are sold to
institutional investors and, in addition to the Fund's other operating
expenses, bear Rule 12b-1 fees payable at an annual rate not exceeding .__% of
the average daily net asset value of the shares beneficially owned by such
investors in return for certain administrative and shareholder services
provided by Lehman Brothers or those institutional investors. These services
may include processing purchase, exchange and redemption requests from
customers and placing orders with the Transfer Agent; processing dividend and
distribution payments from the Fund on behalf of customers; providing
information periodically to customers showing their positions in shares;
responding to inquiries from customers concerning their investment in shares;
arranging for bank wires; and providing such other similar services as may be
reasonably requested. In addition, the Plan of Distribution provides that
Lehman Brothers may retain all or a portion of the payments made to it
pursuant to the Plan and may make payments to third parties that provide
assistance in selling Select Shares, or to institutions that provide certain
shareholder support services to investors. These services may include:
(i) aggregating and processing purchase and redemption requests from customers
and placing net purchase and redemption orders with the Fund's distributor;
(ii) processing dividend payments from the 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 institution 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. Lehman Brothers is also authorized to offer Retail
Shares and CDSC Shares directly to individual investors. Pursuant to the Plan
of Distribution, the Fund has agreed to pay Lehman Brothers a monthly fee at
an annual rate of up to .__% of the average daily net asset value of the
Retail Shares and CDSC Shares for distribution and other services provided by
Lehman Brothers to holders of Retail Shares and CDSC Shares. Shares of each
class will bear all fees paid for services provided to that class under the
Plan of Distribution.
Under each Plan of Distribution, the Board of Trustees reviews, at least
quarterly, a written report of the amounts expended under the Fund's Plan and
the purposes for which the expenditures were made. In addition, the Fund's
Plan 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 "Non-Interested Trustees").
In adopting the Plans, the Board of Trustees, as required by the Rule,
carefully considered all pertinent factors relating to the implementation of
the Plan prior to its approval and determined 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 shares in an efficient manner. Any
material amendment to a Plan must be approved by a majority of the Trust's
Board of Trustees (including a majority of the Non-Interested Trustees). So
long as the Plan is 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 interested
Trustees.
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.
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 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, 12b-1 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. 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 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 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 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 the Fund and its shareholders that are not described in the
Prospectuses. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders or possible legislative changes, and
the discussion here and in the 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 the Prospectuses, the Fund is treated as a separate
corporate entity under the Code and intends to qualify as a regulated
investment company under the Code. In order to so qualify for a taxable year,
the 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 the
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 the Fund's Prospectus, the Fund is designed to
provide institutions 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 also such dividends would be taxable when
distributed to the beneficiary. 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 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 the 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 the Fund's assets must consist of exempt-interest
obligations. After the close of its taxable year, the Fund will notify its
investors of the portion of the dividends paid by the Fund which constitutes
an exempt-interest dividend with respect to such taxable year. However, the
aggregate amount of dividends so designated by the Fund cannot exceed the
excess of the amount of interest exempt from tax under Section 103 of the Code
received by the Fund for the taxable year over any amounts disallowed as
deductions under Sections 265 and 171(a)(2) of the Code. The percentage of
total dividends paid by the Fund with respect to any taxable year which
qualifies as federal exempt-interest dividends will be the same for all
investors of the Fund receiving dividends for such year.
Interest on indebtedness incurred by an investor to purchase or carry
the Fund's shares is not deductible for federal income tax purposes if the
Fund distributes exempt-interest dividends during the investor's taxable year.
While the Fund does not expect to realize long-term capital gains, any
net realized long-term capital gains will be distributed at least annually.
The Fund will generally have no tax liability with respect to such gains, and
the distributions will be taxable to the Fund's investors as long-term capital
gains, regardless of how long a investor has held the Fund's shares. Such
distributions will be designated as a capital gain dividend in a written
notice mailed by the Fund to its investors not later than 60 days after the
close of the Fund's taxable year.
Similarly, while the Fund does not expect to earn any investment company
taxable income, taxable income earned by the Fund will be distributed to its
investors. In general, the 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. The Fund will be taxed on any undistributed investment company taxable
income of the Fund. To the extent such income is distributed by the Fund
(whether in cash or additional shares), it will be taxable to the Fund's
investors as ordinary income.
