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 February 18, 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. 4 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X
Amendment No. 9 /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) 248-3503
Patrricia L. Bickimer, Esq.
The Boston Company Advisors, Inc.
One Exchange Place
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copies to:
Burton M. Leibert, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
It is proposed that this filing will become effective
(check appropriate box):
X immediately upon filing pursuant to paragraph (b), or
_____on_________pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a), or
_____on_________pursuant to paragraph (a) of Rule 485
The Registrant has previously filed a declaration of indefinite registration
of its shares pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. Registrant's Rule 24f-2 Notice for the fiscal year ending January
31, 1994 will be filed on or before March 31, 1994
Page 1 of____Pages
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A
Item No. Prospectus Heading
1. Cover Page Cover Page
2. Synopsis Background and Expense
Information; Performance Information
3. Condensed Financial
Information............................... Not Applicable
4. General Description of
Registrant Cover Page; Investment
Objective and Policies;
Description of Shares
5. Management of the Fund Management of the Fund;
Dividends
6. Capital Stock and Other
Securities Cover Page; Dividends;
Taxes; Description of
Shares
7. Purchase of Securities Purchase and Redemption
of Shares; Management
of the Fund
8. Redemption or Repurchase Purchase and Redemption
of Shares
9. Legal Proceedings Not Applicable
Part B Heading in Statement
Item No. of Additional Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and
History The Trust; Management of
the Fund;
13. Investment Objectives and
Policies Investment Objective and
Policies
14. Management of the Fund Management of the Fund
15. Control Persons and Principal
Holders of Securities Management of the Fund
16. Investment Advisory and
Other Services Management of the Fund
17. Brokerage Allocation Investment Objective and
Policies
18. Capital Stock and Other Additional Information
Securities Concerning Fund Shares;
Dividends
19. Purchase, Redemption and Additional Purchase and
Pricing of Securities Redemption Information
Being Offered
20. Tax Status Additional Information
Concerning Taxes
21. Underwriters Management of the Funds
22. Calculation of Performance Additional Yield
Information
23. Financial Statements Financial Statements
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
The Prospectuses dated February 5, 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 not included in this filing.
Part A (the Prospectus, dated February 5, 1993) and Part B (the Statement of
Additional Information, also dated February 5, 1993 of Form N-1A are
incorporated herein by reference to the Registrant's filing of definitive
copies of the Prospectus and Statement of Additional Information pursuant to
Rule 497(c).
<PAGE>
LEHMAN BROTHERS
SHORT DURATION U.S. GOVERNMENT 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 ("Institutional Shares") of the Short
Duration U.S. Government 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
primarily in a portfolio consisting of short duration adjustable rate, floating
rate and fixed rate U.S. government and agency securities, and repurchase
agreements collateralized by such obligations.
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 February 21,
1994, as amended or supplemented from time to time, has been filed with the
Securities and Exchange Commission and is available to investors without charge
by calling the Fund's Distributor at 1-800-368-5556. The Statement of Additional
Information is incorporated in its entirety by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. SHARES OF THE FUND INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
LEHMAN BROTHERS
February 21, 1994
<PAGE>
BACKGROUND AND EXPENSE INFORMATION
The Fund currently offers three separate classes of shares, only one of
which, Institutional Shares, is offered by this Prospectus. Each class
represents an equal, PRO RATA interest in the Fund. Each share accrues daily
dividends in the same manner, 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 (net of waivers)........... .17%
Rule 12b-1 fees.......................... none
Other Expenses -- including
Administration Fees..................... .23
-----
Total Fund Operating Expenses (after
expense reimbursement).................. .40
-----
-----
- ---------
[CAPTION]
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:
[CAPTION]
1 YEAR 3 YEARS
------ -------
$4 $13
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES AND
RATE OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
The Fund's Investment Adviser has voluntarily agreed to waive its fee or
reimburse the Fund to the extent necessary to maintain the Fund's annualized
expense ratio at .40%. The voluntary waiver or reimbursement will not be changed
unless shareholders are provided at least 60 days' advance notice. In addition,
the Administrator may waive a portion of its fee which will assist in achieving
this expense ratio. Absent waivers or reimbursement of expenses, Advisory Fees
with respect to Institutional Shares would be .30% annually, Other Expenses
would be .25% annually and the Total Fund Operating Expenses would be .60%, of
the Fund's average daily net assets. The foregoing table has not been audited by
the Fund's independent accountants.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide a high level of current
income consistent with minimal fluctuation of net asset value. Current income
includes, in general, discount earned on U.S. Treasury bills and agency discount
notes, interest earned on mortgage-related securities and other U.S. government
and agency securities, and short-term capital gains. While there can be no
assurance that the Fund will be able to maintain minimal fluctuation 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.
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<PAGE>
The Fund pursues its investment objective by investing primarily in a
professionally managed portfolio of adjustable rate, floating rate and fixed
rate securities which are issued or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities. As a mutual
fund with "U.S. Government" in its name, under normal market conditions, the
Fund must invest at least 65% of its portfolio in such instruments.
DURATION
Under normal interest rate conditions, the Fund's average portfolio duration
will be approximately the same as a one-year U.S. Treasury Bill (approximately
one year). This means that the Fund's net asset value fluctuation is expected to
be similar to the price fluctuation of a one-year Treasury Bill. The Fund's
average portfolio duration is not expected to exceed that of a two-year U.S.
Treasury Note (approximately 1.9 years). In computing the average duration of
its portfolio, the Fund will estimate the duration of obligations that are
subject to prepayment or redemption by the issuer, taking into account the
influence of interest rates on prepayments and coupon flows. Maturity, in
contrast to duration, measures only the time until final payment is due on an
investment; it does not take into account the pattern of a security's cash flow
over time, including how cash flow is affected by prepayments and by changes in
interest rates.
ACCEPTABLE INVESTMENTS
The types of U.S. government securities in which the Fund may invest include
direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes, and
bonds, as well as obligations of U.S. government agencies or instrumentalities.
The Fund may invest in U.S. government securities which are collateralized by or
represent interests in real estate mortgages. The types of mortgage securities
in which the Fund may invest include the following: (i) adjustable rate mortgage
securities; (ii) collateralized mortgage obligations; (iii) real estate mortgage
investment conduits; and (iv) other securities collateralized by or representing
interests in real estate mortgages whose interest rates reset at periodic
intervals and are issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
The Fund may also invest in mortgage-related securities which are issued by
private entities such as investment banking firms and companies related to the
construction industry. The privately issued mortgage-related securities in which
the Fund may invest include: (i) privately issued securities which are
collateralized by pools of mortgages in which each mortgage is guaranteed as to
payment of principal and interest by an agency or instrumentality of the U.S.
government; (ii) privately issued securities which are collateralized by pools
of mortgages in which payment of principal and interest are guaranteed by the
issuer and such guarantee is collateralized by U.S. government securities; and
(iii) other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal and
interest are supported by the credit of any agency or instrumentality of the
U.S. government.
The privately issued mortgage-related securities provide for periodic
payments consisting of both interest and principal. The interest portion of
these payments will be distributed by the Fund as income, and the capital
portion will be reinvested.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities include U.S. Treasury
securities, which differ in interest rates, maturities and times of issuance.
Treasury bills have initial maturities of one year or less; Treasury notes have
initial maturities of one to ten years; and Treasury Bonds generally have
initial maturities of greater than ten years. Some obligations issued or
guaranteed by U.S. government agencies and instrumentalities, for example,
Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government
3
<PAGE>
to purchase certain obligations of the agency or instrumentality; and others,
such as those issued by the Student Loan Marketing Association, only by the
credit of the agency or instrumentality. These securities bear fixed, floating
or variable rates of interest. While the U.S. government provides financial
support to such U.S. Government-sponsored agencies or instrumentalities, no
assurance can be given that it will always do so, since it is not so obligated
by law. The Fund will invest in such securities only when it is satisfied that
the credit risk with respect to the issuer is minimal.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are pass-through
mortgage securities with adjustable rather than fixed interest rates. The ARMS
in which the Fund invests are issued by Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA") and Federal Home Loan
Corporation ("FHLMC") and are actively traded. The underlying mortgages which
collateralize ARMS issued by GNMA are fully guaranteed by the Federal Housing
Administration ("FHA") or Veterans Administration ("VA"), while those
collateralizing ARMS issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting size and maturity
constraints.
Unlike conventional bonds, ARMS pay back principal over the life of the ARMS
rather than at maturity. Thus, a holder of the ARMS, such as the Fund, would
receive monthly scheduled payments of principal and interest and may receive
unscheduled principal payments representing payments on the underlying
mortgages. At the time that a holder of the ARMS reinvests the payments and any
unscheduled prepayments of principal that it receives, the holder may receive a
rate of interest paid on the existing ARMS. As a consequence, ARMS may be a less
effective means of "locking in" long-term interest rates than other types of
U.S. government securities.
Not unlike other U.S. government securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the market
value of ARMS generally declines when interest rates rise and generally rises
when interest rates decline.
While ARMS generally entail less risk of a decline during periods of rapidly
rising rates, ARMS may also have less potential for capital appreciation than
other similar investments (e.g., investments with comparable maturities)
because, as interest rates decline, the likelihood increases that mortgages will
be prepaid. Furthermore, if ARMS are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium paid. Conversely, if
ARMS are purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are bonds issued by
single-purpose, stand-alone finance subsidiaries or trusts of financial
institutions, government agencies, investment banks, or companies related to the
construction industry. CMOs purchased by the Fund may be:
(a) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government;
(b) collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized
by U.S. government securities; or
(c) securities in which the proceeds of the issuance are invested in
mortgage securities and payment of the principal and interest are
supported by the credit of an agency or instrumentality of the U.S.
government.
4
<PAGE>
All CMOs purchased by the Fund are investment grade, as rated by a
nationally recognized statistical rating organization.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs are offerings
of multiple class real estate mortgage-backed securities which qualify and elect
treatment as such under provisions of the Internal Revenue Code. Issuers of
REMICs may take several forms, such as trusts, partnerships, corporations,
associations or a segregated pool of mortgages. Once REMIC status is elected and
obtained, the entity is not subject to federal income taxation. Instead, income
is passed through the entity and is taxed to the person or persons who hold
interests in the REMIC. A REMIC interest must consist of one or more classes of
"regular interests," some of which may offer adjustable rates (the type in which
the Fund primarily invests), and a single class of "residual interests". To
qualify as a REMIC, substantially all of the assets of the entity must be in
assets directly or indirectly secured principally by real property.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"). The Fund may invest up to 10%
of its total assets in SMBS, which are derivative multiclass mortgage
securities. The Fund may only invest in SMBS issued or guaranteed by the U.S.
government, its agencies or instrumentalities. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets, which may consist of mortgage
loans or guaranteed mortgage pass-through certificates. A common type of SMBS
will have one class receiving all or a portion of the interest from the mortgage
assets, while the other class will receive all of the principal. Moreover, in
some instances, one class will receive some of the interest and most of the
principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, there may no longer be interest paid
on some of the underlying mortgage loans and the Fund, as a result, may fail to
fully recoup its initial investment in these securities. Although the market for
such securities is increasingly liquid, certain SMBS may not be readily
marketable and will be considered illiquid for purposes of the Fund's limitation
on investments in illiquid securities. The market value of the class consisting
entirely of principal payments generally is unusually sensitive to changes in
interest rates. The market value of the class consisting entirely of interest
payments is extremely sensitive not only to changes in interest rates but also
to the rate of principal payments, including prepayments, on the related
underlying mortgage assets. The yields on a class of SMBS that receives all or
most of the interest from mortgage assets are generally higher than prevailing
market yields on other mortgage-backed securities because their cash flow
patterns are more variable and there is a greater risk that the initial
investment will not be fully recouped. The Investment Adviser will seek to
manage these risks (and potential benefits) by investing in a variety of such
securities and by using certain hedging techniques.
OTHER INVESTMENTS AND PRACTICES
RESETS. The interest rates paid on the ARMS, CMOs and REMICs in which the
Fund invests generally are readjusted or reset at intervals of one year or less
to an increment over some predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury securities and those derived
from a calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-year
Constant Maturity Treasury (CMT) rates, the three-month Treasury Bill rate, the
180-day Treasury Bill rate, rates on longer term Treasury securities, the
National Median Cost of Funds (COFI), the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a specific bank, or commercial
paper rates. Some indices, such as the one-year CMT rate, closely mirror changes
in market interest rate levels. Others tend to lag changes in market rate levels
and tend to be somewhat less volatile.
CAPS AND FLOORS. The underlying mortgages which collateralize the ARMS,
CMOs and REMICs in which the Fund invests may have caps and floors which limit
the maximum amount by which the loan rate to the
5
<PAGE>
residential borrower may change up or down: (1) per reset or adjustment interval
and (2) over the life of the loan. Some residential mortgage loans restrict
periodic adjustments by limiting changes in the borrower's monthly principal and
interest payments rather than limiting interest rate changes. These payment caps
may result in negative amortization.
The value of mortgage securities in which the Fund invests may be affected
if market interest rates rise or fall faster and farther than the allowable caps
or floors on the underlying residential mortgage loans. An example of the effect
of caps and floors on a residential mortgage loan may be found in the Statement
of Additional Information. Additionally, even though the interest rates on the
underlying residential mortgages are adjustable, amortization and prepayments
may occur, thereby causing the effective maturities of the mortgage securities
in which the Fund invests to be shorter than the maturities stated in the
underlying mortgages.
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 them 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 them at an agreed upon date and price. The Fund would consider
entering into reverse repurchase agreements to avoid otherwise selling
securities during unfavorable market conditions. Reverse repurchase agreements
involve the risk that the market value of the portfolio securities sold by the
Fund may decline below the price of the securities the Fund is obligated to
repurchase.
DOLLAR ROLL TRANSACTIONS. In order to enhance portfolio returns and manage
prepayment risks, the Fund may engage in dollar roll transactions with respect
to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar roll
transaction, the Fund sells a mortgage security to a financial institution, such
as a bank or broker/dealer, and simultaneously agrees to repurchase a
substantially similar (same type, coupon, and maturity) security from the
institution at a later date at an agreed upon price. The mortgage securities
that are repurchased will bear the same interest rate as those sold, but
generally will be collateralized by different pools of mortgages with different
prepayment histories. During the period between the sale and repurchase, the
Fund will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any additional
fee income received on the sale, will generate income for the Fund exceeding the
yield. When the Fund enters into a dollar roll transaction, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the obligations to be
repurchased, are segregated at the trade date. These assets are marked to market
daily and are maintained until the transaction is settled.
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
6
<PAGE>
issued in reliance on the so-called "private placement" exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended
("Section 4(2) paper"). The Fund may also purchase securities that are not
registered under the Securities Act of 1933, as amended, but which can be sold
to qualified institutional buyers in accordance with Rule 144A under that Act
("Rule 144A securities"). Section 4(2) paper is restricted as to disposition
under the federal securities laws, and generally is sold to institutional
investors such as the Fund who agree that they are purchasing the paper for
investment and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market in the Section
4(2) paper, thus providing liquidity. Rule 144A securities generally must be
sold to other qualified institutional buyers. If a particular investment in
Section 4(2) paper or Rule 144A securities is not determined to be liquid, that
investment will be included within the 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 loaned.
TEMPORARY DEFENSIVE POSITIONS. When maintaining a temporary defensive
position, the Fund may invest its assets, without limit, in commercial paper and
other short-term corporate obligations. The Fund's investment in commercial
paper or corporate obligations will be limited to securities with one year or
less remaining to maturity and rated A-1 by S&P Corporation or P-1 by Moody's
Investor Service, Inc.
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.
INVESTMENT LIMITATIONS
The Fund's investment objective and the policies described above are not
fundamental and may be changed by the Trust's Board of Trustees without a vote
of shareholders. If there is a change in the investment objective, shareholders
should consider whether the Fund remains an appropriate investment in light of
their then current financial position and needs. The Fund's investment
limitations summarized below may not be changed without the affirmative vote of
the holders of a majority of its outstanding shares. 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.")
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<PAGE>
The Fund may not:
1. Borrow money, except that the Fund may (i) borrow money for
temporary or emergency purposes (not for leveraging or investment) and (ii)
engage in reverse repurchase agreements or dollar roll transactions for any
purpose; 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 obligations and obligations of domestic banks.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
PURCHASE PROCEDURES
Shares of the Fund are sold at the net asset value per share of the Fund
next determined after receipt of a purchase order by Lehman Brothers Inc.
("Lehman Brothers"), a 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 before 4:00 p.m., Eastern time. Payment
in federal funds immediately available to the Custodian, Boston Safe Deposit &
Trust Company, 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 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 class.
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 by telephone in the
manner described herein. Shares are redeemed at the net asset value per share
next determined after Lehman Brothers' receipt of the redemption order. The
proceeds paid to a shareholder upon redemption may be more or less than the
amount invested depending upon a share's net asset value at the time of
redemption.
Subject to the foregoing, payment for redeemed shares for which a redemption
order is received by Lehman Brothers before 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
8
<PAGE>
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 shareholder. Any such redemption shall be
effected at the net asset value per share next determined after the redemption
order is entered. If during the 60 day period the shareholder increases the
value of its account to $10,000 or more, no such redemption shall take place. In
addition, the Fund may redeem shares involuntarily or suspend the right of
redemption as permitted under the Investment Company Act of 1940, as amended
(the "1940 Act"), or under certain special circumstances described in the
Statement of Additional Information under "Additional Purchase and Redemption
Information."
The ability to give telephone instructions for the redemption (and purchase
or exchange) of shares is automatically established on a shareholder'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.
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.
EXCHANGE PROCEDURES
The Exchange Privilege enables a shareholder 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 shareholders. To use the
Exchange Privilege, exchange instructions must be given to Lehman Brothers by
telephone. See "Redemption Procedures." In exchanging shares, a shareholder 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 shareholder
resides. Before any exchange, the shareholder 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 shareholder and, therefore, a shareholder
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 shareholders.
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 the New York Stock Exchange or the Federal Reserve Bank of Boston is
closed. Currently, one
9
<PAGE>
or both of these institutions are closed on the customary national business
holidays of New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day (observed), Independence Day (observed), Labor Day,
Columbus Day, 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). 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
Shareholders of the Fund are entitled to dividends and distributions arising
only from the net investment income and capital gains, if any, earned on
investments held by the Fund. The Fund's net investment income is declared daily
as a dividend to shares held of record at the close of business on the day of
declaration. Shares begin accruing dividends on the 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
within five business days after the end of the month or within five business
days after a redemption of all of a shareholder's shares of a particular class.
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
Institutional Shares.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same class of shares with respect
to which such dividends are declared at the net asset value of such shares on
the payment date. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Such election, or any revocation thereof, must be made
in writing to The Shareholder Services Group, Inc. ("TSSG"), a subsidiary of
First Data Corporation and the Fund's transfer agent, at P.O. Box 9690,
Providence, Rhode Island 02940-9690, and will become effective after its receipt
by TSSG, with respect to dividends paid.
TSSG, as transfer agent, will send each Fund shareholder or its authorized
representative an annual statement designating the amount, if any, of any
dividends and distributions made during each year and their federal tax
qualification.
10
<PAGE>
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 shareholders
at least 90% of its investment company taxable income for such year. In general,
the Fund's investment company taxable income will be its taxable income
(including dividends and short-term capital gains, if any) subject to certain
adjustments and excluding the excess of any net long-term capital gains for the
taxable year over the net short-term capital loss, if any, for such year. The
Fund intends to distribute substantially all of its investment company taxable
income each year. Such distributions will be taxable as ordinary income to Fund
shareholders who are not currently exempt from federal income taxes, whether
such income is received in cash or reinvested in additional shares. (Federal
income taxes for distributions to an IRA or a qualified retirement plan are
deferred under the Code.) It is anticipated that none of the Fund's
distributions will be eligible for the dividends received deduction for
corporations.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by the shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during January of the
following year. Shareholders will be advised at least annually as to the federal
income tax status of distributions made to them each year.
The foregoing discussion is only a brief summary of some of the important
federal tax considerations generally affecting the Fund and its shareholders. As
noted above, IRAs receive special tax treatment. No attempt is made to present a
detailed explanation of the federal, state or local income tax treatment of the
Fund or its shareholders, and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Fund should
consult their tax advisors with specific reference to their own tax situation.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of the
Trust's Board of Trustees. The Trustees approve all significant agreements
between the Trust and the persons or companies that furnish services to the
Fund, including agreements with its Distributors, Investment Adviser,
Administrator, Custodian and Transfer Agent. The day-to-day operations of the
Fund are delegated to the Fund's Investment Adviser and Administrator. One
Trustee and all of the Trust's officers are affiliated with Lehman Brothers, The
Boston Company Advisors, Inc. or one of their affiliates. The Statement of
Additional Information relating to the Fund contains general background
information regarding each Trustee and executive officer of the Trust.
INVESTMENT ADVISER--LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located at 3 World
Financial Center, New York, New York 10285, serves as the Fund's Investment
Adviser. LBGAM is a wholly owned subsidiary of Lehman Brothers Holdings Inc.
("Holdings"). All of the issued and outstanding common stock (representing 92%
of the voting stock) of Holdings is held by American Express Company. LBGAM,
together with other Lehman Brothers investment advisory affiliates, serves as
investment adviser to investment companies and private accounts and has assets
under management in excess of $13 billion.
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
11
<PAGE>
securities and employs professional portfolio managers and securities analysts
who provide research services to the Fund. For its services LBGAM is entitled to
a monthly fee payable by the Fund at the annual rate of .30% of the value of the
Fund's average daily net assets.
Kirk D. Hartman, a Managing Director of LBGAM, has been associated with
Lehman Brothers in the Mortgage Department since 1987. Mr. Hartman is the
portfolio manager primarily responsible for managing the day-to-day operations
of the Fund, including the making of investment selections. Mr. Hartman will be
assisted by Andrew J. Stenwall, a Vice President of LBGAM. Mr. Hartman will
manage the Fund as of commencement of operations.
ADMINISTRATOR--THE BOSTON COMPANY ADVISORS, INC.
The Boston Company Advisors, Inc. ("Boston Advisors"), located at One
Exchange Place, Boston, Massachusetts 02109, serves as the Fund's Administrator.
Boston Advisors is a wholly owned subsidiary of The Boston Company, Inc., which
is in turn a wholly owned subsidiary of Boston Group Holdings, Inc. ("BGH"). BGH
is a wholly owned subsidiary of Mellon Bank Corporation. As Administrator,
Boston Advisors 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, Boston Advisors is entitled to a
monthly fee at the annual rate of .10% of the value of the Fund's average daily
net assets.
DISTRIBUTORS AND PLAN OF DISTRIBUTION
Lehman Brothers, located at 3 World Financial Center, New York, New York
10285, is a Distributor of the Fund. Lehman Brothers, a wholly owned subsidiary
of Holdings, is one of the leading full-line investment firms serving the U.S.
and foreign securities and commodities markets. American Express Company and its
subsidiaries, other than Lehman Brothers, are principally engaged in the
businesses of providing travel-related services, investment services,
information services, international banking services and investors' diversified
financial services. Funds Distributor Inc., a wholly owned subsidiary of Lehman
Brothers located at One Exchange Place, Boston, Massachusetts 02109, also serves
as a distributor of the Fund.
The Trust has adopted a Plan of Distribution with respect to Institutional
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 Institutional Shares but provides
that Lehman Brothers may make payments to assist in the distribution of
Institutional 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.
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 shareholders, advisory and administration fees, charges of the Custodian,
Transfer Agent and dividend disbursing agent, certain insurance premiums,
outside auditing and legal expenses, costs of shareholder reports and
shareholder meetings and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions (if any) in connection with the purchase and sale
of portfolio securities. In order to maintain a competitive expense ratio, LBGAM
has agreed voluntarily to waive its fee or to reimburse the Fund if and to the
extent that the Fund's total operating expenses exceed .40% of average daily net
assets. This voluntary waiver and reimbursement will not be changed unless
shareholders are provided at least 60 days' advance notice. 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.
12
<PAGE>
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, 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 (1-5 Years) U.S.