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). The 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 the Fund does not qualify for tax treatment as a
regulated investment company, all of the 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 the Fund's 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 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 the Fund expects to qualify 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. 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 advisers 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
The Fund's net investment income for dividend purposes consists of
(i) interest accrued and discount earned on the Fund's assets, (ii) plus the
amortization of market discount, (iii) less amortization of market premium on
such assets, (iv) 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. Realized and
unrealized gains and losses on portfolio securities are reflected in net asset
value. In addition, Select Shares, Retail Shares and CDSC Shares bear
exclusively the expense of fees paid to Lehman Brothers or other institutions
with respect to the relevant class of shares. See "Management of the Fund-Plan
of Distribution". In addition, Retail Shares and CDSC Shares bear certain
class specific expenses, such as transfer agency and printing costs, which are
not born by the Fund's other classes of shares.
ADDITIONAL PERFORMANCE INFORMATION
The "total return", "yields," "effective yields," "tax equivalent
yields" and "distribution rates" are calculated separately for each class of
shares of the Fund. "Total return" for a particular class of shares
represents the change, over specified period of time, in the value of an
investment in the shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage. The "yield" quoted in
advertisements for a particular class of shares refers to the income generated
by an investment in such shares over a specified period (such as a thirty-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 is assumed to be reinvested. The "effective yield" will
be slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. A "tax equivalent yield" for each Class of the Fund's
shares is computed by dividing the portion of the yield (calculated as
described 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. The distribution rate for a
specified period is calculated by annualizing distributions of net investment
income for such period and dividing this amount by the ending net asset value
for such period.
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other funds or
accounts with similar investment objectives and to stock or other relevant
indices. For example, the yields of the Fund may be compared to various
independent sources, including, but not limited to, Lipper Analytical
Services, Inc., Morningstar, Inc., Barron's, The Wall Street Journal,
Weisenberger Investment Companies Service, IBC/Donoghue's Inc. Bond Fund
Report, Business Week, Financial World, Fortune, Money and Forbes. In
addition, the Fund's performance as compared to certain indices and benchmark
investments may include: [(a) the Lehman Brothers Government/Corporate (Total)
Index, (b) Lehman Brothers Government Index, (c) Merrill Lynch 1-3 Year
Treasury Index, (d) Merrill Lynch 2-Year Treasury Curve Index, (e) the Salomon
Brothers Treasury Yield Curve Rate of Return Index, (f) the Payden & Rygel 2
year Treasury Note Index, (g) 1 through 3 year U.S. Treasury Notes, (h)
constant maturity U.S. Treasury yield indices, (i) the Consumer Price Index,
(j) the London Interbank Offered Rate, (k) other taxable investments such as
certificates of deposit, money market deposit accounts, checking accounts,
savings accounts, money market mutual funds, repurchase agreements, commercial
paper, and (1) historical data concerning the performance of adjustable and
fixed-rate mortgage loans. In addition, the Lehman Brothers' Fixed Income
Research Department was recognized by Institutional Investor's "A11-American
Research Team" poll in 1993 as the leader in fixed-income research.
The composition of the securities in such indices and the
characteristics of such benchmark investments are not identical to, and in
some cases are very different from, those of the Fund's portfolios. These
indices and averages are generally unmanaged and the items included in the
calculations of such indices and averages may not be identical to the formulas
used by the Fund to calculate its performance figures.
From time to time, advertisements or communications to shareholders may
summarize the substance of information contained in shareholder reports
(including the investment composition of the Fund), as well as the views of
Lehman Brothers as to current market, economic, trade and interest rate
trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to the Fund (such
as the supply and demand of mortgage-related securities and the relative
performance of different types of mortgage loans and mortgage-related
securities as affected by prepayment rates and other factors).
The Fund may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish the Investment
Adviser's views as to markets, the rationale for the Fund's investments and
discussions of the Fund's current asset allocation.
In addition, advertisements or shareholder communications may include a
discussion of certain attributes of the Fund such as average portfolio
maturity or benefits to be derived by an investment in the Fund. Such
advertisements or communications may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein. Advertisements or communications to shareholders may also include
current ratings of the Fund by independent organizations such as Moody's and
Standard & Poor's.
The Fund's total return and yield figures for a class of shares will
fluctuate, and any quotation of total return or yield should not be considered
as representative of the future performance of the Fund. Since total return
and yields fluctuate, yield and total return data for the Fund cannot
necessarily be used to compare an investment in Fund 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 of any investment is generally a
function of the kind and quality of the investments held in a portfolio,
portfolio maturity, operating expenses and market conditions. Since holders
of Select, Retail and CDSC Shares bear the Rule 12b-1 distribution or
shareholder servicing fee, the net yield on such shares can be expected at any
given time to be lower than the net yield on Premier Shares. Any fee charged
by institutions with respect to customer accounts investing in shares of a
Fund will not be included in total return or yield calculations; such fees, if
charged, would reduce the actual total return and 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.
Fund shares represent an equal, proportionate interest in 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 the
Prospectuses, Fund shares will be fully paid and non-assessable. As stated in
the Prospectuses, 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.
(See "Management of the Fund-Plan of Distribution.") 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.
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.
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, 200 Clarendon Street, Boston, Massachusetts 02116-5072
serves as independent auditors of the Trust and will issue reports on the
statement of assets and liabilities of the Fund.
MISCELLANEOUS
Shareholder Vote
As used in this Statement of Additional Information and the Fund's
Prospectuses, a "majority of the outstanding shares" of the Fund or of any
other portfolio means the lesser of (1) 67% of 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 the Fund or such portfolio are present in
person or by proxy, or (2) more than 50% of the outstanding shares of the 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 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.
"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.
APPENDIX
DESCRIPTION OF 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.
Municipal Long-Term Debt Ratings
The following summarizes the three 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.
"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.
PLUS (+) or MINUS (-) - The rating of "AA" and "A" may be modified
by the addition of a plus or minus sign to show relative standing within
this rating category.
The following summarizes the three 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.
"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.
Moody's applies numerical modifiers 1, 2 and 3 in generic
classification of "Aa" and "A" 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 three 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.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in
periods of economic stress.
To provide more detailed indications of credit quality, the "AA"
and "A" 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.
The following summarizes the three 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+."
"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.
To provide more detailed indications of credit quality, the Fitch
rating of "AA" and "A" 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 three 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.
"A" - This designation indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
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 three 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.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and
interest is strong, although adverse changes in business economic or
financial conditions may lead to increased investment risk.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within these rating categories.
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.
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:
None
(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 are
incorporated herein by reference to the Annual Report dated January 31,
1994.
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.
(e)
Certificate pertainging to Designation and Establishment of
Series and Classification of Shared with respect to the Short Duration
Municipal Fund and the Retail Shares and CDSC Shares will be filed by
Amendment.
(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) Form of Investment Advisory Agreement between Registrant and
Lehman Brothers Global Asset Management Inc. relating to the Short
Duration Municipal Fund is filed herein.
(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) Form of Amendment No. 1 to the Custody Agreement dated November
10, 1993 between Registrant and Boston Safe Deposit and Trust Company is
filed herein.
(c) Form of Amendment No. 2 to the Custody Agreement dated January
27, 1994 betweeen Registrant and Boston Safe Deposit and Trust Company
is filed herein.
(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 incorporated by reference to exhibit
9b to Post-Effective Amendment No. 5 to the Registrant Registration
Statement on Form N-1A filed with the Commission on June 1,1994.
(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) Form of Amendment No. 1 to the Transfer Agency Agreement dated
November 10, 1993 between Registrant and The Shareholder Services Group,
Inc. is filed herein.
(e) Form of Amendment No. 2 to the Transfer Agency Agreement dated
January 27, 1994 between the Registrant and The Shareholder Services
Group, Inc. is filed herein. and
(10)(a) Opinion and Consent of Counsel will be filed by
amendment
(b) Opinion and Consent of Massachusetts Counsel will be filed by
amendment.
(11)(a) Consent of Independent Accountants will be filed by
amendment.
(b) 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.
(c) Consent of Counsel will be filed by amendment.
(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 incorporated by reference to exhibit 13(b) to Post-Effective
Amendment No. 5 to the Registrant'sRegistration Statement on Form N-1A
filed with the Commission on June 1, 1994.