Government Funds" or "General U.S. Government Funds" categories 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
Institutional 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 (Institutional 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. Pursuant to such authority, the Trust has issued
three classes of shares for twelve investment portfolios of the Trust. The
Declaration of Trust further authorizes the Trustees to classify or reclassify
any class of shares into one or more sub-classes. The issuance of separate
classes of shares is intended to address the different service needs
13
<PAGE>
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 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 shareholders owning
at least 10% of the outstanding shares of the Trust entitled to vote.
Shareholders of the Trust are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held.
The Trust has adopted a Plan of Distribution pursuant to Rule 12b-1 under
which shares of other classes ("Select Shares" and "Premier Shares") of the
Funds are sold to investors. Pursuant to the Plan of Distribution Select Shares
are sold to institutional investors and bear fees payable at a rate not
exceeding .35% (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 Funds 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. Premier Shares are
offered by Lehman Brothers 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 .50% of the average daily net asset value of the
Premier Shares for distribution and other services provided to holders of
Premier Shares. Shares of each class will bear all fees paid for services
provided to that class under the Plan of Distribution.
14
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
100% Government Obligations Money Market Fund
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
California Municipal Money Market Fund
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR ITS 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
[CAPTION]
PAGE
-----
Background and Expense Information.......... 2
Investment Objective and Policies........... 2
Purchase, Redemption and Exchange of
Shares..................................... 8
Dividends................................... 10
Taxes....................................... 11
Management of the Fund...................... 11
Performance Information..................... 13
Description of Shares....................... 13
SHORT DURATION
U.S. GOVERNMENT FUND
-------------------
PROSPECTUS
February 21, 1994
---------------------
LEHMAN BROTHERS
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN
RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING LEHMAN
BROTHERS AT 1-800-368-5556.
<PAGE>
LEHMAN BROTHERS
SHORT DURATION U.S. GOVERNMENT 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
U.S. Government 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
primarily in a portfolio consisting of short duration adjustable rate, floating
rate and fixed rate U.S. government and agency securities, and repurchase
agreements collateralized by such obligations.
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 February 21,
1994, as amended or supplemented from time to time, has been filed with the
Securities and Exchange Commission and is available to investors without charge
by calling the Fund's Distributor at 1-800-368-5556. The Statement of Additional
Information is incorporated in its entirety by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. SHARES OF THE FUND INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
LEHMAN BROTHERS
February 21, 1994
<PAGE>
BACKGROUND AND EXPENSE INFORMATION
The Fund currently offers three 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 accrues daily dividends in the
same manner, except that Select Shares bear fees payable by the Fund to
institutional investors for services they provide 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 also may 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 (net of waivers)........... .17
Rule 12b-1 fees.......................... .35
Other Expenses -- including
Administration Fees..................... .23
-----
Total Fund Operating Expenses (after
expense reimbursement).................. .75
-----
-----
- ---------
[CAPTION]
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:
[CAPTION]
1 YEAR 3 YEARS
------ -------
$ 8 $ 24
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES AND
RATE OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
The Fund's Investment Adviser has voluntarily agreed to waive its fee or
reimburse the Fund to the extent necessary to maintain the Fund's annualized
expense ratio at .75%. The voluntary waiver or reimbursement will not be changed
unless shareholders are provided at least 60 days' advance notice. In addition,
the Administrator may waive a portion of its fees which will assist in achieving
this expense ratio. Absent waivers or reimbursement of expenses, Advisory Fees
with respect to Select Shares would be .30% annually, Other Expenses would be
.25% annually and the Total Fund Operating Expenses would be .95%, of the Fund's
average daily net assets. The foregoing table has not been audited by the Fund's
independent accountants.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide a high level of current
income consistent with minimal fluctuation of net asset value. Current income
includes, in general, discount earned on U.S. Treasury bills and agency discount
notes, interest earned on mortgage-related securities and other U.S. government
and agency
2
<PAGE>
securities, and short-term capital gains. While there can be no assurance that
the Fund will be able to maintain minimal fluctuation 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.
The Fund pursues its investment objective by investing primarily in a
professionally managed portfolio of adjustable rate, floating rate and fixed
rate securities which are issued or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities. As a mutual
fund with "U.S. Government" in its name, under normal market conditions, the
Fund must invest at least 65% of its portfolio in such instruments. For
temporary defensive purposes, the Adviser may determine that it is prudent to
hold a portion of the Fund's portfolio in high quality money market instruments,
including commercial paper and other corporate obligations having remaining
maturities of one year or less and which are rated A-1 by S&P Corporation or P-1
by Moody's Investor Service, Inc.
DURATION
Under normal interest rate conditions, the Fund's average portfolio duration
will be approximately the same as a one-year U.S. Treasury Bill (approximately
one year). This means that the Fund's net asset value fluctuation is expected to
be similar to the price fluctuation of a one-year U.S. Treasury Bill. The Fund's
average portfolio is not expected to exceed that of a two-year U.S. Treasury
Note (approximately 1.9 years). In computing the average duration of its
portfolio, the Fund will estimate the duration of obligations that are subject
to prepayment or redemption by the issuer, taking into account the influence of
interest rates on prepayments and coupon flows. Maturity, in contrast to
duration, measures only the time until final payment is due on an investment; it
does not take into account the pattern of a security's cash flow over time,
including how cash flow is affected by prepayments and by changes in interest
rates.
SPECIFIC INVESTMENTS AND INVESTMENT TECHNIQUES
The types of U.S. government securities in which the Fund may invest include
direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes, and
bonds, as well as obligations of U.S. government agencies or instrumentalities.
The Fund may invest in U.S. government securities which are collateralized by or
represent interests in real estate mortgages. The types of mortgage securities
in which the Fund may invest include the following: (i) adjustable rate mortgage
securities; (ii) collateralized mortgage obligations; (iii) real estate mortgage
investment conduits; and (iv) other securities collateralized by or representing
interests in real estate mortgages whose interest rates reset at periodic
intervals and are issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
The Fund may also invest in mortgage-related securities which are issued by
private entities such as investment banking firms and companies related to the
construction industry. The privately issued mortgage-related securities in which
the Fund may invest include: (i) privately issued securities which are
collateralized by pools of mortgages in which each mortgage is guaranteed as to
payment of principal and interest by an agency or instrumentality of the U.S.
government; (ii) privately issued securities which are collateralized by pools
of mortgages in which payment of principal and interest are guaranteed by the
issuer and such guarantee is collateralized by U.S. government securities; and
(iii) other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal and
interest are supported by the credit of any agency or instrumentality of the
U.S. government.
The privately issued mortgage-related securities provide for periodic
payments consisting of both interest and principal. The interest portion of
these payments will be distributed by the Fund as income, and the capital
portion will be reinvested.
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U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ in interest rates, maturities and times of issuance.
Treasury bills have initial maturities of one year or less; Treasury notes have
initial maturities of one to ten years; and Treasury Bonds generally have
initial maturities of greater than ten years. Some obligations issued or
guaranteed by U.S. Government agencies and instrumentalities, for example,
Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Student Loan
Marketing Association, only by the credit of the agency or instrumentality.
These securities bear fixed, floating or variable rates of interest. While the
U.S. Government provides financial support to such U.S. Government-sponsored
agencies or instrumentalities, no assurance can be given that it will always do
so, since it is not so obligated by law. The Fund will invest in such securities
only when it is satisfied that the credit risk with respect to the issuer is
minimal.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are pass-through
mortgage securities with adjustable rather than fixed interest rates. The ARMS
in which the Fund invests are issued by Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation ("FHLMC") and are actively traded. The underlying mortgages
which collateralize ARMS issued by GNMA are fully guaranteed by the Federal
Housing Administration ("FHA") or Veterans Administration ("VA"), while those
collateralizing ARMS issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting size and maturity
constraints.
Unlike conventional bonds, ARMS pay back principal over the life of the ARMS
rather than at maturity. Thus, a holder of the ARMS, such as the Fund, would
receive monthly scheduled payments of principal and interest and may receive
unscheduled principal payments representing payments on the underlying
mortgages. At the time that a holder of the ARMS reinvests the payments and any
unscheduled prepayments of principal that it receives, the holder may receive a
rate of interest paid on the existing ARMS. As a consequence, ARMS may be a less
effective means of "locking in" long-term interest rates than other types of
U.S. government securities.
Not unlike other U.S. government securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the market
value of ARMS generally declines when interest rates rise and generally rises
when interest rates decline.
While ARMS generally entail less risk of a decline during periods of rapidly
rising rates, ARMS may also have less potential for capital appreciation than
other similar investments (e.g., investments with comparable maturities)
because, as interest rates decline, the likelihood increases that mortgages will
be prepaid. Furthermore, if ARMS are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium paid. Conversely, if
ARMS are purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are bonds issued by
single-purpose, stand-alone finance subsidiaries or trusts of financial
institutions, government agencies, investment banks or companies related to the
construction industry. CMOs purchased by the Fund may be:
(a) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government;
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(b) collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized
by U.S. government securities; or
(c) securities in which the proceeds of the issuance are invested in
mortgage securities and payment of the principal and interest are
supported by the credit of an agency or instrumentality of the U.S.
government.
All CMOs purchased by the Fund are investment grade, as rated by a
nationally recognized statistical rating organization.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs are offerings
of multiple class real estate mortgage-backed securities which qualify and elect
treatment as such under provisions of the Internal Revenue Code. Issuers of
REMICs may take several forms, such as trusts, partnerships, corporations,
associations or a segregated pool of mortgages. Once REMIC status is elected and
obtained, the entity is not subject to federal income taxation. Instead, income
is passed through the entity and is taxed to the person or persons who hold
interests in the REMIC. A REMIC interest must consist of one or more classes of
"regular interests," some of which may offer adjustable rates (the type in which
the Fund primarily invests), and a single class of "residual interests." To
qualify as a REMIC, substantially all of the assets of the entity must be in
assets directly or indirectly secured principally by real property.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"). The Fund may invest up to 10%
of its total assets in SMBS, which are derivative multiclass mortgage
securities. The Fund may only invest in SMBS issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets, which may consist of mortgage
loans or guaranteed mortgage pass-through certificates. A common type of SMBS
will have one class receiving all or a portion of the interest from the mortgage
assets, while the other class will receive all of the principal. Moreover, in
some instances, one class will receive some of the interest and most of the
principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, there may no longer be interest paid
on some of the underlying mortgage loans and the Fund, as a result, may fail to
fully recoup its initial investment in these securities. Although the market for
such securities is increasingly liquid, certain SMBS may not be readily
marketable and will be considered illiquid for purposes of the Fund's limitation
on investments in illiquid securities. The market value of the class consisting
entirely of principal payments generally is unusually sensitive to changes in
interest rates. The market value of the class consisting entirely of interest
payments is extremely sensitive not only to changes in interest rates but also
to the rate of principal payments, including prepayments, on the related
underlying mortgage assets. The yields on a class of SMBS that receives all or
most of the interest from mortgage assets are generally higher than prevailing
market yields on other mortgage-backed securities because their cash flow
patterns are more variable and there is a greater risk that the initial
investment will not be fully recouped. The Investment Adviser will seek to
manage these risks (and potential benefits) by investing in a variety of such
securities and by using certain hedging techniques.
OTHER INVESTMENTS AND PRACTICES
RESETS. The interest rates paid on the ARMS, CMOs and REMICs in which the
Fund invests generally are readjusted or reset at intervals of one year or less
to an increment over some predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury securities and those derived
from a calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-year
Constant Maturity Treasury (CMT) rates, the three-month Treasury Bill rate, the
180-day Treasury Bill rate, rates on longer-term Treasury securities, the
National Median Cost of
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Funds (COFI), the one-month or three-month London Interbank Offered Rate
(LIBOR), the prime rate of a specific bank, or commercial paper rates. Some
indices, such as the one-year CMT rate, closely mirror changes in market
interest rate levels. Others tend to lag changes in market rate levels and tend
to be somewhat less volatile.
CAPS AND FLOORS. The underlying mortgages which collateralize the ARMS,
CMOs and REMICs in which the Fund invests may have caps and floors which limit
the maximum amount by which the loan rate to the residential borrower may change
up or down: (1) per reset or adjustment interval and (2) over the life of the
loan. Some residential mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest payments rather than
limiting interest rate changes. These payment caps may result in negative
amortization.
The value of mortgage securities in which the Fund invests may be affected
if market interest rates rise or fall faster and farther than the allowable caps
or floors on the underlying residential mortgage loans. An example of the effect
of caps and floors on a residential mortgage loan may be found in the Statement
of Additional Information. Additionally, even though the interest rates on the
underlying residential mortgages are adjustable, amortization and prepayments
may occur, thereby causing the effective maturities of the mortgage securities
in which the Fund invests to be shorter than the maturities stated in the
underlying mortgages.
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 them 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 them at an agreed upon date and price. The Fund would consider
entering into reverse repurchase agreements to avoid otherwise selling
securities during unfavorable market conditions. Reverse repurchase agreements
involve the risk that the market value of the portfolio securities sold by the
Fund may decline below the price of the securities the Fund is obligated to
repurchase.
DOLLAR ROLL TRANSACTIONS. In order to enhance portfolio returns and manage
prepayment risks, the Fund may engage in dollar roll transactions with respect
to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar roll
transaction, the Fund sells a mortgage security to a financial institution, such
as a bank or broker/dealer, and simultaneously agrees to repurchase a
substantially similar (same type, coupon, and maturity) security from the
institution at a later date at an agreed upon price. The mortgage securities
that are repurchased will bear the same interest rate as those sold, but
generally will be collateralized by different pools of mortgages with different
prepayment histories. During the period between the sale and repurchase, the
Fund will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any additional
fee income received on the sale, will generate income for the Fund exceeding the
yield. When the Fund enters into a dollar roll transaction, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the obligations to be
repurchased, are segregated at the trade date. These assets are marked to market
daily and are maintained until the transaction is settled.
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
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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 normally is resold to other institutional
investors like the Fund through or with the assistance of the issuer or
investment dealers who make a market in the Section 4(2) paper, thus providing
liquidity. Rule 144A securities generally must be sold to other qualified
institutional buyers. If a particular investment in Section 4(2) paper or Rule
144A securities is not determined to be liquid, that investment will be included
within the 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 loaned.
TEMPORARY DEFENSIVE POSITIONS. When maintaining a temporary defensive
position, the Fund may invest its assets, without limit, in commercial paper and
other short-term corporate obligations. The Fund's investment in commercial
paper or corporate obligations will be limited to securities with one year or
less remaining to maturity and rated A-1 by S&P Corporation or P-1 by Moody's
Investor Service, Inc.
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.
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INVESTMENT LIMITATIONS
The Fund's investment objective and the policies described above are not
fundamental and may be changed by the Trust's Board of Trustees without a vote
of shareholders. If there is a change in the investment objective, shareholders
should consider whether the Fund remains an appropriate investment in light of
their then current financial position and needs. The Fund's investment
limitations summarized below may not be changed without the affirmative vote of
the holders of a majority of its outstanding shares. 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 for
temporary or emergency purposes (not for leveraging or investment) and (ii)
engage in reverse repurchase agreements or dollar roll transactions for any
purpose; 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 obligations and obligations of domestic banks.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
PURCHASE PROCEDURES
Shares of the Fund are sold at the net asset value per share of the Fund
next determined after receipt of a purchase order by Lehman Brothers Inc.
("Lehman Brothers"), a 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 before 4:00 p.m., Eastern time. Payment
in federal funds immediately available to the Custodian, Boston Safe Deposit &
Trust Company, 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 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 Class.
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 advisers 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 advisors before investing
fiduciary funds in Select Shares. See also "Management of the Fund -- Banking
Laws."
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SUBACCOUNTING SERVICES. Institutions are encouraged to open single master
accounts. However, certain institutions may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent charges a fee based on the level of subaccounting services
rendered. Institutions holding Fund shares in a fiduciary, agency, custodial or
similar capacity may charge or pass through subaccounting fees as part of or in
addition to normal trust or agency account fees. They may also charge fees for
other services provided which may be related to the ownership of Fund shares.
This Prospectus should, therefore, be read together with any agreement between
the customer and the institution with regard to the services provided, the fees
charged for those services and any restrictions and limitations imposed.
REDEMPTION PROCEDURES
Redemption orders must be transmitted to Lehman Brothers by telephone in the
manner described herein. Shares are redeemed at the net asset value per share
next determined after Lehman Brothers' receipt of the redemption order. The
proceeds paid to a shareholder upon redemption may be more or less than the
amount invested depending upon a share's net asset value at the time of
redemption.
Subject to the foregoing, payment for redeemed shares for which a redemption
order is received by Lehman Brothers before 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 shareholder. Any such redemption shall be
effected at the net asset value per share next determined after the redemption
order is entered. If during the 60 day period the shareholder increases the
value of its account to $10,000 or more, no such redemption shall take place. In
addition, the Fund may redeem shares involuntarily or suspend the right of
redemption as permitted under the Investment Company Act of 1940, as amended
(the "1940 Act"), or under certain special circumstances described in the
Statement of Additional Information under "Additional Purchase and Redemption
Information."
The ability to give telephone instructions for the redemption (and purchase
or exchange) of shares is automatically established on a shareholder'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.
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.
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EXCHANGE PROCEDURES
The Exchange Privilege enables a shareholder 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 shareholders. To use the
Exchange Privilege, exchange instructions must be given to Lehman Brothers by
telephone. See "Redemption Procedures." In exchanging shares, a shareholder 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 shareholder
resides. Before any exchange, the shareholder 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 shareholder and, therefore, a shareholder
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 shareholders.
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 the New York Stock Exchange or the Federal Reserve Bank of Boston is
closed. Currently, one or both of these institutions are closed on the customary
national business holidays of New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day (observed), Independence Day
(observed), Labor Day, Columbus Day, 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). 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
Shareholders of the Fund are entitled to dividends and distributions arising
only from the net investment income and capital gains, if any, earned on
investments held by the Fund. The Fund's net investment income is declared daily
as a dividend to shares held of record at the close of business on the day of
declaration. Shares begin accruing dividends on the 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
within five business days after the end of the month or within five business
days after a redemption of all of a shareholder's shares of a particular class.
Net capital gains distributions, if any, will be made annually.
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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
Institutional Shares and higher than the net yield on Premier Shares.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same class of shares with respect
to which such dividends are declared at the net asset value of such shares on
the payment date. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Such election, or any revocation thereof, must be made
in writing to The Shareholder Services Group, Inc. ("TSSG"), a subsidiary of
First Data Corporation and the Fund's transfer agent, at P.O. Box 9690,
Providence, Rhode Island 02940-9690, and will become effective after its receipt
by TSSG, with respect to dividends paid.
TSSG, as transfer agent, will send each Fund shareholder or its authorized
representative an annual statement designating the amount, if any, of any
dividends and distributions made during each year and their federal tax
qualification.
TAXES
The Fund intends to qualify each year as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). A regulated
investment company is exempt from federal income tax on amounts distributed to
its shareholders.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that the Fund distribute to its shareholders
at least 90% of its investment company taxable income for such year. In general,
the Fund's investment company taxable income will be its taxable income
(including dividends and short-term capital gains, if any) subject to certain
adjustments and excluding the excess of any net long-term capital gain for the
taxable year over the net short-term capital loss, if any, for such year. The
Fund intends to distribute substantially all of its investment company taxable
income each year. Such distributions will be taxable as ordinary income to Fund
shareholders who are not currently exempt from federal income taxes, whether
such income is received in cash or reinvested in additional shares. (Federal
income taxes for distributions to an IRA or a qualified retirement plan are
deferred under the Code.) It is anticipated that none of the Fund's
distributions will be eligible for the dividends received deduction for
corporations.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by the shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during January of the
following year. Shareholders will be advised at least annually as to the federal
income tax status of distributions made to them each year.
The foregoing discussion is only a brief summary of some of the important
federal tax considerations generally affecting the Fund and its shareholders. As
noted above, IRAs receive special tax treatment. No attempt is made to present a
detailed explanation of the federal, state or local income tax treatment of the
Fund or its shareholders, and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Fund should
consult their tax advisors with specific reference to their own tax situation.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of the
Trust's Board of Trustees. The Trustees approve all significant agreements
between the Trust and the persons or companies that furnish services to the
Fund, including agreements with its Distributors, Investment Adviser,
Administrator, Custodian
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and Transfer Agent. The day-to-day operations of the Fund are delegated to the
Fund's Investment Adviser and Administrator. One Trustee and all of the Trust's
officers are affiliated with Lehman Brothers, The Boston Company Advisors, Inc.
or one of their affiliates. The Statement of Additional Information relating to
the Fund contains general background information regarding each Trustee and
executive officer of the Trust.
INVESTMENT ADVISER--LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located at 3 World
Financial Center, New York, New York 10285, serves as the Fund's Investment
Adviser. LBGAM is a wholly owned subsidiary of Lehman Brothers Holdings Inc.
("Holdings"). All of the issued and outstanding common stock (representing 92%
of the voting stock) of Holdings is held by American Express Company. LBGAM,
together with other Lehman Brothers investment advisory affiliates, serves as
investment adviser to investment companies and private accounts and has assets
under management in excess of $17 billion.
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 a monthly
fee by the Fund at the annual rate of .30% of the value of the Fund's average
daily net assets.
Kirk D. Hartman, a Managing Director of LBGAM, has been associated with
Lehman Brothers in the Mortgage Department since 1987. Mr. Hartman is the
portfolio manager primarily responsible for managing the day-to-day operations
of the Fund, including the making of investment selections. Mr. Hartman will be
assisted by Andrew J. Stenwall, a Vice President of LBGAM. Mr. Hartman will
manage the Fund as of commencement of operations.
ADMINISTRATOR--THE BOSTON COMPANY ADVISORS, INC.
The Boston Company Advisors, Inc. ("Boston Advisors"), located at One
Exchange Place, Boston, Massachusetts 02109, serves as the Fund's Administrator.
Boston Advisors is a wholly owned subsidiary of The Boston Company, Inc., which
is in turn a wholly owned subsidiary of Boston Group Holdings, Inc. ("BGH"). BGH
is a wholly owned subsidiary of Mellon Bank Corporation. As Administrator,
Boston Advisors 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, Boston Advisors is entitled to a
monthly fee at the annual rate of .10% of the value of the Fund's average daily
net assets.
DISTRIBUTORS
Lehman Brothers, located at 3 World Financial Center, New York, New York
10285, is a Distributor of the Fund. Lehman Brothers, a wholly owned subsidiary
of Holdings, is one of the leading full-line investment firms serving the U.S.
and foreign securities and commodities markets. American Express Company and its
subsidiaries, other than Lehman Brothers, are principally engaged in the
businesses of providing travel-related services, investment services,
information services, international banking services and investors' diversified
financial services. Funds Distributor Inc., a wholly owned subsidiary of Lehman
Brothers located at One Exchange Place, Boston, Massachusetts 02109, also serves
as a distributor of the Fund.
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 .35% (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 holders of Select Shares. Lehman Brothers may retain
all the payments made to it under the Plan or may
12
<PAGE>
enter into agreements with and make payments of up to .35% 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 Funds -- 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 may charge 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 shareholders, advisory and administration fees, charges of the Custodian,
Transfer Agent and dividend disbursing agent, certain insurance premiums,
outside auditing and legal expenses, costs of shareholder reports and
shareholder meetings and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions (if any) in connection with the purchase and sale
of portfolio securities. In order to maintain a competitive expense ratio, LBGAM
has agreed voluntarily to waive its fee or to reimburse the Fund if and to the
extent that the Fund's total operating expenses exceed .75% of average daily net
assets. This voluntary waiver and reimbursement will not be changed unless
shareholders are provided at least 60 days' advance notice. 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. Any fees charged by institutional
investors to their customers in connection with investments in Fund shares are
not reflected in the Fund's expenses.
BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, or controlling a
registered, open-end investment company engaged continuously in the issuance of
its shares and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as Fund shares. Such banking laws and regulations
do not prohibit such a holding company or affiliate or banks generally from
acting as investment adviser, transfer agent or custodian to such an investment
company or from purchasing shares of such a company for or upon the order of
customers. Some Service Organizations may be subject to such banking laws and
regulations. In addition, state securities laws on this issue may differ from
the interpretation of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of bank Service Organizations, the Fund might be
required to alter or discontinue its arrangements with Service Organizations and
change its method of operations with respect to Premier Shares. It is not
anticipated, however, that any change in the Fund's method of operations would
affect its net asset value per shares or result in a financial loss to any
customer.