(c) Purchase Agreement dated March 2, 1994 between Registrant and
Lehman Brothers, Inc., relating to the Short Duration U.S. Government
Fund is incorporated by reference to exhibit 13(c) to Post-Effective
Amendment No. 5 to the Registrant's Registration Statement on Form N-1A
filed with the Commission on June 1, 1994.
(d)
Purchase Agreement dated , 1994 between Registrant and
Lehman Brothers, Inc. relating to the Short Duration Municipal Fund will
be filed by Amendment.
(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.*
(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.
(i)
Form of Plan of Distribution for Premier, Select, Retail and
CDSC Shares for the Short Duration Municipal Fund will be filed by
amendment.
(16)(a) Not Applicable.
*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 25. Persons Controlled by or under Common Control with
Registrant
Registrant is controlled by its Board of Trustees.
Item 26. Number of Holders of Securities
The following information is as of July 5, 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 E
Shares)
Prime Money
Market Fund
252
6
3
1
Prime Value
Money Market
Fund
136
3
1
1
Government
Obligations
Money Market
Fund
20
3
1
1
100%
Government
Obligations
Money Market
Fund
2
1
1
1
Treasury
Instruments
Money Market
Fund
0
0
0
______
Treasury
Instruments II
Money Market
Fund
30
12
1
1
100% Treasury
Instruments
Money Market
Fund
10
1
1
1
Tax-Free Money
Market Fund
14
1
1
1
Municipal
Money Market
Fund
38
1
1
1
California
Municipal
Money Market
Fund
6
1
1
1
U.S.
Government
Floating Rate
3
1
0
_______
Short Duration
U.S.
Government
3
2
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 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., 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), U.S. Tactical Asset Allocation
Portfolio (Cayman), and The Global Advisors Portfolio N.V., The Global
Advisors Portfolio II N.V., The Advisors Dragon Portfolio N.V., U.S.
Money Market Fund N.V., Offshore Diversified Stategic Income Fund N.V.,
U.S. Money Market Investments N.V., Government Securities Investment
N.V., Global Bond Investments N.V., U.S. Appreciation Fund N.V.,
European Equity Investments N.V., Pacific Equity Investments N.V., ECU
Fixed-Income Investments N.V., The Mercoser Equity Fund N.V. and Short
Duration U.S. Government Fund 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 Municipal within four to six months from the
effective date of this Post-Effective Amendment.
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. 6 to the
Registration Statement meets the requirements for effectiveness pursuant
to Rule 485(a) of the Securities Act of 1933, as amended, and the
Registrant has duly caused this Post-Effective Amendment No. 6 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 th day of August 4, 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. 6 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
August 4, 1994
*
Trustee
August 4, 1994
Charles F. Barber
*
Trustee
August 4, 1994
Burt N. Dorsett
*
Trustee
August 4, 1994
Edward J. Kaier
*
Trustee
August 4, 1994
S. Donald Wiley
*
Michael C. Kardok
Treasurer (Chief Financial
and Accounting Officer)
August 4, 1994
*By: /s/ Peter Meenan
Peter Meenan
Attorney-In-Fact
- - 23 -
shared/lehman/miscinstitu/institut/ifg/newspros/sdmunsai.doc
shared/lehman/institut/pea/pea#6.doc 08/03/94 11:29 AM
C-7
shared\lehman\institut\peas\pea6.doc
exhibit 8B
AMENDMENT NO. 1 TO CUSTODIAN AGREEMENT
This Amendment, dated as of the 10th day of
November, 1993, is entered into between LEHMAN
BROTHERS INSTITUTIONAL FUNDS GROUP TRUST, a
Massachusetts business trust (the "Fund"), and
BOSTON SAFE DEPOSIT & TRUST COMPANY ("Boston
Safe"), a Massachusetts trust company.
WHEREAS, the Fund and Boston Safe have
entered into a Custodian Agreement dated as of
February 3, 1993 (the "Custodian Agreement"),
pursuant to which the Fund appointed Boston Safe
to act as custodian to the Fund for its investment
portfolios: 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, New York Municipal Money Market Fund and
California Municipal Money Market Fund
(collectively, the "Funds"); and
WHEREAS, the Fund has established an
additional investment portfolio: Short Duration
U.S. Government Fund and the Floating Rate U.S.