13
<PAGE>
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, 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 (1-5 Years) U.S.
Government Funds" or "General U.S. Government Funds" categories 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. 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: 213) 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. Pursuant to such authority, the Trust has issued
three classes of shares for twelve investment portfolios of the Trust. The
Declaration of Trust further authorizes the Trustees to classify or reclassify
any class of shares into one or more sub-classes. 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.
14
<PAGE>
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 shareholders owning
at least 10% of the outstanding shares of the Trust entitled to vote.
Shareholders of the Trust are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held.
In addition to Select Shares, the Fund currently offers Institutional Shares
and Premier Shares. Institutional 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.
Premier Shares are offered by Lehman Brothers directly to individual investors
under the Plan of Distribution adopted pursuant to Rule 12b-1. Pursuant to the
Plan of Distribution, the Fund has agreed to pay Lehman Brothers a monthly fee
at an annual rate of up to .50% of the average daily net asset value of the
Premier Shares for distribution and other services provided to holders of
Premier Shares. Premier Shares will bear all fees paid for services provided to
that class under the Plan of Distribution.
15
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
100% Government Obligations Money Market Fund
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
California Municipal Money Market Fund
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR ITS 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
[CAPTION]
PAGE
-----
Background and Expense Information.......... 2
Investment Objective and Policies........... 2
Purchase, Redemption and Exchange of
Shares..................................... 8
Dividends................................... 10
Taxes....................................... 11
Management of the Fund...................... 11
Performance Information..................... 14
Description of Shares....................... 14
SHORT DURATION
U.S. GOVERNMENT FUND
-------------------
PROSPECTUS
February 21, 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 U.S. Government 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 U.S. Government Fund (the "Fund"), a
diversified investment portfolio of the Trust.
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 primarily in a portfolio consisting of short
duration adjustable rate, floating rate and fixed rate U.S.
government and agency securities, and repurchase agreements
collateralized by such obligations.
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.
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 February 21, 1994, as amended or
supplemented from time to time, has been filed with the Securities
and Exchange Commission and is available to investors without charge
by calling the Fund's Transfer Agent at 1-800-451-2010. The
Statement of Additional Information is incorporated in its entirety
by reference into this Prospectus.
Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, any bank, and such shares are not
federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other government agency. Shares of the
Fund involve certain investment risks, including the possible loss of
principal.
___________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
___________
LEHMAN BROTHERS
February 21, 1994
BACKGROUND AND EXPENSE INFORMATION
The Fund currently offers three 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
accrues daily dividends in the same manner, except that Premier
Shares bear fees payable by the Fund to Lehman Brothers for services
it provides to the beneficial owners of such shares. See "Management
of the Fund - Shareholder Services."
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 (net of waivers)
.17
Rule 12b-1 fees
.50
Other Expenses-including
Administration Fees
.23_
___
Total Fund Operating Expenses (after
expense reimbursement)
.90
_____
[CAPTION]
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:
[CAPTION]
1 Year
3 Years
$9
$29
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL
EXPENSES AND RATE OF RETURN, WHICH MAY BE GREATER OR LESSER THAN
THOSE SHOWN.
The Fund's Investment Adviser has voluntarily agreed to waive
its fee or reimburse the Fund to the extent necessary to maintain the
Fund's annualized expense ratio at .90%. The voluntary waiver or
reimbursement will not be changed unless shareholders are provided at
least 60 days' advance notice. In addition, the Administrator may
waive a portion of its fees which will assist in achieving this
expense ratio. Absent waivers or reimbursement of expenses, Advisory
Fees with respect to Premier Shares would be .30% annually, Other
Expenses would be .25% annually and the Total Fund Operating Expenses
would be 1.05%, of the Fund's average daily net assets. The
foregoing table has not been audited by the Fund's independent
accountants.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide a high level
of current income consistent with minimal fluctuation of net asset
value. Current income includes, in general, discount earned on U.S.
Treasury bills and agency discount notes, interest earned on
mortgage-related securities and other U.S. government and agency
securities, and short-term capital gains. While there can be no
assurance that the Fund will be able to maintain minimal fluctuation
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.
The Fund pursues its investment objective by investing primarily
in a professionally managed portfolio of adjustable rate, floating
rate and fixed rate securities which are issued or guaranteed as to
payment of principal and interest by the U.S. government, its
agencies or instrumentalities. As a mutual fund with "U.S.
Government" in its name, under normal market conditions, the Fund
must invest at least 65% of its portfolio in such instruments.
Duration
Under normal interest rate conditions, the Fund's average
portfolio duration will be approximately the same as a one-year U.S.
Treasury Bill (approximately one year). This means that the Fund's
net asset value fluctuation is expected to be similar to the price
fluctuation of a one-year U.S. Treasury Bill. The Fund's average
portfolio duration is not expected to exceed that of a two-year U.S.
Treasury Note (approximately 1.9 years). In computing the average
duration of its portfolio, the Fund will estimate the duration of
obligations that are subject to prepayment or redemption by the
issuer, taking into account the influence of interest rates on
prepayments and coupon flows. Maturity, in contrast to duration,
measures only the time until final payment is due on an investment;
it does not take into account the pattern of a security's cash flow
over time, including how cash flow is affected by prepayments and by
changes in interest rates.
Acceptable Investments
The types of U.S. government securities in which the Fund may
invest include direct obligations of the U.S. Treasury, such as U.S.
Treasury bills, notes, and bonds, as well as obligations of U.S.
government agencies or instrumentalities. The Fund may invest in U.S.
government securities which are collateralized by or represent
interests in real estate mortgages. The types of mortgage securities
in which the Fund may invest include the following: (i) adjustable
rate mortgage securities; (ii) collateralized mortgage obligations;
(iii) real estate mortgage investment conduits; and (iv) other
securities collateralized by or representing interests in real estate
mortgages whose interest rates reset at periodic intervals and are
issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
The Fund may also invest in mortgage-related securities which
are issued by private entities such as investment banking firms and
companies related to the construction industry. The privately issued
mortgage-related securities in which the Fund may invest include:
(i) privately issued securities which are collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S.
government; (ii) privately issued securities which are collateralized
by pools of mortgages in which payment of principal and interest are
guaranteed by the issuer and such guarantee is collateralized by U.S.
government securities; and (iii) other privately issued securities in
which the proceeds of the issuance are invested in mortgage-backed
securities and payment of the principal and interest are supported by
the credit of any agency or instrumentality of the U.S. government.
The privately issued mortgage-related securities provide for
periodic payments consisting of both interest and principal. The
interest portion of these payments will be distributed by the Fund as
income, and the capital portion will be reinvested.
U.S. Government Securities. Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities include U.S.
Treasury securities, which differ in interest rates, maturities and
times of issuance. Treasury bills have initial maturities of one
year or less; Treasury notes have initial maturities of one to ten
years; and Treasury Bonds generally have initial maturities of
greater than ten years. Some obligations issued or guaranteed by
U.S. Government agencies and instrumentalities, for example,
Government National Mortgage Association pass-through certificates,
are supported by the full faith and credit of the U.S. Treasury;
others, such as those of issued by the Federal National Mortgage
Association, by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality; and
others, such as those issued by the Student Loan Marketing
Association, only by the credit of the agency or instrumentality.
These securities bear fixed, floating or variable rates of interest.
While the U.S. Government provides financial support to such U.S.
Government-sponsored agencies or instrumentalities, no assurance can
be given that it will always do so, since it is not so obligated by
law. The Fund will invest in such securities only when it is
satisfied that the credit risk with respect to the issuer is minimal.
Adjustable Rate Mortgage Securities ("ARMS"). ARMS are pass-
through mortgage securities with adjustable rather than fixed
interest rates. The ARMS in which the Fund invests are issued by
Government National Mortgage Association ("GNMA"), Federal National
Mortgage Association ("FNMA") and Federal Home Loan Corporation
("FHLMC") and are actively traded. The underlying mortgages which
collateralize ARMS issued by GNMA are fully guaranteed by the Federal
Housing Administration ("FHA") or Veterans Administration ("VA"),
while those collateralizing ARMS issued by FHLMC or FNMA are
typically conventional residential mortgages conforming to strict
underwriting size and maturity constraints.
Unlike conventional bonds, ARMS pay back principal over the life
of the ARMS rather than at maturity. Thus, a holder of the ARMS,
such as the Fund, would receive monthly scheduled payments of
principal and interest and may receive unscheduled principal payments
representing payments on the underlying mortgages. At the time that
a holder of the ARMS reinvests the payments and any unscheduled
prepayments of principal that it receives, the holder may receive a
rate of interest paid on the existing ARMS. As a consequence, ARMS
may be a less effective means of "locking in" long-term interest
rates than other types of U.S. government securities.
Not unlike other U.S. government securities, the market value of
ARMS will generally vary inversely with changes in market interest
rates. Thus, the market value of ARMS generally declines when
interest rates rise and generally rises when interest rates decline.
While ARMS generally entail less risk of a decline during
periods of rapidly rising rates, ARMS may also have less potential
for capital appreciation than other similar investments (e.g.,
investments with comparable maturities) because, as interest rates
decline, the likelihood increases that mortgages will be prepaid.
Furthermore, if ARMS are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some
loss of a holder's principal investment to the extent of the premium
paid. Conversely, if ARMS are purchased at a discount, both a
scheduled payment of principal and an unscheduled prepayment of
principal would increase current and total returns and would
accelerate the recognition of income, which would be taxed as
ordinary income when distributed to shareholders.
Collateralized Mortgage Obligations ("CMOs"). CMOs are bonds
issued by single-purpose, stand-alone finance subsidiaries or trusts
of financial institutions, government agencies, investment banks, or
companies related to the construction industry. CMOs purchased by
the Fund may be:
(a) collateralized by pools of mortgages in which each
mortgage is guaranteed as to payment of principal and interest by
an agency or instrumentality of the U.S. government;
(b) collateralized by pools of mortgages in which payment of
principal and interest is guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities; or
(c) securities in which the proceeds of the issuance are
invested in mortgage securities and payment of the principal and
interest are supported by the credit of an agency or
instrumentality of the U.S. government.
All CMOs purchased by the Fund are investment grade, as rated by
a nationally recognized statistical rating organization.
Real Estate Mortgage Investment Conduits ("REMICs"). REMICs are
offerings of multiple class real estate mortgage-backed securities
which qualify and elect treatment as such under provisions of the
Internal Revenue Code. Issuers of REMICs may take several forms,
such as trusts, partnerships, corporations, associations or a
segregated pool of mortgages. Once REMIC status is elected and
obtained, the entity is not subject to federal income taxation.
Instead, income is passed through the entity and is taxed to the
person or persons who hold interests in the REMIC. A REMIC interest
must consist of one or more classes of "regular interests," some of
which may offer adjustable rates (the type in which the Fund
primarily invests), and a single class of "residual interests". To
qualify as a REMIC, substantially all of the assets of the entity
must be in assets directly or indirectly secured principally by real
property.
Stripped Mortgage-Backed Securities ("SMBS") . The Fund may
invest up to 10% of its total assets in SMBS, which are derivative
multiclass mortgage securities. The Fund may only invest in SMBS
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. SMBS are usually structured with two classes that
receive different proportions of the interest and principal
distributions from a pool of mortgage assets, which may consist of
mortgage loans or guaranteed mortgage pass-through certificates. A
common type of SMBS will have one class receiving all or a portion of
the interest from the mortgage assets, while the other class will
receive all of the principal. Moreover, in some instances, one class
will receive some of the interest and most of the principal while the
other class will receive most of the interest and the remainder of
the principal. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, there may no longer be
interest paid on some of the underlying mortgage loans and the Fund,
as a result, may fail to fully recoup its initial investment in these
securities. Although the market for such securities is increasingly
liquid, certain SMBS may not be readily marketable and will be
considered illiquid for purposes of the Fund's limitation on
investments in illiquid securities. The market value of the class
consisting entirely of principal payments generally is unusually
sensitive to changes in interest rates. The market value of the
class consisting entirely of interest payments is extremely sensitive
not only to changes in interest rates but also to the rate of
principal payments, including prepayments, on the related underlying
mortgage assets. The yields on a class of SMBS that receives all or
most of the interest from mortgage assets are generally higher than
prevailing market yields on other mortgage-backed securities because
their cash flow patterns are more variable and there is a greater
risk that the initial investment will not be fully recouped. The
Investment Adviser will seek to manage these risks (and potential
benefits) by investing in a variety of such securities and by using
certain hedging techniques.
Other Investments and Practices
Resets. The interest rates paid on the ARMS, CMOs and REMICs in
which the Fund invests generally are readjusted or reset at intervals
of one year or less to an increment over some predetermined interest
rate index. There are two main categories of indices: those based
on U.S. Treasury securities and those derived from a calculated
measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and
five-year Constant Maturity Treasury (CMT) rates, the three-month
Treasury Bill rate, the 180-day Treasury Bill rate, rates on longer-
term Treasury securities, the National Median Cost of Funds (COFI),
the one-month or three-month London Interbank Offered Rate (LIBOR),
the prime rate of a specific bank, or commercial paper rates. Some
indices, such as the one-year CMT rate, closely mirror changes in
market interest rate levels. Others tend to lag changes in market
rate levels and tend to be somewhat less volatile.
Caps and Floors. The underlying mortgages which collateralize
the ARMS, CMOs and REMICs in which the Fund invests may have caps and
floors which limit the maximum amount by which the loan rate to the
residential borrower may change up or down: (1) per reset or
adjustment interval and (2) over the life of the loan. Some
residential mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest payments
rather than limiting interest rate changes. These payment caps may
result in negative amortization.
The value of mortgage securities in which the Fund invests may
be affected if market interest rates rise or fall faster and farther
than the allowable caps or floors on the underlying residential
mortgage loans. An example of the effect of caps and floors on a
residential mortgage loan may be found in the Statement of Additional
Information. Additionally, even though the interest rates on the
underlying residential mortgages are adjustable, amortization and
prepayments may occur, thereby causing the effective maturities of
the mortgage securities in which the Fund invests to be shorter than
the maturities stated in the underlying mortgages.
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 them 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 them at an agreed
upon date and price. The Fund would consider entering into reverse
repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions. Reverse repurchase agreements involve
the risk that the market value of the portfolio securities sold by
the Fund may decline below the price of the securities the Fund is
obligated to repurchase.
Dollar Roll Transactions. In order to enhance portfolio returns
and manage prepayment risks, the Fund may engage in dollar roll
transactions with respect to mortgage securities issued by GNMA, FNMA
and FHLMC. In a dollar roll transaction, the Fund sells a mortgage
security to a financial institution, such as a bank or broker/dealer,
and simultaneously agrees to repurchase a substantially similar (same
type, coupon, and maturity) security from the institution at a later
date at an agreed upon price. The mortgage securities that are
repurchased will bear the same interest rate as those sold, but
generally will be collateralized by different pools of mortgages with
different prepayment histories. During the period between the sale
and repurchase, the Fund will not be entitled to receive interest and
principal payments on the securities sold. Proceeds of the sale will
be invested in short-term instruments, and the income from these
investments, together with any additional fee income received on the
sale, will generate income for the Fund exceeding the yield. When
the Fund enters into a dollar roll transaction, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the
obligations to be repurchased, are segregated at the trade date.
These assets are marked to market daily and are maintained until the
transaction is settled.
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
normally is resold to other institutional investors like the Fund
through or with the assistance of the issuer or investment dealers
who make a market in the Section 4(2) paper, thus providing
liquidity. Rule 144A securities generally must be sold to other
qualified institutional buyers. If a particular investment in
Section 4(2) paper or Rule 144A securities is not determined to be
liquid, that investment will be included within the 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 loaned.
Temporary Defensive Positions. When maintaining a temporary
defensive position, the Fund may invest its assets, without limit, in
commercial paper and other short-term corporate obligations. The
Fund's investment in commercial paper or corporate obligations will
be limited to securities with one year or less remaining to maturity
and rated A-1 by S&P Corporation or P-1 by Moody's Investor Service,
Inc.
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.
Investment Limitations
The Fund's investment objective and the policies described above
are not fundamental and may be changed by the Trust's Board of
Trustees without a vote of shareholders. If there is a change in the
investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current
financial position and needs. The Fund's investment limitations
summarized below may not be changed without the affirmative vote of
the holders of a majority of its outstanding shares. 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
for temporary or emergency purposes (not for leveraging or
investment) and (ii) engage in reverse repurchase agreements or
dollar roll transactions for any purpose; 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 obligations and
obligations of domestic banks.
PURCHASE AND REDEMPTION OF SHARES
Purchase Procedures
Purchases of Fund shares must be made through a brokerage
account maintained through Lehman Brothers Inc. ("Lehman Brothers")
or a broker that clears securities transactions through Lehman
Brothers on a fully disclosed basis (an "Introducing Broker"). 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 the Fund is $5,000 and the
minimum subsequent investment is $1,000, except for purchases through
(a) Individual Retirement Accounts ("IRAs") and Self-Employed
Retirement Plans, for which the minimum initial and subsequent
investments are $1,000 and $500, respectively, and (b) retirement
plans qualified under Section 403(b)(7) of the Internal Revenue Code
of 1986, as amended (the "Code"), for which the minimum and
subsequent investment is $500. 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. Payment for Fund shares is generally due
to Lehman Brothers or an Introducing Broker on the fifth business day
after the trade date. Purchase orders received by Lehman Brothers or
an Introducing Broker prior to the close of regular trading on the
NYSE, currently 4:00 p.m., Eastern time, on any day that the Fund
calculates its net asset value, are priced according to the net asset
value determined on that day. Purchase orders received after the
close of regular trading on the NYSE are priced as of the time the
net asset value per share is next determined. Shares purchased begin
to accrue income dividends on the next business day following the day
that the purchase order is settled.
Valuation of Shares
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 the New York Stock
Exchange or the Federal Reserve Bank of Boston is closed. Currently,
one or both of these institutions are closed on the customary
national business holidays of New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Columbus Day, 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). 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.
Redemption Procedures
Shareholders may redeem their shares without charge on any day
the Fund calculates its net asset value. See "Valuation of Shares."
Redemption requests received in proper form prior to the close of
regular trading on the NYSE are priced at the net asset value per
share determined on that day. Redemption requests received after the
close of regular trading on the NYSE 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 on the fifth 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 uninvested 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
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 9134
Boston, Massachusetts 02205-9134
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. The
Shareholder Services Group, Inc., a subsidiary of First Data
Corporation, is located at One Exchange Place, Boston, Massachusetts
02109 and serves as the Fund's Transfer Agent.
Exchange Privilege
Shares of the Fund may be exchanged without charge for shares of
the Lehman Brothers U.S. Government Floating Rate Fund - Premier
Shares, the Lehman Brothers Daily Income Fund and the Lehman Brothers
Municipal Income Fund. 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.
DIVIDENDS
The Fund declares dividends from its net investment income on
each day the Fund is open for business and pays dividends monthly.
Distributions of net realized long-term capital gains, if any, are
declared and paid annually. 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. Shares redeemed
during the month are entitled to dividends and distributions declared
up to and including the date of redemption.
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.
For Federal income tax purposes, dividends of net ordinary
income and distributions of any net realized short-term capital gain,
whether paid in cash or reinvested in shares of the Fund, are taxable
to shareholders as ordinary income. Distributions of net realized
long-term capital gains, whether paid in cash or reinvested in shares
of the Fund, are taxable to shareholders as long-term capital gains,
irrespective of the length of time the shareholder had held his Fund
shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) It is
anticipated that none of the Fund's distributions will be eligible
for the dividends received deduction for corporations.
Dividends declared in October, November or December of any year
payable to shareholders of record on a specified date in such months
will be deemed to have been received by the shareholders and paid by
the Fund on December 31 of such year in the event such dividends are
actually paid during January of the following year.
Shareholders will be advised at least annually as to the Federal
income tax status of distributions made to them each year.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the
direction of the Trust's Board of Trustees. The Trustees approve all
significant agreements between the Trust and the persons or companies
that furnish services to the Fund, including agreements with its
Distributors, Investment Adviser, Administrator, Custodian and
Transfer Agent. The day-to-day operations of the Fund are delegated
to the Fund's Investment Adviser and Administrator. One Trustee and
all of the Trust's officers are affiliated with Lehman Brothers, The
Boston Company Advisors, Inc. or one of their affiliates. The
Statement of Additional Information relating to the Fund contains
general background information regarding each Trustee and executive
officer of the Trust.
Investment Adviser-Lehman Brothers Global Asset Management Inc.
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located
at 3 World Financial Center, New York, New York 10285, serves as the
Fund's Investment Adviser. LBGAM is a wholly owned subsidiary of
Lehman Brothers Holdings Inc. ("Holdings"). All of the issued and
outstanding common stock (representing 92% of the voting stock) of
Holdings is held by American Express Company. LBGAM, together with
other Lehman Brothers investment advisory affiliates, serves as
investment adviser to investment companies and private accounts and
has assets under management in excess of $13 billion.
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 a monthly fee by the Fund at the
annual rate of .30% of the value of the Fund's average daily net
assets.
Kirk D. Hartman, a Managing Director of LBGAM, has been
associated with Lehman Brothers in the Mortgage Department since
1987. Mr. Hartman is the portfolio manager primarily responsible for
managing the day-to-day operations of the Fund, including the making
of investment selections. Mr. Hartman will be assisted by Andrew J.
Stenwall, a Vice President of LBGAM. Mr. Hartman will manage the
Fund as of commencement of operations.
Administrator-The Boston Company Advisors, Inc.
The Boston Company Advisors, Inc. ("Boston Advisors"), located
at One Exchange Place, Boston, Massachusetts 02109, serves as the
Fund's Administrator. Boston Advisors is a wholly owned subsidiary
of The Boston Company, Inc., which is in turn a wholly owned
subsidiary of Boston Group Holdings, Inc. ("BGH"). BGH is a wholly
owned subsidiary of Mellon Bank Corporation. As Administrator,
Boston Advisors 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, Boston
Advisors is entitled to a monthly fee at the annual rate of .10% of
the value of the Fund's average daily net assets.
Distributors
Lehman Brothers, located at 3 World Financial Center, New York,
New York 10285, is a Distributor of the Fund. Lehman Brothers, a
wholly owned subsidiary of Holdings, is one of the leading full-line
investment firms serving the U.S. and foreign securities and
commodities markets. American Express Company and its subsidiaries,
other than Lehman Brothers, are principally engaged in the businesses
of providing travel-related services, investment services,
information services, international banking services and investors'
diversified financial services. Funds Distributor Inc., a wholly
owned subsidiary of Lehman Brothers located at One Exchange Place,
Boston, Massachusetts 02109, also serves as a distributor of the
Fund.
Shareholder Services
Under a Plan of Distribution adopted pursuant to Rule 12b-1
under the 1940 Act, Premier Shares bear fees ("Rule 12b-1 fees")
payable by the Fund at the aggregate rate of up to .50% (on an
annualized basis) of the average daily net asset value of such shares
to Lehman Brothers to support the costs of distributing Premier
Shares and for services it provides to the beneficial owners of
Premier Shares. The Plan of Distribution also allows Lehman Brothers
to use its own resources to provide distribution services and
shareholder services. The latter services include providing
information periodically to shareholders concerning their investment
in Premier Shares; responding to inquiries from shareholders
concerning the Fund and their investment in Premier Shares; assisting
in effecting purchase and redemption transactions; and providing such
other similar services as may be reasonably requested by shareholders
or the Fund. Premier Shares are identical in all respects to shares
of other classes except that they bear the fees described above and
enjoy certain exclusive voting rights on matters relating to these
fees.
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
shareholders, advisory and administration fees, charges of the
custodian, transfer agent and dividend disbursing agent, certain
insurance premiums, outside auditing and legal expenses, costs of
shareholder reports and shareholder meetings and any extraordinary
expenses. The Fund also pays for brokerage fees and commissions (if
any) in connection with the purchase and sale of portfolio
securities. In order to maintain a competitive expense ratio, LBGAM
has agreed voluntarily to waive its fee or to reimburse the Fund if
and to the extent that the Fund's total operating expenses exceed
.90% of average daily net assets. This voluntary waiver and
reimbursement will not be changed unless shareholders are provided at
least 60 days' advance notice. 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. Any fees charged by
institutional investors to their customers in connection with
investments in Fund Shares are not reflected in the Fund's expenses.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to
shareholders, 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 (1-5 Years) U.S. Government Funds" or "General U.S. Government
Funds" categories 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. 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 maybe obtained through a Lehman Brothers
Investment Representative.
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 Declaration of Trust further authorizes the Trustees to
classify or reclassify any class of shares into one or more
sub-classes. 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 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 shareholders owning at least 10% of
the outstanding shares of the Trust entitled to vote. Shareholders
of the Trust are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for
fractional shares held.
In addition to Premier Shares, the Fund currently offers
Institutional Shares and Select Shares. Institutional 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 .35% (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 Funds 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
[CAPTION]
Page
Background and Expense Information
2
Investment Objective and Policies
3
Purchase and Redemption of Shares
8
Dividends
10
Taxes
11
Management of the Fund
11
Performance Information
13
Description of Shares
14
Lehman Brothers
Short Duration U.S. Government Fund
__________
PROSPECTUS
February 21, 1994
__________
LEHMAN BROTHERS
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY
THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS RELATING TO THE FUND. INVESTORS WISHING TO OBTAIN
SIMILAR INFORMATION REGARDING THE TRUST'S OTHER PORTFOLIOS MAY OBTAIN
SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING LEHMAN BROTHERS
AT 1-800-368-5556.
<PAGE>
LEHMAN BROTHERS
FLOATING RATE U.S. GOVERNMENT 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 ("Institutional Shares") of the
Floating Rate U.S. Government 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
primarily in a portfolio consisting of U.S. government and agency securities,
including floating rate and adjustable rate mortgage securities, and repurchase
agreements collateralized by such obligations.
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 February 21,
1994, as amended or supplemented from time to time, has been filed with the
Securities and Exchange Commission and is available to investors without charge
by calling the Fund's Distributor at 1-800-368-5556. The Statement of Additional
Information is incorporated in its entirety by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. SHARES OF THE FUND INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
LEHMAN BROTHERS
February 21, 1994
<PAGE>
BACKGROUND AND EXPENSE INFORMATION
The Fund currently offers three separate classes of shares, only one of
which, Institutional Shares, is offered by this Prospectus. Each class
represents an equal, PRO RATA interest in the Fund. Each share accrues daily
dividends in the same manner, 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)................................ .17%
Rule 12b-1 fees.............................................. none
Other Expenses -- including Administration Fees.............. .23
----
Total Fund Operating Expenses (after expense
reimbursement).............................................. .40
----
----
- ---------
[CAPTION]
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:
[CAPTION]
1 YEAR 3 YEARS
------ -------
$ 4 $ 13
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES AND
RATE OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
The Fund's Investment Adviser has voluntarily agreed to waive its fee or
reimburse the Fund to the extent necessary to maintain the Fund's annualized
expense ratio at .40%. The voluntary waiver or reimbursement will not be changed
unless shareholders are provided at least 60 days' advance notice. In addition,
the Administrator may waive a portion of its fee which will assist in achieving
this expense ratio. Absent waivers or reimbursement of expenses, Advisory Fees
with respect to Institutional Shares would be .30% annually, Other Expenses
would be .25% annually and the Total Fund Operating Expenses would be .60%, of
the Fund's average daily net assets. The foregoing table has not been audited by
the Fund's independent accountants.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide a high level of current
income consistent with minimal fluctuation of net asset value. Current income
includes, in general, discount earned on U.S. Treasury bills and agency discount
notes, interest earned on mortgage-related securities and other U.S. government
and agency securities, and short-term capital gains. While there can be no
assurance that the Fund will be able to maintain minimal fluctuation 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.
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The Fund pursues its investment objective by investing primarily in a
professionally managed portfolio of adjustable rate or floating rate U.S.
government and agency securities which are issued or guaranteed as to payment of
principal and interest by the U.S. government, its agencies or
instrumentalities. As a mutual fund with "Floating Rate U.S. Government" in its
name, under normal market conditions, the Fund must invest at least 65% of its
portfolio in such instruments.
DURATION
Under normal interest rate conditions, the Fund's average portfolio duration
will be between that of a six-month and a one-year U.S. Treasury Bill
(approximately 0.5 to one-year). This means that the Fund's net asset value
fluctuation is expected to be similar to the price fluctuation of a one-year
U.S. Treasury Bill. The Fund's average portfolio duration is not expected to
exceed that of a two-year U.S. Treasury Note (approximately 1.9 years). In
computing the average duration of its portfolio, the Fund will estimate the
duration of obligations that are subject to prepayment or redemption by the
issuer, taking into account the influence of interest rates on prepayments and
coupon flows. Maturity, in contrast to duration, measures only the time until
final payment is due on an investment; it does not take into account the pattern
of a security's cash flow over time, including how cash flow is affected by
prepayments and by changes in interest rates.
ACCEPTABLE INVESTMENTS
The types of mortgage securities in which the Fund may invest include the
following:
- adjustable rate mortgage securities;
- collateralized mortgage obligations;
- real estate mortgage investment conduits; and
-other securities collateralized by or representing interests in real
estate mortgages whose interest rates reset at periodic intervals and
are issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
In addition to the securities described above, the Fund may also invest in
direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes, and
bonds, as well as obligations of U.S. government agencies or instrumentalities
which are not collateralized by or represent interests in real estate mortgages.
The Fund may also invest in mortgage-related securities which are issued by
private entities such as investment banking firms and companies related to the
construction industry. The privately issued mortgage-related securities in which
the Fund may invest include:
-privately issued securities which are collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S.
government;
-privately issued securities which are collateralized by pools of
mortgages in which payment of principal and interest are guaranteed by
the issuer and such guarantee is collateralized by U.S. government
securities; and
-other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal
and interest are supported by the credit of any agency or
instrumentality of the U.S. government.
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The privately issued mortgage-related securities provide for a periodic
payment consisting of both interest and principal. The interest portion of these
payments will be distributed by the Fund as income, and the capital portion will
be reinvested.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are pass-through
mortgage securities with adjustable rather than fixed interest rates. The ARMS
in which the Fund invests are issued by Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA") and Federal Home Loan
Corporation ("FHLMC") and are actively traded. The underlying mortgages which
collateralize ARMS issued by GNMA are fully guaranteed by the Federal Housing
Administration ("FHA") or Veterans Administration ("VA"), while those
collateralizing ARMS issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting size and maturity
constraints.
Unlike conventional bonds, ARMS pay back principal over the life of the ARMS
rather than at maturity. Thus, a holder of the ARMS, such as the Fund, would
receive monthly scheduled payments of principal and interest and may receive
unscheduled principal payments representing payments on the underlying
mortgages. At the time that a holder of the ARMS reinvests the payments and any
unscheduled prepayments of principal that it receives, the holder may receive a
rate of interest paid on the existing ARMS. As a consequence, ARMS may be a less
effective means of "locking in" long-term interest rates than other types of
U.S. government securities.
Not unlike other U.S. government securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the market
value of ARMS generally declines when interest rates rise and generally rises
when interest rates decline.
While ARMS generally entail less risk of a decline during periods of rapidly
rising rates, ARMS may also have less potential for capital appreciation than
other similar investments (e.g., investments with comparable maturities)
because, as interest rates decline, the likelihood increases that mortgages will
be prepaid. Furthermore, if ARMS are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium paid. Conversely, if
ARMS are purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are bonds issued by
single-purpose, stand-alone finance subsidiaries or trusts of financial
institutions, government agencies, investment banks or companies related to the
construction industry. CMOs purchased by the Fund may be:
-collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government;
-collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is
collateralized by U.S. government securities; or
-securities in which the proceeds of the issuance are invested in
mortgage securities and payment of the principal and interest are
supported by the credit of an agency or instrumentality of the U.S.
government.
All CMOs purchased by the Fund are investment grade, as rated by a
nationally recognized statistical rating organization.
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<PAGE>
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs are offerings
of multiple class real estate mortgage-backed securities which qualify and elect
treatment as such under provisions of the Internal Revenue Code. Issuers of
REMICs may take several forms, such as trusts, partnerships, corporations,
associations or a segregated pool of mortgages. Once REMIC status is elected and
obtained, the entity is not subject to federal income taxation. Instead, income
is passed through the entity and is taxed to the person or persons who hold
interests in the REMIC. A REMIC interest must consist of one or more classes of
"regular interests," some of which may offer adjustable rates (the type in which
the Fund primarily invests), and a single class of "residual interests". To
qualify as a REMIC, substantially all of the assets of the entity must be in
assets directly or indirectly secured principally by real property.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"). The Fund may invest up to 10%
of its total assets in SMBS, which are derivative multiclass mortgage
securities. The Fund may only invest in SMBS issued or guaranteed by the U.S.
government, its agencies or instrumentalities. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets, which may consist of mortgage
loans or guaranteed mortgage pass-through certificates. A common type of SMBS
will have one class receiving all or a portion of the interest from the mortgage
assets, while the other class will receive all of the principal. Moreover, in
some instances, one class will receive some of the interest and most of the
principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, there may no longer be interest paid
on some of the underlying mortgage loans and the Fund, as a result, may fail to
fully recoup its initial investment in these securities. Although the market for
such securities is increasingly liquid, certain SMBS may not be readily
marketable and will be considered illiquid for purposes of the Fund's limitation
on investments in illiquid securities. The market value of the class consisting
entirely of principal payments generally is unusually sensitive to changes in
interest rates. The market value of the class consisting entirely of interest
payments is extremely sensitive not only to changes in interest rates but also
to the rate of principal payments, including prepayments, on the related
underlying mortgage assets. The yields on a class of SMBS that receives all or
most of the interest from mortgage assets are generally higher than prevailing
market yields on other mortgage-backed securities because their cash flow
patterns are more variable and there is a greater risk that the initial
investment will not be fully recouped. The Investment Adviser will seek to
manage these risks (and potential benefits) by investing in a variety of such
securities and by using certain hedging techniques.
OTHER INVESTMENTS AND PRACTICES
RESETS. The interest rates paid on the ARMS, CMOs and REMICs in which the
Fund invests generally are readjusted or reset at intervals of one year or less
to an increment over some predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury securities and those derived
from a calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-year
Constant Maturity Treasury (CMT) rates, the three-month Treasury Bill rate, the
180-day Treasury Bill rate, rates on longer term Treasury securities, the
National Median Cost of Funds (COFI), the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a specific bank, or commercial
paper rates. Some indices, such as the one-year CMT rate, closely mirror changes
in market interest rate levels. Others tend to lag changes in market rate levels
and tend to be somewhat less volatile.
CAPS AND FLOORS. The underlying mortgages which collateralize the ARMS,
CMOs and REMICs in which the Fund invests may have caps and floors which limit
the maximum amount by which the loan rate to the residential borrower may change
up or down: (1) per reset or adjustment interval and (2) over the life of the
loan.
5
<PAGE>
Some residential mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest payments rather than
limiting interest rate changes. These payment caps may result in negative
amortization.
The value of mortgage securities in which the Fund invests may be affected
if market interest rates rise or fall faster and farther than the allowable caps
or floors on the underlying residential mortgage loans. An example of the effect
of caps and floors on a residential mortgage loan may be found in the Statement
of Additional Information. Additionally, even though the interest rates on the
underlying residential mortgages are adjustable, amortization and prepayments
may occur, thereby causing the effective maturities of the mortgage securities
in which the Fund invests to be shorter than the maturities stated in the
underlying mortgages.
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 them 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 them at an agreed upon date and price. The Fund would consider
entering into reverse repurchase agreements to avoid otherwise selling
securities during unfavorable market conditions. Reverse repurchase agreements
involve the risk that the market value of the portfolio securities sold by the
Fund may decline below the price of the securities the Fund is obligated to
repurchase.
DOLLAR ROLL TRANSACTIONS. In order to enhance portfolio returns and manage
prepayment risks, the Fund may engage in dollar roll transactions with respect
to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar roll
transaction, the Fund sells a mortgage security to a financial institution, such
as a bank or broker/dealer, and simultaneously agrees to repurchase a
substantially similar (same type, coupon, and maturity) security from the
institution at a later date at an agreed upon price. The mortgage securities
that are repurchased will bear the same interest rate as those sold, but
generally will be collateralized by different pools of mortgages with different
prepayment histories. During the period between the sale and repurchase, the
Fund will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any additional
fee income received on the sale, will generate income for the Fund exceeding the
yield. When the Fund enters into a dollar roll transaction, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the obligations to be
repurchased, are segregated at the trade date. These assets are marked to market
daily and are maintained until the transaction is settled.
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
6
<PAGE>
issued in reliance on the so-called "private placement" exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended
("Section 4(2) paper"). The Fund may also purchase securities that are not
registered under the Securities Act of 1933, as amended, but which can be sold
to qualified institutional buyers in accordance with Rule 144A under that Act
("Rule 144A securities"). Section 4(2) paper is restricted as to disposition
under the federal securities laws, and generally is sold to institutional
investors such as the Fund who agree that they are purchasing the paper for
investment and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market in the Section
4(2) paper, thus providing liquidity. Rule 144A securities generally must be
sold to other qualified institutional buyers. If a particular investment in
Section 4(2) paper or Rule 144A securities is not determined to be liquid, that
investment will be included within the 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 loaned.
TEMPORARY DEFENSIVE POSITIONS. When maintaining a temporary defensive
position, the Fund may invest its assets, without limit, in any fixed rate U.S.
government securities and repurchase agreements, commercial paper and other
short-term corporate obligations. The Fund's investment in commercial paper or
corporate obligations will be limited to securities with one year or less
remaining to maturity and rated A-1 by S&P Corporation or P-1 by Moody's
Investor Service, Inc.
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.
INVESTMENT LIMITATIONS
The Fund's investment objective and the policies described above are not
fundamental and may be changed by the Trust's Board of Trustees without a vote
of shareholders. If there is a change in the investment objective, shareholders
should consider whether the Fund remains an appropriate investment in light of
their then current financial position and needs. The Fund's investment
limitations summarized below may not be changed without the affirmative vote of
the holders of a majority of its outstanding shares. There can be no
7
<PAGE>
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 for
temporary or emergency purposes (not for leveraging or investment) and (ii)
engage in reverse repurchase agreements or dollar roll transactions for any
purpose; 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 obligations and obligations of domestic banks.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
PURCHASE PROCEDURES
Shares of the Fund are sold at the net asset value per share of the Fund
next determined after receipt of a purchase order by Lehman Brothers Inc.
("Lehman Brothers"), a 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 before 4:00 p.m., Eastern time. Payment
in federal funds immediately available to the Custodian, Boston Safe Deposit &
Trust Company, 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 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 class.
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 by telephone in the
manner described herein. Shares are redeemed at the net asset value per share
next determined after Lehman Brothers' receipt of the redemption order. The
proceeds paid to a shareholder upon redemption may be more or less than the
amount invested depending upon a share's net asset value at the time of
redemption.
8
<PAGE>
Subject to the foregoing, payment for redeemed shares for which a redemption
order is received by Lehman Brothers before 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 shareholder. Any such redemption shall be
effected at the net asset value per share next determined after the redemption
order is entered. If during the 60 day period the shareholder increases the
value of its account to $10,000 or more, no such redemption shall take place. In
addition, the Fund may redeem shares involuntarily or suspend the right of
redemption as permitted under the Investment Company Act of 1940, as amended
(the "1940 Act"), or under certain special circumstances described in the
Statement of Additional Information under "Additional Purchase and Redemption
Information."
The ability to give telephone instructions for the redemption (and purchase
or exchange) of shares is automatically established on a shareholder'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.
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.
EXCHANGE PROCEDURES
The Exchange Privilege enables a shareholder 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 shareholders. To use the
Exchange Privilege, exchange instructions must be given to Lehman Brothers by
telephone. See "Redemption Procedures." In exchanging shares, a shareholder 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 shareholder
resides. Before any exchange, the shareholder 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 shareholder and, therefore, a shareholder
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 shareholders.
9
<PAGE>
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 the New York Stock Exchange or the Federal Reserve Bank of Boston is
closed. Currently, one or both of these institutions are closed on the customary
national business holidays of New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day (observed), Independence Day
(observed), Labor Day, Columbus Day, 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). 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
Shareholders of the Fund are entitled to dividends and distributions arising
only from the net investment income and capital gains, if any, earned on
investments held by the Fund. The Fund's net investment income is declared daily
as a dividend to shares held of record at the close of business on the day of
declaration. Shares begin accruing dividends on the 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
within five business days after the end of the month or within five business
days after a redemption of all of a shareholder's shares of a particular class.
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
Institutional Shares.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same class of shares with respect
to which such dividends are declared at the net asset value of such shares on
the payment date. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Such election, or any revocation thereof, must be made
in writing to The Shareholder Services Group, Inc. ("TSSG"), a subsidiary of
First Data Corporation and the Fund's transfer agent, at P.O. Box 9690,
Providence, Rhode Island 02940-9690, and will become effective after its receipt
by TSSG, with respect to dividends paid.
TSSG, as transfer agent, will send each Fund shareholder or its authorized
representative an annual statement designating the amount, if any, of any
dividends and distributions made during each year and their federal tax
qualification.
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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 shareholders
at least 90% of its investment company taxable income for such year. In general,
the Fund's investment company taxable income will be its taxable income
(including dividends and short-term capital gains, if any) subject to certain
adjustments and excluding the excess of any net long-term capital gains for the
taxable year over the net short-term capital loss, if any, for such year. The
Fund intends to distribute substantially all of its investment company taxable
income each year. Such distributions will be taxable as ordinary income to Fund
shareholders who are not currently exempt from federal income taxes, whether
such income is received in cash or reinvested in additional shares. (Federal
income taxes for distributions to an IRA or a qualified retirement plan are
deferred under the Code.) It is anticipated that none of the Fund's
distributions will be eligible for the dividends received deduction for
corporations.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by the shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during January of the
following year. Shareholders will be advised at least annually as to the federal
income tax status of distributions made to them each year.
The foregoing discussion is only a brief summary of some of the important
federal tax considerations generally affecting the Fund and its shareholders. As
noted above, IRAs receive special tax treatment. No attempt is made to present a
detailed explanation of the federal, state or local income tax treatment of the
Fund or its shareholders, and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Fund should
consult their tax advisors with specific reference to their own tax situation.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of the
Trust's Board of Trustees. The Trustees approve all significant agreements
between the Trust and the persons or companies that furnish services to the
Fund, including agreements with its Distributors, Investment Adviser,
Administrator, Custodian and Transfer Agent. The day-to-day operations of the
Fund are delegated to the Fund's Investment Adviser and Administrator. One
Trustee and all of the Trust's officers are affiliated with Lehman Brothers, The
Boston Company Advisors, Inc. or one of their affiliates. The Statement of
Additional Information relating to the Fund contains general background
information regarding each Trustee and executive officer of the Trust.
INVESTMENT ADVISER--LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located at 3 World
Financial Center, New York, New York 10285, serves as the Fund's Investment
Adviser. LBGAM is a wholly owned subsidiary of Lehman Brothers Holdings Inc.
("Holdings"). All of the issued and outstanding common stock (representing 92%
of the voting stock) of Holdings is held by American Express Company. LBGAM,
together with other Lehman Brothers investment advisory affiliates, serves as
investment adviser to investment companies and private accounts and has assets
under management in excess of $17 billion.
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
11
<PAGE>
securities and employs professional portfolio managers and securities analysts
who provide research services to the Fund. For its services LBGAM is entitled to
a monthly fee payable by the Fund at the annual rate of .30% of the value of the
Fund's average daily net assets.
Kirk D. Hartman, a Managing Director of LBGAM, has been associated with
Lehman Brothers in the Mortgage Department since 1987. Mr. Hartman is the
portfolio manager primarily responsible for managing the day-to-day operations
of the Fund, including the making of investment selections. Mr. Hartman will be
assisted by Andrew J. Stenwall, a Vice President of LBGAM. Mr. Hartman will
manage the Fund as of commencement of operations.
ADMINISTRATOR--THE BOSTON COMPANY ADVISORS, INC.
The Boston Company Advisors, Inc. ("Boston Advisors"), located at One
Exchange Place, Boston, Massachusetts 02109, serves as the Fund's Administrator.
Boston Advisors is a wholly owned subsidiary of The Boston Company, Inc., which
is in turn a wholly owned subsidiary of Boston Group Holdings, Inc. ("BGH"). BGH
is a wholly owned subsidiary of Mellon Bank Corporation. As Administrator,
Boston Advisors 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, Boston Advisors is entitled to a
monthly fee at the annual rate of .10% of the value of the Fund's average daily
net assets.
DISTRIBUTORS AND PLAN OF DISTRIBUTION
Lehman Brothers, located at 3 World Financial Center, New York, New York
10285, is a Distributor of the Fund. Lehman Brothers, a wholly owned subsidiary
of Holdings, is one of the leading full-line investment firms serving the U.S.
and foreign securities and commodities markets. American Express Company and its
subsidiaries, other than Lehman Brothers, are principally engaged in the
businesses of providing travel-related services, investment services,
information services, international banking services and investors' diversified
financial services. Funds Distributor Inc., a wholly owned subsidiary of Lehman
Brothers located at One Exchange Place, Boston, Massachusetts 02109, also serves
as a distributor of the Fund.
The Trust has adopted a Plan of Distribution with respect to Institutional
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 Institutional Shares but provides
that Lehman Brothers may make payments to assist in the distribution of
Institutional 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.
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 shareholders, advisory and administration fees, charges of the custodian,
transfer agent and dividend disbursing agent, certain insurance premiums,
outside auditing and legal expenses, costs of shareholder reports and
shareholder meetings and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions (if any) in connection with the purchase and sale
of portfolio securities. In order to maintain a competitive expense ratio, LBGAM
has agreed voluntarily to waive its fee or to reimburse the Fund if and to the
extent that the Fund's total operating expenses exceed .40% of average daily net
assets. This voluntary waiver and reimbursement will not be changed unless
shareholders are provided at least 60 days' advance notice. 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.
12
<PAGE>
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, 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.
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 "U.S. Mortgage Fund" or "ARM
Fund" categories may also be quoted from time to time in advertising and sales
literature.
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 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
Institutional 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 (Institutional Shares Code: 012) 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. Pursuant to such authority, the Trust has issued
three classes of shares for twelve investment portfolios of the Trust. The
Declaration of Trust further authorizes the Trustees to classify or reclassify
any class of shares into one or more sub-classes. 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.
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<PAGE>
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 shareholders owning
at least 10% of the outstanding shares of the Trust entitled to vote.
Shareholders of the Trust are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held.
The Trust has adopted a Plan of Distribution pursuant to Rule 12b-1 under
which shares of other classes ("Select Shares" and "Premier Shares") of the Fund
are sold to investors. Pursuant to the Plan of Distribution Select Shares are
sold to institutional investors and bear fees payable at a rate not exceeding
.35% (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 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. Premier Shares are offered by Lehman Brothers 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 .50% of the
average daily net asset value of the Premier Shares for distribution and other
services provided to holders of Premier Shares. Shares of each class will bear
all fees paid for services provided to that class under the Plan of
Distribution.
14
<PAGE>
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
100% Government Obligations Money Market Fund
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
California Municipal Money Market Fund
---------------
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR ITS 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
[CAPTION]
PAGE
-----
Background and Expense Information.......... 2
Investment Objective and Policies........... 2
Purchase, Redemption and Exchange of
Shares..................................... 8
Dividends................................... 10
Taxes....................................... 11
Management of the Fund...................... 11
Performance Information..................... 13
Description of Shares....................... 13
FLOATING RATE
U.S. GOVERNMENT FUND
-------------------
PROSPECTUS
February 21, 1994
---------------------
LEHMAN BROTHERS
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN
RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING LEHMAN
BROTHERS AT 1-800-368-5556.
<PAGE>
LEHMAN BROTHERS
FLOATING RATE U.S. GOVERNMENT 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 Floating Rate
U.S. Government 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
primarily in a portfolio consisting of U.S. government and agency securities,
including floating rate and adjustable rate mortgage securities, and repurchase
agreements collateralized by such obligations.
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 February 21,
1994, as amended or supplemented from time to time, has been filed with the
Securities and Exchange Commission and is available to investors without charge
by calling the Fund's Distributor at 1-800-368-5556. The Statement of Additional
Information is incorporated in its entirety by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. SHARES OF THE FUND INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
LEHMAN BROTHERS
February 21, 1994
<PAGE>
BACKGROUND AND EXPENSE INFORMATION
The Fund currently offers three 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 accrues daily dividends in the
same manner, except that Select Shares bear fees payable by the Fund to
institutional investors for services they provide 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 (net of waivers)........... .17
Rule 12b-1 fees.......................... .35
Other Expenses -- including
Administration Fees..................... .23
-----
-----
Total Fund Operating Expenses (after
expense reimbursement).................. .75
-----
- ---------
[CAPTION]
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:
[CAPTION]
1 YEAR 3 YEARS
------ -------
$8 $24
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES AND
RATE OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
The Fund's Investment Adviser has voluntarily agreed to waive its fee or
reimburse the Fund to the extent necessary to maintain the Fund's annualized
expense ratio at .75%. The voluntary waiver or reimbursement will not be changed
unless shareholders are provided at least 60 days' advance notice. In addition,
the Administrator may waive a portion of its fees which will assist in achieving
this expense ratio. Absent waivers or reimbursement of expenses, Advisory Fees
with respect to Select Shares would be .30% annually, Other Expenses would be
.25% annually and the Total Fund Operating Expenses would be .90%, of the Fund's
average daily net assets. The foregoing table has not been audited by the Fund's
independent accountants.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide a high level of current
income consistent with minimal fluctuation of net asset value. Current income
includes, in general, discount earned on U.S. Treasury bills and agency discount
notes, interest earned on mortgage-related securities and other U.S. government
and agency
2
<PAGE>
securities, and short-term capital gains. While there can be no assurance that
the Fund will be able to maintain minimal fluctuation 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.
The Fund pursues its investment objective by investing primarily in a
professionally managed portfolio of adjustable rate or floating rate U.S.
government and agency securities which are issued or guaranteed as to payment of
principal and interest by the U.S. government, its agencies or
instrumentalities. As a mutual fund with "Floating Rate U.S. Government" in its
name, under normal market conditions, the Fund must invest at least 65% of its
portfolio in such instruments.
DURATION
Under normal interest rate conditions, the Fund's average portfolio duration
will be between that of a six-month and a one-year U.S. Treasury Bill
(approximately 0.5 to one-year) This means that the Fund's net asset value
fluctuation is expected to be similar to the price fluctuation of a one-year
U.S. Treasury Bill. The Fund's average portfolio duration is not expected to
exceed that of a two-year U.S. Treasury Note (approximately 1.9 years). In
computing the average duration of its portfolio, the Fund will estimate the
duration of obligations that are subject to prepayment or redemption by the
issuer, taking into account the influence of interest rates on prepayments and
coupon flows. Maturity, in contrast to duration, measures only the time until
final payment is due on an investment; it does not take into account the pattern
of a security's cash flow over time, including how cash flow is affected by
prepayments and by changes in interest rates.
ACCEPTABLE INVESTMENTS
The types of mortgage securities in which the Fund may invest include the
following:
(a) adjustable rate mortgage securities;
(b) collateralized mortgage obligations;
(c) real estate mortgage investment conduits; and
(d) other securities collateralized by or representing interests in real
estate mortgages whose interest rates reset at periodic intervals and are
issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
In addition to the securities described above, the Fund may also invest in
direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes, and
bonds, as well as obligations of U.S. government agencies or instrumentalities
which are not collateralized by or represent interests in real estate mortgages.
The Fund may also invest in mortgage-related securities which are issued by
private entities such as investment banking firms and companies related to the
construction industry. The privately issued mortgage-related securities in which
the Fund may invest include:
(a) privately issued securities which are collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. government;
(b) privately issued securities which are collateralized by pools of
mortgages in which payment of principal and interest are guaranteed by
the issuer and such guarantee is collateralized by U.S. government
securities; and
3
<PAGE>
(c) other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal
and interest are supported by the credit of any agency or instrumentality
of the U.S. government.
The privately issued mortgage-related securities provide for a periodic
payment consisting of both interest and principal. The interest portion of these
payments will be distributed by the Fund as income, and the capital portion will
be reinvested.
DESCRIPTION OF ACCEPTABLE INVESTMENTS
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are pass-through
mortgage securities with adjustable rather than fixed interest rates. The ARMS
in which the Fund invests are issued by Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA") and Federal Home Loan
Corporation ("FHLMC") and are actively traded. The underlying mortgages which
collateralize ARMS issued by GNMA are fully guaranteed by the Federal Housing
Administration ("FHA") or Veterans Administration ("VA"), while those
collateralizing ARMS issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting size and maturity
constraints.
Unlike conventional bonds, ARMS pay back principal over the life of the ARMS
rather than at maturity. Thus, a holder of the ARMS, such as the Fund, would
receive monthly scheduled payments of principal and interest and may receive
unscheduled principal payments representing payments on the underlying
mortgages. At the time that a holder of the ARMS reinvests the payments and any
unscheduled prepayments of principal that it receives, the holder may receive a
rate of interest paid on the existing ARMS. As a consequence, ARMS may be a less
effective means of "locking in" long-term interest rates than other types of
U.S. government securities.
Not unlike other U.S. government securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the market
value of ARMS generally declines when interest rates rise and generally rises
when interest rates decline.
While ARMS generally entail less risk of a decline during periods of rapidly
rising rates, ARMS may also have less potential for capital appreciation than
other similar investments (e.g., investments with comparable maturities)
because, as interest rates decline, the likelihood increases that mortgages will
be prepaid. Furthermore, if ARMS are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium paid. Conversely, if
ARMS are purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are bonds issued by
single-purpose, stand-alone finance subsidiaries or trusts of financial
institutions, government agencies, investment banks or companies related to the
construction industry. CMOs purchased by the Fund may be:
(a) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government;
(b) collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized
by U.S. government securities; or
4
<PAGE>
(c) securities in which the proceeds of the issuance are invested in
mortgage securities and payment of the principal and interest are
supported by the credit of an agency or instrumentality of the U.S.
government.
All CMOs purchased by the Fund are investment grade, as rated by a
nationally recognized statistical rating organization.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs are offerings
of multiple class real estate mortgage-backed securities which qualify and elect
treatment as such under provisions of the Internal Revenue Code. Issuers of
REMICs may take several forms, such as trusts, partnerships, corporations,
associations or a segregated pool of mortgages. Once REMIC status is elected and
obtained, the entity is not subject to federal income taxation. Instead, income
is passed through the entity and is taxed to the person or persons who hold
interests in the REMIC. A REMIC interest must consist of one or more classes of
"regular interests," some of which may offer adjustable rates (the type in which
the Fund primarily invests), and a single class of "residual interests." To
qualify as a REMIC, substantially all of the assets of the entity must be in
assets directly or indirectly secured principally by real property.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"). The Fund may invest up to 10%
of its total assets in SMBS, which are derivative multiclass mortgage
securities. The Fund may only invest in SMBS issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets, which may consist of mortgage
loans or guaranteed mortgage pass-through certificates. A common type of SMBS
will have one class receiving all or a portion of the interest from the mortgage
assets, while the other class will receive all of the principal. Moreover, in
some instances, one class will receive some of the interest and most of the
principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, there may no longer be interest paid
on some of the underlying mortgage loans and the Fund, as a result, may fail to
fully recoup its initial investment in these securities. Although the market for
such securities is increasingly liquid, certain SMBS may not be readily
marketable and will be considered illiquid for purposes of the Fund's limitation
on investments in illiquid securities. The market value of the class consisting
entirely of principal payments generally is unusually sensitive to changes in
interest rates. The market value of the class consisting entirely of interest
payments is extremely sensitive not only to changes in interest rates but also
to the rate of principal payments, including prepayments, on the related
underlying mortgage assets. The yields on a class of SMBS that receives all or
most of the interest from mortgage assets are generally higher than prevailing
market yields on other mortgage-backed securities because their cash flow
patterns are more variable and there is a greater risk that the initial
investment will not be fully recouped. The Investment Adviser will seek to
manage these risks (and potential benefits) by investing in a variety of such
securities and by using certain hedging techniques.
OTHER INVESTMENTS AND PRACTICES
RESETS. The interest rates paid on the ARMS, CMOs and REMICs in which the
Fund invests generally are readjusted or reset at intervals of one year or less
to an increment over some predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury securities and those derived
from a calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-year
Constant Maturity Treasury (CMT) rates, the three-month Treasury Bill rate, the
180-day Treasury Bill rate, rates on longer-term Treasury securities, the
National Median Cost of Funds (COFI), the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a
5
<PAGE>
specific bank, or commercial paper rates. Some indices, such as the one-year CMT
rate, closely mirror changes in market interest rate levels. Others tend to lag
changes in market rate levels and tend to be somewhat less volatile.
CAPS AND FLOORS. The underlying mortgages which collateralize the ARMS,
CMOs and REMICs in which the Fund invests will frequently have caps and floors
which limit the maximum amount by which the loan rate to the residential
borrower may change up or down: (1) per reset or adjustment interval and (2)
over the life of the loan. Some residential mortgage loans restrict periodic
adjustments by limiting changes in the borrower's monthly principal and interest
payments rather than limiting interest rate changes. These payment caps may
result in negative amortization.
The value of mortgage securities in which the Fund invests may be affected
if market interest rates rise or fall faster and farther than the allowable caps
or floors on the underlying residential mortgage loans. An example of the effect
of caps and floors on a residential mortgage loan may be found in the Statement
of Additional Information. Additionally, even though the interest rates on the
underlying residential mortgages are adjustable, amortization and prepayments
may occur, thereby causing the effective maturities of the mortgage securities
in which the Fund invests to be shorter than the maturities stated in the
underlying mortgages.
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 them 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 them at an agreed upon date and price. The Fund would consider
entering into reverse repurchase agreements to avoid otherwise selling
securities during unfavorable market conditions. Reverse repurchase agreements
involve the risk that the market value of the portfolio securities sold by the
Fund may decline below the price of the securities the Fund is obligated to
repurchase.
DOLLAR ROLL TRANSACTIONS. In order to enhance portfolio returns and manage
prepayment risks, the Fund may engage in dollar roll transactions with respect
to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar roll
transaction, the Fund sells a mortgage security to a financial institution, such
as a bank or broker/dealer, and simultaneously agrees to repurchase a
substantially similar (same type, coupon, and maturity) security from the
institution at a later date at an agreed upon price. The mortgage securities
that are repurchased will bear the same interest rate as those sold, but
generally will be collateralized by different pools of mortgages with different
prepayment histories. During the period between the sale and repurchase, the
Fund will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any additional
fee income received on the sale, will generate income for the Fund exceeding the
yield. When the Fund enters into a dollar roll transaction, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the obligations to be
repurchased, are segregated at the trade date. These assets are marked to market
daily and are maintained until the transaction is settled.
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
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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 normally is resold to other institutional
investors like the Fund through or with the assistance of the issuer or
investment dealers who make a market in the Section 4(2) paper, thus providing
liquidity. Rule 144A securities generally must be sold to other qualified
institutional buyers. If a particular investment in Section 4(2) paper or Rule
144A securities is not determined to be liquid, that investment will be included
within the 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 loaned.
TEMPORARY DEFENSIVE POSITIONS. When maintaining a temporary defensive
position, the Fund may invest its assets, without limit, in any fixed rate U.S.
government securities and repurchase agreements, commercial paper and other
short-term corporate obligations. The Fund's investment in commercial paper or
corporate obligations will be limited to securities with one year or less
remaining to maturity and rated A-1 by S&P Corporation or P-1 by Moody's
Investor Service, Inc.
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.
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INVESTMENT LIMITATIONS
The Fund's investment objective and the policies described above are not
fundamental and may be changed by the Trust's Board of Trustees without a vote
of shareholders. If there is a change in the investment objective, shareholders
should consider whether the Fund remains an appropriate investment in light of
their then current financial position and needs. The Fund's investment
limitations summarized below may not be changed without the affirmative vote of
the holders of a majority of its outstanding shares. 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 for
temporary or emergency purposes (not for leveraging or investment) and (ii)
engage in reverse repurchase agreements or dollar roll transactions for any
purpose; 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 obligations and obligations of domestic banks.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
PURCHASE PROCEDURES
Shares of the Fund are sold at the net asset value per share of the Fund
next determined after receipt of a purchase order by Lehman Brothers Inc.
("Lehman Brothers"), a 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 before 4:00 p.m., Eastern time. Payment
in federal funds immediately available to the Custodian, Boston Safe Deposit &
Trust Company, 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 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 Class.
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 advisers and other money managers subject to the
jurisdiction of the Securities and Exchange Commission, the Department of Labor
or state securities commissions, are urged to consult their legal advisors
before investing fiduciary funds in Select Shares. See also "Management of the
Fund -- Banking Laws."
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SUBACCOUNTING SERVICES. Institutions are encouraged to open single master
accounts. However, certain institutions may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent charges a fee based on the level of subaccounting services
rendered. Institutions holding Fund shares in a fiduciary, agency, custodial or
similar capacity may charge or pass through subaccounting fees as part of or in
addition to normal trust or agency account fees. They may also charge fees for
other services provided which may be related to the ownership of Fund shares.
This Prospectus should, therefore, be read together with any agreement between
the customer and the institution with regard to the services provided, the fees
charged for those services and any restrictions and limitations imposed.
REDEMPTION PROCEDURES
Redemption orders must be transmitted to Lehman Brothers by telephone in the
manner described herein. Shares are redeemed at the net asset value per share
next determined after Lehman Brothers' receipt of the redemption order. The
proceeds paid to a shareholder upon redemption may be more or less than the
amount invested depending upon a share's net asset value at the time of
redemption.
Subject to the foregoing, payment for redeemed shares for which a redemption
order is received by Lehman Brothers before 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 shareholder. Any such redemption shall be
effected at the net asset value per share next determined after the redemption
order is entered. If during the 60 day period the shareholder increases the
value of its account to $10,000 or more, no such redemption shall take place. In
addition, the Fund may redeem shares involuntarily or suspend the right of
redemption as permitted under the Investment Company Act of 1940, as amended
(the "1940 Act"), or under certain special circumstances described in the
Statement of Additional Information under "Additional Purchase and Redemption
Information."
The ability to give telephone instructions for the redemption (and purchase
or exchange) of shares is automatically established on a shareholder'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.
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.
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EXCHANGE PROCEDURES
The Exchange Privilege enables a shareholder 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 shareholders. To use the
Exchange Privilege, exchange instructions must be given to Lehman Brothers by
telephone. See "Redemption Procedures." In exchanging shares, a shareholder 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 shareholder
resides. Before any exchange, the shareholder 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 shareholder and, therefore, a shareholder
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 shareholders.
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 the New York Stock Exchange or the Federal Reserve Bank of Boston is
closed. Currently, one or both of these institutions are closed on the customary
national business holidays of New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day (observed), Independence Day
(observed), Labor Day, Columbus Day, 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). 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
Shareholders of the Fund are entitled to dividends and distributions arising
only from the net investment income and capital gains, if any, earned on
investments held by the Fund. The Fund's net investment income is declared daily
as a dividend to shares held of record at the close of business on the day of
declaration. Shares begin accruing dividends on the 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
within five business days after the end of the month or within five business
days after a redemption of all of a shareholder's shares of a particular class.
Net capital gains distributions, if any, will be made annually.
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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
Institutional Shares and higher than the net yield on Premier Shares.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same class of shares with respect
to which such dividends are declared at the net asset value of such shares on
the payment date. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Such election, or any revocation thereof, must be made
in writing to The Shareholder Services Group, Inc. ("TSSG"), a subsidiary of
First Data Corporation and the Fund's transfer agent, at P.O. Box 9690,
Providence, Rhode Island 02940-9690, and will become effective after its receipt
by TSSG, with respect to dividends paid.
TSSG, as transfer agent, will send each Fund shareholder or its authorized
representative an annual statement designating the amount, if any, of any
dividends and distributions made during each year and their federal tax
qualification.
TAXES
The Fund intends to qualify each year as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). A regulated
investment company is exempt from federal income tax on amounts distributed to
its shareholders.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that the Fund distribute to its shareholders
at least 90% of its investment company taxable income for such year. In general,
the Fund's investment company taxable income will be its taxable income
(including dividends and short-term capital gains, if any) subject to certain
adjustments and excluding the excess of any net long-term capital gain for the
taxable year over the net short-term capital loss, if any, for such year. The
Fund intends to distribute substantially all of its investment company taxable
income each year. Such distributions will be taxable as ordinary income to Fund
shareholders who are not currently exempt from federal income taxes, whether
such income is received in cash or reinvested in additional shares. (Federal
income taxes for distributions to an IRA or a qualified retirement plan are
deferred under the Code.) It is anticipated that none of the Fund's
distributions will be eligible for the dividends received deduction for
corporations.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by the shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during January of the
following year. Shareholders will be advised at least annually as to the federal
income tax status of distributions made to them each year.
The foregoing discussion is only a brief summary of some of the important
federal tax considerations generally affecting the Fund and its shareholders. As
noted above, IRAs receive special tax treatment. No attempt is made to present a
detailed explanation of the federal, state or local income tax treatment of the
Fund or its shareholders, and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Fund should
consult their tax advisors with specific reference to their own tax situation.
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
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services to the Fund, including agreements with its Distributors, Investment
Adviser, Administrator, Custodian and Transfer Agent. The day-to-day operations
of the Fund are delegated to the Fund's Investment Adviser and Administrator.
One Trustee and all of the Trust's officers are affiliated with Lehman Brothers,
The Boston Company Advisors, Inc. or one of their affiliates. The Statement of
Additional Information relating to the Fund contains general background
information regarding each Trustee and executive officer of the Trust.
INVESTMENT ADVISER--LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located at 3 World
Financial Center, New York, New York 10285, serves as the Fund's Investment
Adviser. LBGAM is a wholly owned subsidiary of Lehman Brothers Holdings Inc.
("Holdings"). All of the issued and outstanding common stock (representing 92%
of the voting stock) of Holdings is held by American Express Company. LBGAM,
together with other Lehman Brothers investment advisory affiliates, serves as
investment adviser to investment companies and private accounts and has assets
under management in excess of $17 billion.
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 a monthly
fee by the Fund at the annual rate of .30% of the value of the Fund's average
daily net assets.
Kirk D. Hartman, a Managing Director of LBGAM, has been associated with
Lehman Brothers in the Mortgage Department since 1987. Mr. Hartman is the
portfolio manager primarily responsible for managing the day-to-day operations
of the Fund, including the making of investment selections. Mr. Hartman will be
assisted by Andrew J. Stenwall, a Vice President of LBGAM. Mr. Hartman will
manage the Fund as of commencement of operations.
ADMINISTRATOR--THE BOSTON COMPANY ADVISORS, INC.
The Boston Company Advisors, Inc. ("Boston Advisors"), located at One
Exchange Place, Boston, Massachusetts 02109, serves as the Fund's Administrator.
Boston Advisors is a wholly owned subsidiary of The Boston Company, Inc., which
is in turn a wholly owned subsidiary of Boston Group Holdings, Inc. ("BGH"). BGH
is a wholly owned subsidiary of Mellon Bank Corporation. As Administrator,
Boston Advisors 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, Boston Advisors is entitled to a
monthly fee at the annual rate of .10% of the value of the Fund's average daily
net assets.
DISTRIBUTORS
Lehman Brothers, located at 3 World Financial Center, New York, New York
10285, is a Distributor of the Fund. Lehman Brothers, a wholly owned subsidiary
of Holdings, is one of the leading full-line investment firms serving the U.S.
and foreign securities and commodities markets. American Express Company and its
subsidiaries, other than Lehman Brothers, are principally engaged in the
businesses of providing travel-related services, investment services,
information services, international banking services and investors' diversified
financial services. Funds Distributor Inc., a wholly owned subsidiary of Lehman
Brothers located at One Exchange Place, Boston, Massachusetts 02109, also serves
as a distributor of the Fund.
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 .35% (on an annualized basis) of the average
daily net asset value of such shares to Lehman Brothers for providing certain
services to the Fund
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and holders of 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 .35% to institutional 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 Funds --
Service Organizations," include aggregating and processing purchase and
redemption requests from shareholders and placing net purchase and redemption
orders with Lehman Brothers; processing dividend payments from the Fund on
behalf of shareholders; providing information periodically to 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 may charge 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 shareholders, advisory and administration fees, charges of the custodian,
transfer agent and dividend disbursing agent, certain insurance premiums,
outside auditing and legal expenses, costs of shareholder reports and
shareholder meetings and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions (if any) in connection with the purchase and sale
of portfolio securities. In order to maintain a competitive expense ratio, LBGAM
has agreed voluntarily to waive its fee or to reimburse the Fund if and to the
extent that the Fund's total operating expenses exceed .75% of average daily net
assets. This voluntary waiver and reimbursement will not be changed unless
shareholders are provided at least 60 days' advance notice. 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. Any fees charged by institutional
investors to their customers in connection with investments in Fund shares are
not reflected in the Fund's expenses.
BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, or controlling a
registered, open-end investment company engaged continuously in the issuance of
its shares and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as Fund shares. Such banking laws and regulations
do not prohibit such a holding company or affiliate or banks generally from
acting as investment adviser, transfer agent or custodian to such an investment
company or from purchasing shares of such a company for or upon the order of
customers. Some Service Organizations may be subject to such banking laws and
regulations. In addition, state securities laws on this issue may differ from
the interpretation of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of bank Service Organizations, the Fund might be
required to alter or discontinue its arrangements with Service Organizations and
change its method of operations with respect to Select Shares. It is not
anticipated, however, that any change in the Fund's method of operations would
affect its net asset value per share or result in a financial loss to any
customer.
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PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, 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 "U.S. Mortgage Fund" or "ARM
Fund" categories 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. 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: 212) 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. Pursuant to such authority, the Trust has issued
three classes of shares for twelve investment portfolios of the Trust. The
Declaration of Trust further authorizes the Trustees to classify or reclassify
any class of shares into one or more sub-classes. 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.
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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 shareholders owning
at least 10% of the outstanding shares of the Trust entitled to vote.
Shareholders of the Trust are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held.
In addition to Select Shares, the Fund currently offers Institutional Shares
and Premier Shares. Institutional 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.
Premier Shares are offered by Lehman Brothers directly to individual investors
under the Plan of Distribution adopted pursuant to Rule 12b-1. Pursuant to the
Plan of Distribution, the Fund has agreed to pay Lehman Brothers a monthly fee
at an annual rate of up to .50% of the average daily net asset value of the
Premier Shares for distribution and other services provided to holders of
Premier Shares. Premier Shares will bear all fees paid for services provided to
that class under the Plan of Distribution.
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LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
100% Government Obligations Money Market Fund
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
California Municipal Money Market Fund
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR ITS 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
[CAPTION]
PAGE
-----
Background and Expense Information.......... 2
Investment Objective and Policies........... 2
Purchase, Redemption and Exchange of
Shares..................................... 8
Dividends................................... 10
Taxes....................................... 11
Management of the Fund...................... 11
Performance Information..................... 14
Description of Shares....................... 14
FLOATING RATE
U.S. GOVERNMENT FUND
-------------------
PROSPECTUS
February 21, 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
Floating Rate U.S. Government 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
Floating Rate U.S. Government Fund (the "Fund"), a diversified investment
portfolio of the Trust.
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 primarily in a portfolio consisting of U.S. government and agency
securities, including floating rate and adjustable rate mortgage securities,
and repurchase agreements collateralized by such obligations.
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.
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
February 21, 1994, as amended or supplemented from time to time, has been
filed with the Securities and Exchange Commission and is available to
investors without charge by calling the Fund's Transfer Agent at 1-800-451-
2010. The Statement of Additional Information is incorporated in its entirety
by reference into this Prospectus.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and such shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board or any other
government agency. Shares of the Fund involve certain investment risks,
including the possible loss of principal.
___________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
___________
LEHMAN BROTHERS
February 21, 1994
BACKGROUND AND EXPENSE INFORMATION
The Fund currently offers three 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 accrues daily dividends
in the same manner, except that Premier Shares bear fees payable by the Fund
to Lehman Brothers for services it provides to the beneficial owners of such
shares. See "Management of the Fund - Shareholder Services."
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 (net of waivers)
.17%
Rule 12b-1 fees
.50
Other Expenses-including Administration
Fees
.23__
__
Total Fund Operating Expenses (after
expense reimbursement)
.90
_____
[CAPTION]
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:
[CAPTION]
1 Year
3 Years
$9
$29
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES AND
RATE OF RETURN, WHICH MAY BE GREATER OR LESSER THAN THOSE SHOWN.
The Fund's Investment Adviser has voluntarily agreed to waive its fee or
reimburse the Fund to the extent necessary to maintain the Fund's annualized
expense ratio at .90%. The voluntary waiver or reimbursement will not be
changed unless shareholders are provided at least 60 days' advance notice. In
addition, the Administrator may waive a portion of its fees which will assist
in achieving this expense ratio. Absent waivers or reimbursement of expenses,
Advisory Fees with respect to Premier Shares would be .30% annually, Other
Expenses would be .25% annually and the Total Fund Operating Expenses would be
1.05%, of the Fund's average daily net assets. The foregoing table has not
been audited by the Fund's independent accountants.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide a high level of
current income consistent with minimal fluctuation of net asset value.
Current income includes, in general, discount earned on U.S. Treasury bills
and agency discount notes, interest earned on mortgage-related securities and
other U.S. government and agency securities, and short-term capital gains.
While there can be no assurance that the Fund will be able to maintain minimal
fluctuation 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.
The Fund pursues its investment objective by investing primarily in a
professionally managed portfolio of adjustable rate or floating rate U.S.
government and agency securities which are issued or guaranteed as to payment
of principal and interest by the U.S. government, its agencies or
instrumentalities. As a mutual fund with "Floating Rate U.S. Government" in
its name, under normal market conditions, the Fund must invest at least 65% of
its portfolio in such instruments.
Duration
Under normal interest rate conditions, the Fund's average portfolio
duration will be between that of a six-month and a one-year U.S. Treasury Bill
(approximately 0.5 to one year). This means that the Fund's net asset value
fluctuation is expected to be similar to the price fluctuation of a one-year
U.S. Treasury Bill. The Fund's average portfolio duration is not expected to
exceed that of a two-year U.S. Treasury Note (approximately 1.9 years). In
computing the average duration of its portfolio, the Fund will estimate the
duration of obligations that are subject to prepayment or redemption by the
issuer, taking into account the influence of interest rates on prepayments and
coupon flows. Maturity, in contrast to duration, measures only the time until
final payment is due on an investment; it does not take into account the
pattern of a security's cash flow over time, including how cash flow is
affected by prepayments and by changes in interest rates.
Acceptable Investments
The types of mortgage securities in which the Fund may invest include
the following:
* adjustable rate mortgage securities;
* collateralized mortgage obligations;
* real estate mortgage investment conduits; and
* other securities collateralized by or representing interests in real
estate mortgages whose interest rates reset at periodic intervals and are
issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
In addition to the securities described above, the Fund may also invest
in direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds, as well as obligations of U.S. government agencies or
instrumentalities which are not collateralized by or represent interests in
real estate mortgages.
The Fund may also invest in mortgage-related securities which are issued
by private entities such as investment banking firms and companies related to
the construction industry. The privately issued mortgage-related securities
in which the Fund may invest include:
* privately issued securities which are collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. government;
* privately issued securities which are collateralized by pools of
mortgages in which payment of principal and interest are guaranteed by the
issuer and such guarantee is collateralized by U.S. government securities; and
* other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal and
interest are supported by the credit of any agency or instrumentality of the
U.S. government.
The privately issued mortgage-related securities provide for a periodic
payment consisting of both interest and principal. The interest portion of
these payments will be distributed by the Fund as income, and the capital
portion will be reinvested.
Description of Acceptable Investments
Adjustable Rate Mortgage Securities ("ARMS"). ARMS are pass-through
mortgage securities with adjustable rather than fixed interest rates. The
ARMS in which the Fund invests are issued by Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and
Federal Home Loan Corporation ("FHLMC") and are actively traded. The
underlying mortgages which collateralize ARMS issued by GNMA are fully
guaranteed by the Federal Housing Administration ("FHA") or Veterans
Administration ("VA"), while those collateralizing ARMS issued by FHLMC or
FNMA are typically conventional residential mortgages conforming to strict
underwriting size and maturity constraints.
Unlike conventional bonds, ARMS pay back principal over the life of the
ARMS rather than at maturity. Thus, a holder of the ARMS, such as the Fund,
would receive monthly scheduled payments of principal and interest and may
receive unscheduled principal payments representing payments on the underlying
mortgages. At the time that a holder of the ARMS reinvests the payments and
any unscheduled prepayments of principal that it receives, the holder may
receive a rate of interest paid on the existing ARMS. As a consequence, ARMS
may be a less effective means of "locking in" long-term interest rates than
other types of U.S. government securities.
Not unlike other U.S. government securities, the market value of ARMS
will generally vary inversely with changes in market interest rates. Thus,
the market value of ARMS generally declines when interest rates rise and
generally rises when interest rates decline.
While ARMS generally entail less risk of a decline during periods of
rapidly rising rates, ARMS may also have less potential for capital
appreciation than other similar investments (e.g., investments with comparable
maturities) because, as interest rates decline, the likelihood increases that
mortgages will be prepaid. Furthermore, if ARMS are purchased at a premium,
mortgage foreclosures and unscheduled principal payments may result in some
loss of a holder's principal investment to the extent of the premium paid.
Conversely, if ARMS are purchased at a discount, both a scheduled payment of
principal and an unscheduled prepayment of principal would increase current
and total returns and would accelerate the recognition of income, which would
be taxed as ordinary income when distributed to shareholders.
Collateralized Mortgage Obligations ("CMOs"). CMOs are bonds issued by
single-purpose, stand-alone finance subsidiaries or trusts of financial
institutions, government agencies, investment banks or companies related to
the construction industry. CMOs purchased by the Fund may be:
* collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government;
* collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized by
U.S. government securities; or
* securities in which the proceeds of the issuance are invested in
mortgage securities and payment of the principal and interest are supported by
the credit of an agency or instrumentality of the U.S. government.
All CMOs purchased by the Fund are investment grade, as rated by a
nationally recognized statistical rating organization.
Real Estate Mortgage Investment Conduits ("REMICs"). REMICs are
offerings of multiple class real estate mortgage-backed securities which
qualify and elect treatment as such under provisions of the Internal Revenue
Code. Issuers of REMICs may take several forms, such as trusts, partnerships,
corporations, associations or a segregated pool of mortgages. Once REMIC
status is elected and obtained, the entity is not subject to federal income
taxation. Instead, income is passed through the entity and is taxed to the
person or persons who hold interests in the REMIC. A REMIC interest must
consist of one or more classes of "regular interests," some of which may offer
adjustable rates (the type in which the Fund primarily invests), and a single
class of "residual interests". To qualify as a REMIC, substantially all of
the assets of the entity must be in assets directly or indirectly secured
principally by real property.
Stripped Mortgage-Backed Securities ("SMBS") . The Fund may invest
up to 10% of its total assets in SMBS, which are derivative multiclass
mortgage securities. The Fund may only invest in SMBS issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. SMBS are usually
structured with two classes that receive different proportions of the interest
and principal distributions from a pool of mortgage assets, which may consist
of mortgage loans or guaranteed mortgage pass-through certificates. A common
type of SMBS will have one class receiving all or a portion of the interest
from the mortgage assets, while the other class will receive all of the
principal. Moreover, in some instances, one class will receive some of the
interest and most of the principal while the other class will receive most of
the interest and the remainder of the principal. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, there may
no longer be interest paid on some of the underlying mortgage loans and the
Fund, as a result, may fail to fully recoup its initial investment in these
securities. Although the market for such securities is increasingly liquid,
certain SMBS may not be readily marketable and will be considered illiquid for
purposes of the Fund's limitation on investments in illiquid securities. The
market value of the class consisting entirely of principal payments generally
is unusually sensitive to changes in interest rates. The market value of the
class consisting entirely of interest payments is extremely sensitive not only
to changes in interest rates but also to the rate of principal payments,
including prepayments, on the related underlying mortgage assets. The yields
on a class of SMBS that receives all or most of the interest from mortgage
assets are generally higher than prevailing market yields on other mortgage-
backed securities because their cash flow patterns are more variable and there
is a greater risk that the initial investment will not be fully recouped. The
Investment Adviser will seek to manage these risks (and potential benefits) by
investing in a variety of such securities and by using certain hedging
techniques.
Other Investments and Practices
Resets. The interest rates paid on the ARMS, CMOs and REMICs in which
the Fund invests generally are readjusted or reset at intervals of one year or
less to an increment over some predetermined interest rate index. There are
two main categories of indices: those based on U.S. Treasury securities and
those derived from a calculated measure, such as a cost of funds index or a
moving average of mortgage rates. Commonly utilized indices include the one-
year and five-year Constant Maturity Treasury (CMT) rates, the three-month
Treasury Bill rate, the 180-day Treasury Bill rate, rates on longer-term
Treasury securities, the National Median Cost of Funds (COFI), the one-month
or three-month London Interbank Offered Rate (LIBOR), the prime rate of a
specific bank, or commercial paper rates. Some indices, such as the one-year
CMT rate, closely mirror changes in market interest rate levels. Others tend
to lag changes in market rate levels and tend to be somewhat less volatile.
Caps and Floors. The underlying mortgages which collateralize the ARMS,
CMOs and REMICs in which the Fund invests may have caps and floors which limit
the maximum amount by which the loan rate to the residential borrower may
change up or down: (1) per reset or adjustment interval and (2) over the life
of the loan. Some residential mortgage loans restrict periodic adjustments by
limiting changes in the borrower's monthly principal and interest payments
rather than limiting interest rate changes. These payment caps may result in
negative amortization.
The value of mortgage securities in which the Fund invests may be
affected if market interest rates rise or fall faster and farther than the
allowable caps or floors on the underlying residential mortgage loans. An
example of the effect of caps and floors on a residential mortgage loan may be
found in the Statement of Additional Information. Additionally, even though
the interest rates on the underlying residential mortgages are adjustable,
amortization and prepayments may occur, thereby causing the effective
maturities of the mortgage securities in which the Fund invests to be shorter
than the maturities stated in the underlying mortgages.
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 them 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 them at an agreed upon date and price. The Fund would consider
entering into reverse repurchase agreements to avoid otherwise selling
securities during unfavorable market conditions. Reverse repurchase agreements
involve the risk that the market value of the portfolio securities sold by the
Fund may decline below the price of the securities the Fund is obligated to
repurchase.
Dollar Roll Transactions. In order to enhance portfolio returns and
manage prepayment risks, the Fund may engage in dollar roll transactions with
respect to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar
roll transaction, the Fund sells a mortgage security to a financial
institution, such as a bank or broker/dealer, and simultaneously agrees to
repurchase a substantially similar (same type, coupon, and maturity) security
from the institution at a later date at an agreed upon price. The mortgage
securities that are repurchased will bear the same interest rate as those
sold, but generally will be collateralized by different pools of mortgages
with different prepayment histories. During the period between the sale and
repurchase, the Fund will not be entitled to receive interest and principal
payments on the securities sold. Proceeds of the sale will be invested in
short-term instruments, and the income from these investments, together with
any additional fee income received on the sale, will generate income for the
Fund exceeding the yield. When the Fund enters into a dollar roll
transaction, liquid assets of the Fund, in a dollar amount sufficient to make
payment for the obligations to be repurchased, are segregated at the trade
date. These assets are marked to market daily and are maintained until the
transaction is settled.
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
normally is resold to other institutional investors like the Fund through or
with the assistance of the issuer or investment dealers who make a market in
the Section 4(2) paper, thus providing liquidity. Rule 144A securities
generally must be sold to other qualified institutional buyers. If a
particular investment in Section 4(2) paper or Rule 144A securities is not
determined to be liquid, that investment will be included within the 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 loaned.
Temporary Defensive Positions. When maintaining a temporary defensive
position, the Fund may invest its assets, without limit, in any fixed rate
U.S. government securities and repurchase agreements, commercial paper and
other short-term corporate obligations. The Fund's investment in commercial
paper or corporate obligations will be limited to securities with one year or
less remaining to maturity and rated A-1 by S&P Corporation or P-1 by Moody's
Investor Service, Inc.
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.
Investment Limitations
The Fund's investment objective and the policies described above are not
fundamental and may be changed by the Trust's Board of Trustees without a vote
of shareholders. If there is a change in the investment objective,
shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial position and needs. The
Fund's investment limitations summarized below may not be changed without the
affirmative vote of the holders of a majority of its outstanding shares.
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 for
temporary or emergency purposes (not for leveraging or investment) and (ii)
engage in reverse repurchase agreements or dollar roll transactions for any
purpose; 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 obligations and obligations of domestic banks.
PURCHASE AND REDEMPTION OF SHARES
Purchase Procedures
Purchases of Fund shares must be made through a brokerage account
maintained through Lehman Brothers Inc. ("Lehman Brothers") or a broker that
clears securities transactions through Lehman Brothers on a fully disclosed
basis (an "Introducing Broker"). 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 the Fund is $5,000 and the minimum
subsequent investment is $1,000, except for purchases through (a) Individual
Retirement Accounts ("IRAs") and Self-Employed Retirement Plans, for which the
minimum initial and subsequent investments are $1,000 and $500, respectively,
and (b) retirement plans qualified under Section 403(b)(7) of the Internal
Revenue Code of 1986, as amended (the "Code"), for which the minimum and
subsequent investment is $500. 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. Payment for Fund shares is generally due to Lehman
Brothers or an Introducing Broker on the fifth business day after the trade
date. Purchase orders received by Lehman Brothers or an Introducing Broker
prior to the close of regular trading on the NYSE, currently 4:00 p.m.,
Eastern time, on any day that the Fund calculates its net asset value, are
priced according to the net asset value determined on that day. Purchase
orders received after the close of regular trading on the NYSE are priced as
of the time the net asset value per share is next determined. Shares
purchased begin to accrue income dividends on the next business day following
the day that the purchase order is settled.
Valuation of Shares
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 the New York Stock Exchange or the Federal Reserve Bank of Boston
is closed. Currently, one or both of these institutions are closed on the
customary national business holidays of New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence
Day (observed), Labor Day, Columbus Day, 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). 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.
Redemption Procedures
Shareholders may redeem their shares without charge on any day the Fund
calculates its net asset value. See "Valuation of Shares." Redemption
requests received in proper form prior to the close of regular trading on the
NYSE are priced at the net asset value per share determined on that day.
Redemption requests received after the close of regular trading on the NYSE
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 on the fifth 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
uninvested 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
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 9134
Boston, Massachusetts 02205-9134
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. The Shareholder Services Group, Inc.,
a subsidiary of First Data Corporation, is located at One Exchange Place,
Boston, Massachusetts 02109 and serves as the Fund's Transfer Agent.
Exchange Privilege
Shares of the Fund may be exchanged without charge for shares of the
Lehman Brothers Short Duration U.S. Government Fund - Premier Shares, the
Lehman Brothers Daily Income Fund and the Lehman Brothers Municipal Income
Fund. 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.
DIVIDENDS
The Fund declares dividends from its net investment income on each day
the Fund is open for business and pays dividends monthly. Distributions of
net realized long-term capital gains, if any, are declared and paid annually.
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. Shares
redeemed during the month are entitled to dividends and distributions declared
up to and including the date of redemption.
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.
For Federal income tax purposes, dividends of net ordinary income and
distributions of any net realized short-term capital gain, whether paid in
cash or reinvested in shares of the Fund, are taxable to shareholders as
ordinary income. Distributions of net realized long-term capital gains,
whether paid in cash or reinvested in shares of the Fund, are taxable to
shareholders as long-term capital gains, irrespective of the length of time
the shareholder had held his Fund shares. (Federal income taxes for
distributions to an IRA or a qualified retirement plan are deferred under the
Code.) It is anticipated that none of the Fund's distributions will be
eligible for the dividends received deduction for corporations.
Dividends declared in October, November or December of any year payable
to shareholders of record on a specified date in such months will be deemed to
have been received by the shareholders and paid by the Fund on December 31 of
such year in the event such dividends are actually paid during January of the
following year.
Shareholders will be advised at least annually as to the Federal income
tax status of distributions made to them each year.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the Trust's Board of Trustees. The Trustees approve all significant
agreements between the Trust and the persons or companies that furnish
services to the Fund, including agreements with its Distributors, Investment
Adviser, Administrator, Custodian and Transfer Agent. The day-to-day
operations of the Fund are delegated to the Fund's Investment Adviser and
Administrator. One Trustee and all of the Trust's officers are affiliated
with Lehman Brothers, The Boston Company Advisors, Inc. or one of their
affiliates. The Statement of Additional Information relating to the Fund
contains general background information regarding each Trustee and executive
officer of the Trust.
Investment Adviser-Lehman Brothers Global Asset Management Inc.
Lehman Brothers Global Asset Management Inc. ("LBGAM"), located at 3
World Financial Center, New York, New York 10285, serves as the Fund's
Investment Adviser. LBGAM is a wholly owned subsidiary of Lehman Brothers
Holdings Inc. ("Holdings"). All of the issued and outstanding common stock
(representing 92% of the voting stock) of Holdings is held by American Express
Company. LBGAM, together with other Lehman Brothers investment advisory
affiliates, serves as investment adviser to investment companies and private
accounts and has assets under management in excess of $17 billion.
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 a
monthly fee by the Fund at the annual rate of .30% of the value of the Fund's
average daily net assets.
Kirk D. Hartman, a Managing Director of LBGAM, has been associated with
Lehman Brothers in the Mortgage Department since 1987. Mr. Hartman is the
portfolio manager primarily responsible for managing the day-to-day operations
of the Fund, including the making of investment selections. Mr. Hartman will
be assisted by Andrew J. Stenwall, a Vice President of LBGAM. Mr. Hartman
will manage the Fund as of commencement of operations.
Administrator-The Boston Company Advisors, Inc.
The Boston Company Advisors, Inc. ("Boston Advisors"), located at One
Exchange Place, Boston, Massachusetts 02109, serves as the Fund's
Administrator. Boston Advisors is a wholly owned subsidiary of The Boston
Company, Inc., which is in turn a wholly owned subsidiary of Boston Group
Holdings, Inc. ("BGH"). BGH is a wholly owned subsidiary of Mellon Bank
Corporation. As Administrator, Boston Advisors 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, Boston Advisors is entitled to a monthly fee at the annual rate
of .10% of the value of the Fund's average daily net assets.
Distributors
Lehman Brothers, located at 3 World Financial Center, New York, New York
10285, is a Distributor of the Fund. Lehman Brothers, a wholly owned
subsidiary of Holdings, is one of the leading full-line investment firms
serving the U.S. and foreign securities and commodities markets. American
Express Company and its subsidiaries, other than Lehman Brothers, are
principally engaged in the businesses of providing travel-related services,
investment services, information services, international banking services and
investors' diversified financial services. Funds Distributor Inc., a wholly
owned subsidiary of Lehman Brothers located at One Exchange Place, Boston,
Massachusetts 02109, also serves as a distributor of the Fund.
Shareholder Services
Under a Plan of Distribution adopted pursuant to Rule 12b-1 under the
1940 Act, Premier Shares bear fees ("Rule 12b-1 fees") payable by the Fund at
the aggregate rate of up to .50% (on an annualized basis) of the average daily
net asset value of such shares to Lehman Brothers to support the costs of
distributing Premier Shares and for services it provides to the beneficial
owners of Premier Shares. The Plan of Distribution also allows Lehman
Brothers to use its own resources to provide distribution services and
shareholder services. The latter services include providing information
periodically to shareholders concerning their investment in Premier Shares;
responding to inquiries from shareholders concerning the Fund and their
investment in Premier Shares; assisting in effecting purchase and redemption
transactions; and providing such other similar services as may be reasonably
requested by shareholders or the Fund. Premier Shares are identical in all
respects to shares of other classes except that they bear the fees described
above and enjoy certain exclusive voting rights on matters relating to these
fees.
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 shareholders, advisory and administration fees, charges of the
custodian, transfer agent and dividend disbursing agent, certain insurance
premiums, outside auditing and legal expenses, costs of shareholder reports
and shareholder meetings and any extraordinary expenses. The Fund also pays
for brokerage fees and commissions (if any) in connection with the purchase
and sale of portfolio securities. In order to maintain a competitive expense
ratio, LBGAM has agreed voluntarily to waive its fee or to reimburse the Fund
if and to the extent that the Fund's total operating expenses exceed .90% of
average daily net assets. This voluntary waiver and reimbursement will not be
changed unless shareholders are provided at least 60 days' advance notice. 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.
Any fees charged by institutional investors to their customers in connection
with investments in Fund Shares are not reflected in the Fund's expenses.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, 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
"U.S. Mortgage Fund" or "ARM Fund" categories 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. 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 maybe obtained through a Lehman
Brothers Investment Representative.
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 Declaration of Trust further
authorizes the Trustees to classify or reclassify any class of shares into one
or more sub-classes. 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 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 shareholders owning at least 10% of the outstanding shares of the Trust
entitled to vote. Shareholders of the Trust are entitled to one vote for each
full share held (irrespective of class or portfolio) and fractional votes for
fractional shares held.
In addition to Premier Shares, the Fund currently offers Institutional
Shares and Select Shares. Institutional 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 .35% (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 Funds 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
[CAPTION]
Page
Background and Expense Information
2
Investment Objective and Policies
3
Purchase and Redemption of Shares
8
Dividends
10
Taxes
11
Management of the Fund
11
Performance Information
13
Description of Shares
13
Lehman Brothers
Floating Rate U.S. Government Fund
__________
PROSPECTUS
February 21, 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 Institutional Funds Group Trust
Short Duration U.S. Government Fund
Statement of Additional Information
February 21, 1994
This Statement of Additional Information is meant to be read in
conjunction with the Prospectuses for the Short Duration U.S.
Government Fund, each dated February 21, 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 U.S.
Government Fund should be made solely upon the information contained
herein. Copies of the Prospectuses for the Short Duration U.S.
Government Fund may be obtained by calling Lehman Brothers Inc.
("Lehman Brothers") at 1-800-368-5556. Capitalized terms used but not
defined herein have the same meanings as in the Prospectuses.
TABLE OF CONTENTS
Page
The Trust
2
Investment Objective and Policies
2
Additional Purchase and Redemption
Information
11
Management of the Fund
12
Additional Information Concerning Taxes
17
Dividends
18
Additional Performance Information
18
Additional Description Concerning Shares
19
Counsel
20
Auditors
20
Miscellaneous
20
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 12 separate
portfolios, one of which is the Short Duration U.S. Government Fund
(the "Fund"). The Fund currently offers three classes of shares.
Each class represents an equal, pro rata interest in the Fund. Each
share accrues daily dividends in the same manner, except that 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 Premier Shares bear fees payable by the
Fund to Lehman Brothers for services it provides to the beneficial
owners of such 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
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 invests primarily
in a portfolio consisting of short duration adjustable rate, floating
rate and fixed rate U.S. government and agency securities, and
repurchase agreements collateralized by such obligations. The
following policies supplement the description of the Fund's
investment objective and policies as contained in the Prospectuses.
Types of Investments
The Fund pursues its investment objective by investing at least
65% of its assets in a professionally managed portfolio of U.S.
government and agency securities. These securities will be short
duration adjustable rate, floating rate and fixed rate securities
which are issued or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities.
The Fund may also invest up to 10% of its total assets in U.S.
government stripped mortgage-backed securities. Mortgage-backed
securities and other U.S. government or agency obligations are backed
by either:
* the full faith and credit of the U.S. Treasury;
* the issuer's right to borrow from the U.S. Treasury;
* the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
* the credit of the agency or instrumentality issuing the
obligations.
Examples of agencies and instrumentalities which may not always
receive financial support from the U.S. government are:
* Federal Farm Credit Banks;
* Federal Home Loan Banks;
* Federal National Mortgage Association;
* Student Loan Marketing Association; and
* Federal Home Loan Mortgage Corporation.
Mortgage Loans and Mortgage-Backed Securities
Indices Applicable to Adjustable Rate Mortgage Loans ("ARMS").
Commonly used indices applicable to ARMS comprising a mortgage pool
include the Six Month Treasury Index, the One Year Treasury Index,
the Three Year Treasury Index and the 11th District Cost of Funds
Index.
The One Year Treasury Index is calculated by fitting a yield
curve to the median closing bid yield on actively traded U.S.
Treasury securities in the over-the- counter market, as reported by
the five leading government securities dealers to the Federal Reserve
Bank of New York. The Yield is for a "constant maturity" and is
estimated from the Treasury's daily yield curve. The Index is then
computed as a weekly average of the daily fitted values.
The Eleventh District Index is normally published by the Federal
Home Loan Bank ("FHLB") is San Francisco on the last day on which the
FHLB of San Francisco is open for business in each month. When the
Eleventh District Index is announced by the last working day of the
month, it indicated the monthly weighted average cost of funds for
savings institutions in the Eleventh District of the FHLB System (the
"Eleventh District," which consists of California, Nevada and
Arizona) for the month preceding the month in which the Eleventh
District Index is published. The Eleventh District Index for a
particular month reflects the interest costs paid on all types of
funds held by Eleventh District member institutions and is calculated
by dividing the cost of funds by the average of the total amount of
those funds outstanding at the end of the month and the prior month,
and annualizing the adjusting the result to reflect the actual number
of days in the particular month. If necessary, before these
calculations are made, the component figures are adjusted by the FHLB
of San Francisco to neutralize the effect of events such as member
institutions leaving the Eleventh District or acquiring institutions
outside the Eleventh District.
Adjustable Rate Mortgage-Backed Securities Market. The
market for U.S. government agency adjustable rate mortgage-backed
securities has developed rapidly in recent years, with over $110
billion in such securities now issued. ARMS have accounted for a
major portion of mortgage or organizations since federally chartered
thrifts were permitted to originate them in 1981. The growth of the
market for U.S. government agency adjustable rate mortgage-backed
securities is the result of this increasing popularity of ARMS, new
investment products and research.
Legal Considerations of Mortgage Loans. The following is a
discussion of certain legal regulatory aspects of all mortgage loans
including the adjustable and fixed rate mortgage loans expected to
underlie the Mortgage-Backed Securities in which the Fund will
invest. These regulations may impair the ability of a mortgage
lender to enforce its rights under the mortgage documents. Even
though the Fund will invest in Mortgage-Backed Securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
these regulations may adversely affect the Fund's investments by
delaying the Fund's receipt of payments derived form principal or
interest on mortgage loans affected by such regulations.
1. Foreclosure. A foreclosure of a defaulted mortgage loan
may be delayed due to compliance with statutory notice or service of
process provisions, difficulties in locating necessary parties or
legal challenges to the mortgagee's right to foreclose. Depending
upon market conditions, the ultimate proceeds of the sale of
foreclosed property may not equal the amounts owed on the Mortgage-
Backed Securities.
Further, courts in some cases have imposed general
equitable principles upon foreclosure generally designed to relieve
the borrower form the legal effect of default and have required
lenders to undertake affirmative and expensive actions to determine
the causes for the default and the likelihood of loan reinstatement.
2. Rights of Redemption. In some states, after foreclosure
of a mortgage loan, the borrower and foreclosed junior lienors are
given a statutory period in which to redeem the property, which right
may diminish the mortgagee's ability to sell the property
3. Legislative Limitations. In addition to anti-deficiency
and related legislation, numerous other federal and state statutory
provisions, including the federal bankruptcy laws and state laws
affording relief to debtors, may interfere with or affect the ability
of a secured mortgage lender to enforce its security interest. For
example, in a Chapter 13 proceeding under the federal Bankruptcy
Code, when a court determines that the value of a home that is not
the principal residence is less than the principal balance of the
loan, the court may prevent a lender from foreclosing on the home,
and, as part of the repayment plan, reduce the amount of the secured
indebtedness to the value of the home as it exists at the time of the
proceeding, leaving the lender as a general unsecured creditor for
the difference between that value and the amount of outstanding
indebtedness. Certain court decisions have applied such relief to
claims secured by the debtor's principal residence. A bankruptcy
court may grant court also may reduce the monthly payments due under
such mortgage loan, change the rate of interest, reduce the principal
balance of the loan to than-current appraised value of the related
mortgaged property and alter the borrower's obligation to repay
amount otherwise due on a mortgage loan, the mortgage loan servicer
will not be required to advance such amounts, and any loss in respect
thereof will be borne by the holders of securities backed by such
loans. In addition, numerous federal and state consumer protection
laws impose penalties for failure to comply with specific
requirements in connection with origination and servicing of mortgage
loans. Further, the Bankruptcy Code provides priority to certain tax
liens over the lien of a mortgage loan.
4. "Due-on "Sale" Provisions. Fixed-rate mortgage loans may
contain a so-called "due-on-sale" clause permitting acceleration of
the maturity of the mortgage loan if the borrower transfers the
property. The Garn-St. Germain Depository Institutions Act of 1982
sets forth nine specific instances in which no mortgage lender
covered by that Act may exercise a "due-on sale" clause or the lack
of such a clause on mortgage loan documents may result in a mortgage
loan being assumed by a purchaser of the property that bears an
interest rate below the current market rate.
5. Usury Laws. Some states prohibit charging interest on
mortgage loans in excess of statutory limits. If such limits are
exceeded, substantial penalties may be incurred and, in some cases,
enforceability of the obligation to pay principal and interest may be
affected.
Interest Rate Swaps, Mortgage Swaps, Caps and Floors. The Fund
may enter into interest rate and mortgage swaps and interest rate
caps and floors for hedging purposes and not for speculation. A Fund
will typically use interest rate and mortgage swaps to preserve a
return on a particular investment or portion of its portfolio or to
shorten effective duration of its portfolio or to shorten the
effective duration of its portfolio securities. Interest rate swaps
involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed
rate payments for floating rate payments. Mortgage swaps are
similar, pool or pools of mortgages. The purchase of an interest on
a specified index falls below (floor) or exceeds (cap) a
predetermined interest rate.
The Fund will only enter into interest rate and mortgage swaps
on a net basis, i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount
of the two payments. In as much as these transactions are entered
into for good faith hedging purposes, the Fund and the Investment
Adviser believe that such obligations do not constitute senior
securities as defined in the Investment Company Act of 1940 (the
"1940 Act") and, accordingly, will not treat them as being subject to
the Fund's borrowing restrictions. The net amount of the excess, if
any, of the Fund's obligations over its entitlements with respect to
each interest rated or mortgage swap will be accrued on a daily basis
and an amount of cash or liquid securities rate in one of the top
three ratings categories by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P"), or if unrated,
deemed by the Investment Adviser to be of comparable quality ("High
Grade Debt Securities") having an aggregate net asset value at least
equal to such accrued excess will be maintained in a segregated
account by the Fund's custodian.
The Fund will not enter into any interest rate or mortgage swap
or interest rate cap or floor transaction unless the unsecured
commercial paper, senior debt or the claims-paying ability of the
other party thereto is rated either AA or A-1 or Aa or P-1 or better
by either of S&P or Moody's. If there is a default by the other
party to such a transaction, the Fund will have contractual remedies
pursuant to the agreements related to the transaction. The swap
market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. As a result, the
swap market has become relatively liquid in comparison with the
markets for other similar instruments which are traded in the
interbank market. The staff of the Securities and Exchange
Commission (the "SEC") currently takes the position that swaps, caps
and floors are illiquid for purposes of the Fund's 15% limitation on
illiquid investments.
Privately Issued Mortgage-Related Securities. Privately issued
mortgage-related securities generally represent an ownership interest
in federal agency mortgage pass-through securities, such as those
issued by Government National Mortgage Association. The terms and
characteristics of the mortgage instruments may vary among pass-
through mortgage loan pools. The market for such mortgage related
securities has expanded considerably since its inception. The size
of the primary issuance market and the active participation in the
secondary market by securities dealers an other investors make
government-related pools highly liquid.
Additional Information on Investment Practices
U.S. Government Obligations. Examples of the types of U.S.
government obligations that may be held by the Fund include, in
addition to U.S. Treasury bills, notes and bonds, the obligations of
the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, Federal
National Mortgage Association, Federal Financing Bank, General
Services Administration, Student Loan Marketing Association, Central
Bank for Cooperatives, Federal Home Loan Banks, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land
Banks, Federal Farm Credit Banks, Maritime Administration, Resolution
Trust Corporation, Tennessee Valley Authority, U.S. Postal Service
and Washington D.C. Armory Board.
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 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 a 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 a 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 a Fund will
be able to avoid selling portfolio instruments at a disadvantageous
time. When effecting reverse repurchase agreements, liquid assets of
a 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 a Fund agrees to purchase
when-issued securities, the custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a
separate account. Normally, the custodian will set aside portfolio
securities to satisfy a purchase commitment, and in such a case that
Fund may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account
remains equal to the amount of such Fund's commitment. It may be
expected that a Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because 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 a
Fund engages in when-issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in
such Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous. The Fund does not intend to
purchase when-issued securities for speculative purposes but only in
furtherance of their investment objectives. 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.
From time to time, a Fund may return a part of the interest earned
from the investment of collateral received for securities loaned to
the borrower and/or a third party, which is unaffiliated with the
Fund or with Lehman Brothers, and which is acting as a "finder." With
respect to loans by a 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 a 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 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, a 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 they intend 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. A 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 U.S. government
securities, mortgage securities and Eurodollar securities. A futures
contract on securities, other than GNMAs which are cash settled, is
an agreement to purchase or sell an agreed amount of securities at a
set price for delivery on an agreed future date. A 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. A 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 U.S. government securities, mortgage securities and Eurodollar
securities 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 U.S. government securities and
mortgage securities against the risk of rising interest rates, and
the consequential decline in the prices of U.S. government securities
and mortgage securities 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 U.S.
government securities and mortgage securities (other than U.S.
Treasury Bills).
In addition, the Fund may from time to time purchase Eurodollar
instruments traded on the Chicago Mercantile Exchange. These
instruments are in essence U.S. dollar-denominated futures contracts
or options on futures contracts that are linked to LIBOR. Eurodollar
futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings.
The Fund intends to use Eurodollar futures contracts and options on
futures contracts for hedging purposes only. The use of these
instruments is subject to the same limitations and risks as those
applicable to the use of the interest rate futures contracts and
options on futures contracts.
Short Sales. The Fund may make short sales of securities. A
short sale is a transaction in which a 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, a 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 may make short sales "against the box" without
complying with the limitations described above. In a short sale
against the box transaction, a 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 Adviser will monitor on an ongoing
basis the liquidity of such restricted securities under the
supervision of the Board of Trustees.
The SEC has adopted Rule 144A under the Securities Act of 1933,
as amended (the "1933 Act") which allows for a broader institutional
trading market for securities otherwise subject to restriction on
resale to the general public. Rule 144A establishes a "safe harbor"
from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. The Fund's
investment Adviser anticipates that the market for certain restricted
securities such as institutional commercial paper and institutional
municipal securities will expand further as a result of this
regulation and the development of automated systems for the trading,
clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL system sponsored by the National
Association of Securities Dealers.
The 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 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
for temporary or emergency purposes (not for leveraging or
investment) and (ii) engage in reverse repurchase agreements or
dollar roll transactions for any purpose; 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. 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.
9. Write or sell puts, calls, straddles, spreads or
combinations thereof in excess of 5% of its total assets.
10. Invest in securities if as a result the Fund would then
have more than 5% of its total assets in securities of companies
(including predecessors) with less than three years of continuous
operation.
11. Purchase securities of other investment companies 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.
12. 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 AND REDEMPTION 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 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 of the Currency and investment advisers
and other money managers subject to the jurisdiction of the SEC, the
Department of Labor or state securities commissions, should consult
their legal advisors before investing fiduciary funds in the Fund's
Select shares.
Prior to effecting a redemption of shares represented by
certificates, The Shareholder Services Group, Inc. ("TSSG"), the
Trust's transfer agent, must receive such certificates at its
principal office. All such certificates must be endorsed by the
redeeming shareholder or accompanied by a signed stock power, in each
instance with the signature guaranteed by a commercial bank, a member
of a major stock exchange or other eligible guarantor institution,
unless other arrangements satisfactory to the Fund have previously
been made. The Fund may require any additional information reasonably
necessary to evidence that a redemption has been duly authorized.
Under the 1940 Act, the Fund may suspend the right of redemption
or postpone the date of payment upon redemption for any period during
which the New York Stock Exchange 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. Institutions may arrange with TSSG for
certain sub-accounting services (such as purchase, redemption and
dividend record keeping). Sub-accounts may be established by name or
number either when the Master Account is opened or later.
Net Asset Value
The Fund's net asset value per share is calculated by 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.
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
STEVEN SPIEGEL (1)
World Financial
Center
New York, NY 10285
Chairman of the
Board and Trustee
Managing Director, Lehman
Brothers; President, Lehman
Brothers Global Asset
Management Inc.; formerly
Chairman, Lehman Brothers
International (Europe)
CHARLES F.
BARBER (2)(3)
66 Glenwood Drive
Greenwich, CT
06830
Trustee
Consultant; Director, The
Salomon Brothers Fund Inc.,
The Emerging Markets Income
Fund Inc., Salomon Brothers
High Income Fund Inc. and
Municipal Partners Fund Inc.;
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
One Exchange Place
Boston, MA 02109
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
World Financial
Center
New York, NY 10285
Vice President and
Investment Officer
Senior Vice President, Lehman
Brothers
VINCENT NAVE
One Boston Place
Boston, MA 02109
Treasurer
Senior Vice President, The
Boston Company Advisers, Inc.
and Boston Safe Deposit and
Trust Company
FRANCIS J.
McNAMARA, III
One Boston Place
Boston, MA 02109
Secretary
Senior Vice President and
General Counsel, The Boston
Company Advisers, 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.
Two of the Trust's Trustees, Messrs. Barber and Dorsett, serve
as trustees or directors of other investment companies for which
Lehman Brothers, the Adviser or one of their affiliates serves as
distributor or investment adviser.
No employee of Lehman Brothers, LBGAM or The Boston Company
Advisers, Inc. ("Boston Advisers") 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 Boston Advisers 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, Boston Advisers and their affiliates under their respective
agreements with the Trust, the Trust itself requires no employees in
addition to its officers.
Administrator
As the Fund's administrator, Boston Advisers 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.
Prior to May 21, 1993, BGH, the parent company of TBC, Boston
Advisors and Boston Safe Deposit and Trust Company ("Boston Safe"),
was owned by Lehman Brothers. In connection with the sale of BGH by
Lehman Brothers to Mellon, Lehman Brothers and its affiliates
conditionally agreed (with certain exceptions including one for
certain of Lehman Brothers' current businesses) not to provide
Custody Services, Administration Services or Master Trust Services
(as each is defined in the agreement with Mellon) for periods of from
one to seven years depending on the affiliate, the service and the
client. Thus, Lehman Brothers has agreed not to provide Custody
Services or Administration Services to the Fund. In addition, for
the seven-year period commencing on May 21, 1993, Lehman Brothers has
agreed, consistent with its fiduciary duties and assuming certain
service quality standards are met, to continue to recommend BGH and
its subsidiaries as the providers of such Custody Services and
Administration Services as are currently to be provided by BGH and
its subsidiaries to the Fund.
Distributors
Lehman Brothers acts as a distributor of Fund shares. Funds
Distributor, Inc. ("Funds Distributor") also serves as a distributor
and, as such, may sell Fund shares to dealers as agent of the Fund.
The Fund's shares are sold on a continuous basis by Lehman Brothers
as agent, although neither distributor is obliged to sell any
particular amount of shares. The distributors pay 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 or Funds
Distributor for their 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 currently offers Institutional Shares, Select Shares
and Premier Shares. As stated in the Fund's Prospectuses, the Board
of Trustees of the Trust has adopted a plan of distribution (the
"Plan of Distribution" or "Plan") applicable to Institutional Shares,
Select Shares and Premier Shares of the Fund pursuant to Rule 12b-1
under the 1940 Act.
Institutional 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
Institutional 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
of the Fund are sold to institutional investors and bear fees payable
at a rate not exceeding .35% (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 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. Premier Shares are offered
by Lehman Brothers 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 .50% of the average daily net
asset value of the Premier Shares for distribution and other services
provided to holders of Premier Shares. Shares of each class will
bear all fees paid for services provided to that class under the Plan
of Distribution.
Under the 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 "Disinterested Trustees").
In adopting the Plan, 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 Disinterested
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 and Transfer Agent
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.
The Shareholder Services Group, Inc. ("TSSG"), a subsidiary of
First Data Corporation, is located at One Exchange Place, Boston,
Massachusetts, and serves as the Trust's transfer agent. Under the
transfer agency agreement, TSSG maintains the shareholder account
records for the Trust, handles certain communications between
shareholders and the Trust and distributes dividends and
distributions payable by the Trust and produces statements with
respect to account activity for the Trust and its shareholders. For
these services, TSSG receives a monthly fee computed on the basis of
the amount of assets under management by the Fund and is reimbursed
for out-of-pocket expenses.
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 Boston Advisers 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 (21/2%) 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 (11/2%) 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 a
Fund at maturity or disposition of a security held for less than
three months will not be treated as gross income derived from the
sale or other disposition of such security within the meaning of the
30% requirement. However, any other income which is attributable to
realized market appreciation will be treated as gross income from the
sale or other disposition of securities for this purpose.
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."
The Fund's investment in certain derivative Mortgage-Backed
Securities and other securities issued with original issue discount
or acquired at a market discount (if the Fund elects to include
market discount in income on an annual basis) will cause it to
realize income prior to the receipt of cash payments with respect to
these securities. In order to distribute this income and avoid a tax
on the Fund, the Fund may be required to liquidate portfolio
securities that it might otherwise have continued to hold.
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, Institutional and Select 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".
ADDITIONAL PERFORMANCE INFORMATION
The "total return", "yields," "effective 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. The
distribution rate for a specified period is calculated by annualizing
distributions of net investment income for such 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.
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.
The Fund's total return and yield figures for a class of shares
will fluctuate, and any quotation of 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. 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 accountants 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 trust under the laws of the
Commonwealth of Massachusetts. Shareholders of such a trust may,
under certain circumstances, be held personally liable (as if they
were partners) for the obligations of the trust. The Declaration of
Trust of the Trust provides that shareholders shall not be subject to
any personal liability for the acts or obligations of the Trust and
that every note, bond, contract, order or other undertaking made by
the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of
Trust provides for indemnification out of the trust property of a
Fund of any shareholder of the Fund held personally liable solely by
reason of being or having been a shareholder and not because of any
acts or omissions or some other reason. The Declaration of Trust also
provides that the Trust shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of
the Trust and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss beyond the amount invested in a
Fund on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations.
The Trust's Declaration of Trust provides further that no
trustee of the Trust shall be personally liable for or on account of
any contract, debt, tort, claim, damage, judgment or decree arising
out of or connected with the administration or preservation of the
trust estate or the conduct of any business of the Trust, nor shall
any trustee be personally liable to any person for any action or
failure to act except by reason of bad faith, willful misfeasance,
gross negligence in performing duties, or by reason of reckless
disregard for the obligations and duties as trustee. It also provides
that all persons having any claim against the trustees or the Trust
shall look solely to the trust property for payment. With the
exceptions stated, the Declaration of Trust provides that a trustee
is entitled to be indemnified against all liabilities and expenses
reasonably incurred in connection with the defense or disposition of
any proceeding in which the trustee may be involved or may be
threatened with by reason of being or having been a trustee, and that
the trustees have the power, but not the duty, to indemnify officers
and employees of the Trust unless such persons would not be entitled
to indemnification if they were in the position of trustee.
APPENDIX
DESCRIPTION OF RATINGS
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.
Lehman Brothers Institutional Funds Group Trust
Floating Rate U.S. Government Fund
Statement of Additional Information
February 21, 1994
This Statement of Additional Information is meant to be read in
conjunction with the Prospectuses for the Floating Rate U.S.
Government Fund, each dated February 21, 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 Floating Rate U.S.
Government 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 and Redemption
Information
11
Management of the Fund
12
Additional Information Concerning Taxes
17
Dividends
18
Additional Performance Information
18
Additional Description Concerning Shares
19
Counsel
20
Auditors
20
Miscellaneous
20
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 12 separate
portfolios, one of which is the Floating Rate U.S. Government Fund
(the "Fund"). The Fund currently offers three classes of shares.
Each class represents an equal, pro rata interest in the Fund. Each
share accrues daily dividends in the same manner, except that 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 Premier Shares bear fees payable by the
Fund to Lehman Brothers for services it provides to the beneficial
owners of such 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
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 invests primarily
in a portfolio consisting of U.S. government and agency securities,
including floating rate and adjustable rate mortgage securities. The
following policies supplement the description of the Fund's
investment objective and policies as contained in the Prospectuses.
Types of Investments
The Fund pursues its investment objective by investing at least
65% of its total assets in adjustable and floating rate securities
which are issued or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities.
The Fund may also invest up to 10% of its total assets in U.S.
government stripped mortgage-backed securities. Mortgage-backed
securities and other U.S. government or agency obligations are backed
by either:
* the full faith and credit of the U.S. Treasury;
* the issuer's right to borrow from the U.S. Treasury;
* the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
* the credit of the agency or instrumentality issuing the
obligations.
Examples of agencies and instrumentalities which may not always
receive financial support from the U.S. government are:
* Federal Farm Credit Banks;
* Federal Home Loan Banks;
* Federal National Mortgage Association;
* Student Loan Marketing Association; and
* Federal Home Loan Mortgage Corporation.
Mortgage Loans and Mortgage-Backed Securities
Indices Applicable to Adjustable Rate Mortgage Loans ("ARMS").
Commonly used indices applicable to ARMS comprising a mortgage pool
include the Six Month Treasury Index, the One Year Treasury Index,
the Three Year Treasury Index and the 11th District Cost of Funds
Index.
The One Year Treasury Index is calculated by fitting a yield
curve to the median closing bid yield on actively traded U.S.
Treasury securities in the over-the- counter market, as reported by
the five leading government securities dealers to the Federal Reserve
Bank of New York. The Yield is for a "constant maturity" and is
estimated from the Treasury's daily yield curve. The Index is then
computed as a weekly average of the daily fitted values.
The Eleventh District Index is normally published by the Federal
Home Loan Bank ("FHLB") is San Francisco on the last day on which the
FHLB of San Francisco is open for business in each month. When the
Eleventh District Index is announced by the last working day of the
month, it indicated the monthly weighted average cost of funds for
savings institutions in the Eleventh District of the FHLB System (the
"Eleventh District," which consists of California, Nevada and
Arizona) for the month preceding the month in which the Eleventh
District Index is published. The Eleventh District Index for a
particular month reflects the interest costs paid on all types of
funds held by Eleventh District member institutions and is calculated
by dividing the cost of funds by the average of the total amount of
those funds outstanding at the end of the month and the prior month,
and annualizing the adjusting the result to reflect the actual number
of days in the particular month. If necessary, before these
calculations are made, the component figures are adjusted by the FHLB
of San Francisco to neutralize the effect of events such as member
institutions leaving the Eleventh District or acquiring institutions
outside the Eleventh District.
Adjustable Rate Mortgage-Backed Securities Market. The
market for U.S. government agency adjustable rate mortgage-backed
securities has developed rapidly in recent years, with over $110
billion in such securities now issued. ARMS have accounted for a
major portion of mortgage or organizations since federally chartered
thrifts were permitted to originate them in 1981. The growth of the
market for U.S. government agency adjustable rate mortgage-backed
securities is the result of this increasing popularity of ARMS, new
investment products and research.
Legal Considerations of Mortgage Loans. The following is a
discussion of certain legal regulatory aspects of all mortgage loans
including the adjustable and fixed rate mortgage loans expected to
underlie the Mortgage-Backed Securities in which the Fund will
invest. These regulations may impair the ability of a mortgage
lender to enforce its rights under the mortgage documents. Even
though the Fund will invest in Mortgage-Backed Securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
these regulations may adversely affect the Fund's investments by
delaying the Fund's receipt of payments derived form principal or
interest on mortgage loans affected by such regulations.
1. Foreclosure. A foreclosure of a defaulted mortgage loan
may be delayed due to compliance with statutory notice or service of
process provisions, difficulties in locating necessary parties or
legal challenges to the mortgagee's right to foreclose. Depending
upon market conditions, the ultimate proceeds of the sale of
foreclosed property may not equal the amounts owed on the Mortgage-
Backed Securities.
Further, courts in some cases have imposed general
equitable principles upon foreclosure generally designed to relieve
the borrower form the legal effect of default and have required
lenders to undertake affirmative and expensive actions to determine
the causes for the default and the likelihood of loan reinstatement.
2. Rights of Redemption. In some states, after foreclosure
of a mortgage loan, the borrower and foreclosed junior lienors are
given a statutory period in which to redeem the property, which right
may diminish the mortgagee's ability to sell the property
3. Legislative Limitations. In addition to anti-deficiency
and related legislation, numerous other federal and state statutory
provisions, including the federal bankruptcy laws and state laws
affording relief to debtors, may interfere with or affect the ability
of a secured mortgage lender to enforce its security interest. For
example, in a Chapter 13 proceeding under the federal Bankruptcy
Code, when a court determines that the value of a home that is not
the principal residence is less than the principal balance of the
loan, the court may prevent a lender from foreclosing on the home,
and, as part of the repayment plan, reduce the amount of the secured
indebtedness to the value of the home as it exists at the time of the
proceeding, leaving the lender as a general unsecured creditor for
the difference between that value and the amount of outstanding
indebtedness. Certain court decisions have applied such relief to
claims secured by the debtor's principal residence. A bankruptcy
court may grant court also may reduce the monthly payments due under
such mortgage loan, change the rate of interest, reduce the principal
balance of the loan to than-current appraised value of the related
mortgaged property and alter the borrower's obligation to repay
amount otherwise due on a mortgage loan, the mortgage loan servicer
will not be required to advance such amounts, and any loss in respect
thereof will be borne by the holders of securities backed by such
loans. In addition, numerous federal and state consumer protection
laws impose penalties for failure to comply with specific
requirements in connection with origination and servicing of mortgage
loans. Further, the Bankruptcy Code provides priority to certain tax
liens over the lien of a mortgage loan.
4. "Due-on "Sale" Provisions. Fixed-rate mortgage loans may
contain a so-called "due-on-sale" clause permitting acceleration of
the maturity of the mortgage loan if the borrower transfers the
property. The Garn-St. Germain Depository Institutions Act of 1982
sets forth nine specific instances in which no mortgage lender
covered by that Act may exercise a "due-on sale" clause or the lack
of such a clause on mortgage loan documents may result in a mortgage
loan being assumed by a purchaser of the property that bears an
interest rate below the current market rate.
5. Usury Laws. Some states prohibit charging interest on
mortgage loans in excess of statutory limits. If such limits are
exceeded, substantial penalties may be incurred and, in some cases,
enforceability of the obligation to pay principal and interest may be
affected.
Interest Rate Swaps, Mortgage Swaps, Caps and Floors. The Fund
may enter into interest rate and mortgage swaps and interest rate
caps and floors for hedging purposes and not for speculation. A Fund
will typically use interest rate and mortgage swaps to preserve a
return on a particular investment or portion of its portfolio or to
shorten effective duration of its portfolio or to shorten the
effective duration of its portfolio securities. Interest rate swaps
involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed
rate payments for floating rate payments. Mortgage swaps are
similar, pool or pools of mortgages. The purchase of an interest on
a specified index falls below (floor) or exceeds (cap) a
predetermined interest rate.
The Fund will only enter into interest rate and mortgage swaps
on a net basis, i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount
of the two payments. In as much as these transactions are entered
into for good faith hedging purposes, the Fund and the Investment
Adviser believe that such obligations do not constitute senior
securities as defined in the Investment Company Act of 1940 (the
"1940 Act") and, accordingly, will not treat them as being subject to
the Fund's borrowing restrictions. The net amount of the excess, if
any, of the Fund's obligations over its entitlements with respect to
each interest rated or mortgage swap will be accrued on a daily basis
and an amount of cash or liquid securities rate in one of the top
three ratings categories by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P"), or if unrated,
deemed by the Investment Adviser to be of comparable quality ("High
Grade Debt Securities") having an aggregate net asset value at least
equal to such accrued excess will be maintained in a segregated
account by the Fund's custodian.
The Fund will not enter into any interest rate or mortgage swap
or interest rate cap or floor transaction unless the unsecured
commercial paper, senior debt or the claims-paying ability of the
other party thereto is rated either AA or A-1 or Aa or P-1 or better
by either of S&P or Moody's. If there is a default by the other
party to such a transaction, the Fund will have contractual remedies
pursuant to the agreements related to the transaction. The swap
market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. As a result, the
swap market has become relatively liquid in comparison with the
markets for other similar instruments which are traded in the
interbank market. The staff of the Securities and Exchange
Commission (the "SEC") currently takes the position that swaps, caps
and floors are illiquid for purposes of the Fund's 15% limitation on
illiquid investments.
Privately Issued Mortgage-Related Securities. Privately issued
mortgage-related securities generally represent an ownership interest
in federal agency mortgage pass-through securities, such as those
issued by Government National Mortgage Association. The terms and
characteristics of the mortgage instruments may vary among pass-
through mortgage loan pools. The market for such mortgage related
securities has expanded considerably since its inception. The size
of the primary issuance market and the active participation in the
secondary market by securities dealers an other investors make
government-related pools highly liquid.
Additional Information on Investment Practices
U.S. Government Obligations. Examples of the types of U.S.
government obligations that may be held by the Fund include, in
addition to U.S. Treasury bills, notes and bonds, the obligations of
the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, Federal
National Mortgage Association, Federal Financing Bank, General
Services Administration, Student Loan Marketing Association, Central
Bank for Cooperatives, Federal Home Loan Banks, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land
Banks, Federal Farm Credit Banks, Maritime Administration, Resolution
Trust Corporation, Tennessee Valley Authority, U.S. Postal Service
and Washington D.C. Armory Board.
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 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 a 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 a 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 a Fund will
be able to avoid selling portfolio instruments at a disadvantageous
time. When effecting reverse repurchase agreements, liquid assets of
a 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 a Fund agrees to purchase
when-issued securities, the custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a
separate account. Normally, the custodian will set aside portfolio
securities to satisfy a purchase commitment, and in such a case that
Fund may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account
remains equal to the amount of such Fund's commitment. It may be
expected that a Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because 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 a
Fund engages in when-issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in
such Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous. The Fund does not intend to
purchase when-issued securities for speculative purposes but only in
furtherance of their investment objectives. 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.
From time to time, a Fund may return a part of the interest earned
from the investment of collateral received for securities loaned to
the borrower and/or a third party, which is unaffiliated with the
Fund or with Lehman Brothers, and which is acting as a "finder." With
respect to loans by a 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 a 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 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, a 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 they intend 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. A 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 U.S. government
securities, mortgage securities and Eurodollar securities. A futures
contract on securities, other than GNMAs which are cash settled, is
an agreement to purchase or sell an agreed amount of securities at a
set price for delivery on an agreed future date. A 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. A 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 U.S. government securities, mortgage securities and Eurodollar
securities 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 U.S. government securities and
mortgage securities against the risk of rising interest rates, and
the consequential decline in the prices of U.S. government securities
and mortgage securities 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 U.S.
government securities and mortgage securities (other than U.S.
Treasury Bills).
In addition, the Fund may from time to time purchase Eurodollar
instruments traded on the Chicago Mercantile Exchange. These
instruments are in essence U.S. dollar-denominated futures contracts
or options on futures contracts that are linked to LIBOR. Eurodollar
futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings.
The Fund intends to use Eurodollar futures contracts and options on
futures contracts for hedging purposes only. The use of these
instruments is subject to the same limitations and risks as those
applicable to the use of the interest rate futures contracts and
options on futures contracts.
Short Sales. The Fund may make short sales of securities. A
short sale is a transaction in which a 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, a 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 may make short sales "against the box" without
complying with the limitations described above. In a short sale
against the box transaction, a 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 Adviser will monitor on an ongoing
basis the liquidity of such restricted securities under the
supervision of the Board of Trustees.
The SEC has adopted Rule 144A under the Securities Act of 1933,
as amended (the "1933 Act") which allows for a broader institutional
trading market for securities otherwise subject to restriction on
resale to the general public. Rule 144A establishes a "safe harbor"
from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. The Fund's
investment Adviser anticipates that the market for certain restricted
securities such as institutional commercial paper and institutional
municipal securities will expand further as a result of this
regulation and the development of automated systems for the trading,
clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL system sponsored by the National
Association of Securities Dealers.
The 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 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
for temporary or emergency purposes (not for leveraging or
investment) and (ii) engage in reverse repurchase agreements or
dollar roll transactions for any purpose; 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. 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.
9. Write or sell puts, calls, straddles, spreads or
combinations thereof in excess of 5% of its total assets.
10. Invest in securities if as a result the Fund would then
have more than 5% of its total assets in securities of companies
(including predecessors) with less than three years of continuous
operation.
11. Purchase securities of other investment companies 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.
12. 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 AND REDEMPTION 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 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 of the Currency and investment advisers
and other money managers subject to the jurisdiction of the SEC, the
Department of Labor or state securities commissions, should consult
their legal advisors before investing fiduciary funds in the Fund's
Select shares.
Prior to effecting a redemption of shares represented by
certificates, The Shareholder Services Group, Inc. ("TSSG"), the
Trust's transfer agent, must receive such certificates at its
principal office. All such certificates must be endorsed by the
redeeming shareholder or accompanied by a signed stock power, in each
instance with the signature guaranteed by a commercial bank, a member
of a major stock exchange or other eligible guarantor institution,
unless other arrangements satisfactory to the Fund have previously
been made. The Fund may require any additional information reasonably
necessary to evidence that a redemption has been duly authorized.
Under the 1940 Act, the Fund may suspend the right of redemption
or postpone the date of payment upon redemption for any period during
which the New York Stock Exchange 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. Institutions may arrange with TSSG for
certain sub-accounting services (such as purchase, redemption and
dividend record keeping). Sub-accounts may be established by name or
number either when the Master Account is opened or later.
Net Asset Value
The Fund's net asset value per share is calculated by 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.
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
STEVEN SPIEGEL (1)
World Financial
Center
New York, NY 10285
Chairman of the
Board and Trustee
Managing Director, Lehman
Brothers; President, Lehman
Brothers Global Asset
Management Inc.; formerly
Chairman, Lehman Brothers
International (Europe)
CHARLES F.
BARBER (2)(3)
66 Glenwood Drive
Greenwich, CT
06830
Trustee
Consultant; Director, The
Salomon Brothers Fund Inc.,
The Emerging Markets Income
Fund Inc., Salomon Brothers
High Income Fund Inc. and
Municipal Partners Fund Inc.;
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
One Exchange Place
Boston, MA 02109
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
World Financial
Center
New York, NY 10285
Vice President and
Investment Officer
Senior Vice President, Lehman
Brothers
VINCENT NAVE
One Boston Place
Boston, MA 02109
Treasurer
Senior Vice President, The
Boston Company Advisers, Inc.
and Boston Safe Deposit and
Trust Company
FRANCIS J.
McNAMARA, III
One Boston Place
Boston, MA 02109
Secretary
Senior Vice President and
General Counsel, The Boston
Company Advisers, 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.
Two of the Trust's Trustees, Messrs. Barber and Dorsett, serve
as trustees or directors of other investment companies for which
Lehman Brothers, the Adviser or one of their affiliates serves as
distributor or investment adviser.
No employee of Lehman Brothers, LBGAM or The Boston Company
Advisers, Inc. ("Boston Advisers") 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 Boston Advisers 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, Boston Advisers and their affiliates under their respective
agreements with the Trust, the Trust itself requires no employees in
addition to its officers.
Administrator
As the Fund's administrator, Boston Advisers 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.
Prior to May 21, 1993, BGH, the parent company of TBC, Boston
Advisors and Boston Safe Deposit and Trust Company ("Boston Safe"),
was owned by Lehman Brothers. In connection with the sale of BGH by
Lehman Brothers to Mellon, Lehman Brothers and its affiliates
conditionally agreed (with certain exceptions including one for
certain of Lehman Brothers' current businesses) not to provide
Custody Services, Administration Services or Master Trust Services
(as each is defined in the agreement with Mellon) for periods of from
one to seven years depending on the affiliate, the service and the
client. Thus, Lehman Brothers has agreed not to provide Custody
Services or Administration Services to the Fund. In addition, for
the seven-year period commencing on May 21, 1993, Lehman Brothers has
agreed, consistent with its fiduciary duties and assuming certain
service quality standards are met, to continue to recommend BGH and
its subsidiaries as the providers of such Custody Services and
Administration Services as are currently to be provided by BGH and
its subsidiaries to the Fund.
Distributors
Lehman Brothers acts as a distributor of Fund shares. Funds
Distributor, Inc. ("Funds Distributor") also serves as a distributor
and, as such, may sell Fund shares to dealers as agent of the Fund.
The Fund's shares are sold on a continuous basis by Lehman Brothers
as agent, although neither distributor is obliged to sell any
particular amount of shares. The distributors pay 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 or Funds
Distributor for their 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 currently offers Institutional Shares, Select Shares
and Premier Shares. As stated in the Fund's Prospectuses, the Board
of Trustees of the Trust has adopted a plan of distribution (the
"Plan of Distribution" or "Plan") applicable to Institutional Shares,
Select Shares and Premier Shares of the Fund pursuant to Rule 12b-1
under the 1940 Act.
Institutional 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
Institutional 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
of the Fund are sold to institutional investors and bear fees payable
at a rate not exceeding .35% (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 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. Premier Shares are offered
by Lehman Brothers 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 .50% of the average daily net
asset value of the Premier Shares for distribution and other services
provided to holders of Premier Shares. Shares of each class will
bear all fees paid for services provided to that class under the Plan
of Distribution.
Under the 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 "Disinterested Trustees").
In adopting the Plan, 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 Disinterested
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 and Transfer Agent
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.
The Shareholder Services Group, Inc. ("TSSG"), a subsidiary of
First Data Corporation, is located at One Exchange Place, Boston,
Massachusetts, and serves as the Trust's transfer agent. Under the
transfer agency agreement, TSSG maintains the shareholder account
records for the Trust, handles certain communications between
shareholders and the Trust and distributes dividends and
distributions payable by the Trust and produces statements with
respect to account activity for the Trust and its shareholders. For
these services, TSSG receives a monthly fee computed on the basis of
the amount of assets under management by the Fund and is reimbursed
for out-of-pocket expenses.
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 Boston Advisers 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 (21/2%) 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 (11/2%) 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 a
Fund at maturity or disposition of a security held for less than
three months will not be treated as gross income derived from the
sale or other disposition of such security within the meaning of the
30% requirement. However, any other income which is attributable to
realized market appreciation will be treated as gross income from the
sale or other disposition of securities for this purpose.
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."
The Fund's investment in certain derivative Mortgage-Backed
Securities and other securities issued with original issue discount
or acquired at a market discount (if the Fund elects to include
market discount in income on an annual basis) will cause it to
realize income prior to the receipt of cash payments with respect to
these securities. In order to distribute this income and avoid a tax
on the Fund, the Fund may be required to liquidate portfolio
securities that it might otherwise have continued to hold.
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, Institutional and Select 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".
ADDITIONAL PERFORMANCE INFORMATION
The "total return", "yields," "effective 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. 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.
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.
The Fund's total return and yield figures for a class of shares
will fluctuate, and any quotation of 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. 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 accountants 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 trust under the laws of the
Commonwealth of Massachusetts. Shareholders of such a trust may,
under certain circumstances, be held personally liable (as if they
were partners) for the obligations of the trust. The Declaration of
Trust of the Trust provides that shareholders shall not be subject to
any personal liability for the acts or obligations of the Trust and
that every note, bond, contract, order or other undertaking made by
the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of
Trust provides for indemnification out of the trust property of a
Fund of any shareholder of the Fund held personally liable solely by
reason of being or having been a shareholder and not because of any
acts or omissions or some other reason. The Declaration of Trust also
provides that the Trust shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of
the Trust and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss beyond the amount invested in a
Fund on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations.
The Trust's Declaration of Trust provides further that no
trustee of the Trust shall be personally liable for or on account of
any contract, debt, tort, claim, damage, judgment or decree arising
out of or connected with the administration or preservation of the
trust estate or the conduct of any business of the Trust, nor shall
any trustee be personally liable to any person for any action or
failure to act except by reason of bad faith, willful misfeasance,
gross negligence in performing duties, or by reason of reckless
disregard for the obligations and duties as trustee. It also provides
that all persons having any claim against the trustees or the Trust
shall look solely to the trust property for payment. With the
exceptions stated, the Declaration of Trust provides that a trustee
is entitled to be indemnified against all liabilities and expenses
reasonably incurred in connection with the defense or disposition of
any proceeding in which the trustee may be involved or may be
threatened with by reason of being or having been a trustee, and that
the trustees have the power, but not the duty, to indemnify officers
and employees of the Trust unless such persons would not be entitled
to indemnification if they were in the position of trustee.
APPENDIX
DESCRIPTION OF RATINGS
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.
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 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 filed
herein.
(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 filed herein. *
(c) Investment Advisory Agreement between Registrant and
Lehman Brothers Global Asset Management Inc. ("LBGAM"), relating to the
Short Duration U.S. Government Fund is filed herein.
(d) Sub-Investment Advisory Agreement between Registrant
and Shearson Lehman Advisors ("Shearson"), relating to each investment
portfolio (collectively, the "Funds") of Registrant is
incorporated herein by reference to Exhibit (5)(b) to Post-
Effective Amendment No. 1 to the Registrant's Registration Statement
on Form N-1A filed with the Commission on June 21, 1993.
(6) (a) Distribution Agreement between Registrant and Lehman
Brothers, a division of Shearson Lehman Brothers Inc. is incorporated
herein by reference to Exhibit (6)(a) to Post-Effective Amendment
No. 1 to the Registrant's Registration Statement on Form N-1A filed
with the Commission on June 21, 1993.
*The Floating Rate U.S. Government Fund changed its name from U.S
Government Floating Rate Fund.
(b) Distribution Agreement between Registrant and Funds
Distributor Inc. is incorporated herein by reference to Exhibit
(6)(b) to Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed with the Commission
on June 21, 1993.
(7) Not Applicable.
(8) (a) Custody Agreement between Registrant and Boston Safe
Deposit and Trust Company is incorporated herein by reference to
Exhibit (8) to Post- Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed with the Commission on
June 21, 1993.
(b) Custody Agreement dated November 10, 1993
between Registrant and Boston Safe Deposit and
Trust Company will be filed by Amendment.
(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) 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.
(c) Transfer Agency and Registrar Agreement dated November 10,
1993 between Registrant and the Shareholder Services Group, Inc.
will be filed by Amendment.
(10) (a) Opinion and Consent of Counsel is incorporated herein by
reference to Exhibit (10)(a) to Pre- Effective Amendment No. 5 to
the Registrant's Registration Statement on Form N-1A filed with the
Commission on February 5, 1993.
(b) Opinion and Consent of Massachusetts Counsel is
incorporated herein by reference to Exhibit (10)(b) to Pre-
Effective Amendment No. 5 to the Registrant's Registration Statement
on Form N-1A filed with the Commission on February 5, 1993.
(c) Opinion of Massachusetts Counsel is filed
herein.
(11) (a) Consent of Independent Accountants is incorporated
herein by reference to Exhibit (11) to Pre-Effective Amendment No.
5 to the Registrant's Registration Statement on Form N-1A filed
with the Commission on February 5, 1993.
(b) 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 is filed herein.
(12) Not Applicable.
(13) (a) Purchase Agreement between Registrant and Shearson
Lehman Brothers Inc. is incorporated herein by reference to Exhibit
(13) to Post- Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed with the Commission
on June 21, 1993.
(b) Form of Purchase Agreement between Registrant and Lehman
Brothers Inc., relating to the Floating Rate U.S. Government Fund is
filed herein.
(c) Form of Purchase Agreement between Registrant and Lehman
Brothers, Inc., relating to the Short Duration U.S. Government Fund
is filed herein.
(14) Not Applicable.
(15) (a) Form of Shareholder Services Plan pursuant to Rule 12b-1
is incorporated herein by reference to Exhibit (15)(a) to Pre-
Effective Amendment No. 5 to the Registrant's Registration Statement on
Form N- 1A filed with the Commission on February 5, 1993.
(b) Form of Shareholder Services Plan pursuant to Rule 12b-1
for Class D Shares is incorporated herein by reference to Exhibit
(15)(b) to Post- Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed with the Commission
on June 21, 1993.
(c) Form of Shareholder Servicing Agreement for Class B
Shares is incorporated herein by reference to Exhibit (15)(b) to
Pre-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on February 5,
1993.
(d) Form of Shareholder Servicing Agreement for Class C
Shares is incorporated herein by reference to Exhibit (15)(c) to
Pre-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on February 5,
1993.
(e) Form of Shareholder Servicing Agreement for Class D
Shares is incorporated herein by reference to Exhibit (15)(e) to
Post-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on June 21,
1993.
(f) Form of Plan of Distribution for Class A Shares, Class
B Shares and Class C Shares for the Floating Rate U.S. Government
Fund is incorporated herein by reference to Exhibit (15)(f) to Post-
Effective Amendment No.3 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on December 21,
1993. *
(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 filed
herein.
(16) (a) Not Applicable.
Item 25. Persons Controlled by or under Common Control with
Registrant
Registrant is controlled by its Board of Trustees.
*Class A Shares are referred to as "Institutional Shares", Class B
Shares are referred to as "Select Shares" and Class C Shares are
referred to as "Premier Shares."
Item 26. Number of Holders of Securities
The following information is as of December 20, 1993:
Title of
Class
Number of
Record
Holders
(Class A
Shares)
Number of
Record
Holders
(Class B
Shares)
Number of
Record Holders
(Class C
Shares)
Number of
Record
Holders
(Class D
Shares)
Prime Money
Market Fund
180
4
1
N/A
Prime Value
Money Market
Fund
111
3
1
4
Government
Obligations
Money Market
Fund
32
1
1
1
100%
Government
Obligations
Money Market
Fund
9
1
1
N/A
Treasury
Instruments
Money Market
Fund
2
2
1
N/A
Treasury
Instruments
II Money
Market Fund
17
11
1
N/A
100% Treasury
Instruments
Money Market
Fund
7
1
1
N/A
Tax-Free
Money Market
Fund
15
1
1
N/A
Municipal
Money Market
Fund
32
1
1
1
California
Municipal
Money Market
Fund
6
1
1
N/A
New York
Municipal
Money Market
Fund
0
0
0
N/A
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, together with Funds Distributor Inc.
("Funds Distributor"), acts as distributor for the shares of
Registrant's portfolios. Lehman Brothers currently acts as distributor
for Lehman Brothers Funds, Inc.,The USA High Yield Fund N.V., The Latin
American Bond Fund N.V., Mexican Short-Term Investment Portfolio N.V.,
Garzarelli Sector Analysis Portfolio N.V., The Mexican Appreciation Fund
N.V., The Mexico Premium Income Portfolio N.V., Offshore Portfolios,
International Currency Portfolios, Lehman Brothers Series I Mortgage-
Related Securities Portfolio N.V., TBC