Government Fund (the "New Funds") with respect to
which it desires to retain Boston Safe to act as
custodian under the Custodian Agreement; and
WHEREAS, Boston Safe has notified the Fund
that it is willing to serve as custodian for the
New Funds.
NOW, THEREFORE, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. Appointment. The Funds hereby appoint
Boston Safe to act as custodian to the Funds for
the New Funds for the period and on the terms set
forth in the Custodian Agreement. Boston Safe
hereby accepts such appointment and agrees to
render the services set forth in the Custodian
Agreement, for the compensation as agreed to
between the Funds and Boston Safe from time to
time pursuant to the Custodian Agreement.
2. Capitalized Terms. From and after the
date hereof, the following term as used in the
Custodian Agreement shall be deemed to include
also the meaning specified herein: "Fund(s)"
shall be deemed to include the Funds and the New
Funds.
3. Miscellaneous. Except to the extent
supplemented hereby, the Custodian Agreement shall
remain unchanged and in full force and effect and
is hereby ratified and confirmed in all respects
as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have
executed this Amendment as of the date and year
first above written.
LEHMAN BOTHERS
INSTITUTIONAL FUNDS
GROUP TRUST
By:
___________________________
Title:
BOSTON SAFE DEPOSIT &
TRUST COMPANY
By:
___________________________
Title:
ifg/agreemen/custamn1.doc
exhibit 8C
AMENDMENT NO. 2 TO CUSTODIAN AGREEMENT
This Amendment, dated as of the 27th day of
January, 1994, is entered into between LEHMAN BROTHERS
INSTITUTIONAL FUNDS GROUP TRUST, a Massachusetts
business trust (the "Fund"), and BOSTON SAFE DEPOSIT &
TRUST COMPANY ("Boston Safe"), a Massachusetts trust
company.
WHEREAS, the Fund and Boston Safe have entered
into a Custodian Agreement dated as of February 3, 1993
(the "Custodian Agreement"), pursuant to which the Fund
appointed Boston Safe to act as custodian to the Fund
for its investment portfolios: 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, New York Municipal Money Market Fund, California
Municipal Money Market Fund, Shaort Duration U.S.
Government Fund and the Floating Rate U.S. Government
Fund (collectively, the "Funds"); and
WHEREAS, the Fund has established an additional
investment portfolio: Short Duration Municipal Fund
(the "New Fund") with respect to which it desires to
retain Boston Safe to act as custodian under the
Custodian Agreement; and
WHEREAS, Boston Safe has notified the Fund that it
is willing to serve as custodian for the New Fund.
NOW, THEREFORE, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Appointment. The Fund hereby appoint Boston
Safe to act as custodian to the Fund for the New Fund
for the period and on the terms set forth in the
Custodian Agreement. Boston Safe hereby accepts such
appointment and agrees to render the services set forth
in the Custodian Agreement, for the compensation as
agreed to between the Fund and Boston Safe from time to
time pursuant to the Custodian Agreement.
2. Capitalized Terms. From and after the date
hereof, the following term as used in the Custodian
Agreement shall be deemed to include also the meaning
specified herein: "Fund(s)" shall be deemed to include
the Fund and the New Fund.
3. Miscellaneous. Except to the extent
supplemented hereby, the Custodian Agreement shall
remain unchanged and in full force and effect and is
hereby ratified and confirmed in all respects as
supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed
this Amendment as of the date and year first above
written.
LEHMAN BOTHERS INSTITUTIONAL
FUNDS
GROUP TRUST
By:
___________________________
Title:
BOSTON SAFE DEPOSIT & TRUST
COMPANY
By:
___________________________
Title:
ifg/agreemen/custamn2.doc
exhibit 9D
AMENDMENT NO. 1 TO TRANSFER AGENCY AGREEMENT
This Amendment, dated as of the 10th day of
November 1993, is entered into between LEHMAN BROTHERS
INSTITUTIONAL FUNDS GROUP TRUST, a Massachusetts
business trust (the "Fund"), and THE SHAREHOLDER
SERVICES GROUP, INC. ("TSSG"), a Massachusetts
corporation with principal offices at One Exchange
Place, 53 State Street, Boston, Massachusetts 02109.
WHEREAS, the Fund and TSSG have entered into a
Transfer Agency Agreement dated as of February 3, 1993
(the "Transfer Agreement"), pursuant to which the Fund
appointed TSSG to act as transfer agent to its
investment portfolios: 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, New York Municipal
Money Market Fund and California Municipal Money Market
Fund (collectively, the "Funds"); and
WHEREAS, the Fund has established an additional
investment portfolio: Short Duration U.S. Government
Fund and the Floating Rate U.S. Government Fund (the
"New Funds") with respect to which it desires to retain
TSSG to act as transfer agent under the Transfer
Agreement; and
WHEREAS, TSSG has notified the Funds that it is
willing to serve as transfer agent for the New Funds.
NOW, THEREFORE, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Appointment. The Funds hereby appoints TSSG
to act as transfer agent to the Funds for the New Funds
for the period and on the terms set forth in the
Transfer Agreement. TSSG hereby accepts such
appointment and agrees to render the services set forth
in the Transfer Agreement, for the compensation as
agreed to between the Funds and TSSG from time to time
pursuant to the Transfer Agreement.
2. Capitalized Terms. From and after the date
hereof, the following term as used in the Transfer
Agreement shall be deemed to include also the meaning
specified herein: "Fund(s)" shall be deemed to include
the Funds and the New Funds.
3. Miscellaneous. Except to the extent
supplemented hereby, the Transfer Agreement shall
remain unchanged and in full force and effect and is
hereby ratified and confirmed in all respects as
supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed
this Amendment as of the date and year first above
written.
LEHMAN BROTHERS
INSTITUTIONAL FUNDS
GROUP TRUST
By:
____________________________
Title:
THE SHAREHOLDER SERVICES
GROUP, INC.
By:
_____________________________
Title:
ifg/agree/amd1tran.doc
AMENDMENT NO. 2 TO TRANSFER AGENCY AGREEMENT
This Amendment, dated as of the 27th day of
January, 1994, is entered into between LEHMAN BROTHERS
INSTITUTIONAL FUNDS GROUP TRUST, a Massachusetts
business trust (the "Fund"), and THE SHAREHOLDER
SERVICES GROUP, INC. ("TSSG"), a Massachusetts
corporation with principal offices at One Exchange
Place, 53 State Street, Boston, Massachusetts 02109.
WHEREAS, the Fund and TSSG have entered into a
Transfer Agency Agreement dated as of February 3, 1993
(the "Transfer Agreement"), pursuant to which the Fund
appointed TSSG to act as transfer agent to its
investment portfolios: 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, New York Municipal
Money Market, California Municipal Money Market Fund,
Short Term Duration U.S. Government Fund and Floating
Rate U.S. Government Fund (collectively, the "Funds");
and
WHEREAS, the Fund has established an additional
investment portfolio: Short Duration Municipal Fund
(the "New Fund") with respect to which it desires to
retain TSSG to act as transfer agent under the Transfer
Agreement; and
WHEREAS, TSSG has notified the Fund that it is
willing to serve as transfer agent for the New Fund.
NOW, THEREFORE, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Appointment. The Fund hereby appoints TSSG
to act as transfer agent to the Fund for the New Fund
for the period and on the terms set forth in the
Transfer Agreement. TSSG hereby accepts such
appointment and agrees to render the services set forth
in the Transfer Agreement, for the compensation as
agreed to between the Fund and TSSG from time to time
pursuant to the Transfer Agreement.
2. Capitalized Terms. From and after the date
hereof, the following term as used in the Transfer
Agreement shall be deemed to include also the meaning
specified herein: "Fund(s)" shall be deemed to include
the Funds and the New Fund.
3. Miscellaneous. Except to the extent
supplemented hereby, the Transfer Agreement shall
remain unchanged and in full force and effect and is
hereby ratified and confirmed in all respects as
supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed
this Amendment as of the date and year first above
written.
LEHMAN BROTHERS
INSTITUTIONAL FUNDS
GROUP TRUST
By:
____________________________
Title:
THE SHAREHOLDER SERVICES
GROUP, INC.
By:
_____________________________
Title:
ifg/agree/amd2tran.doc
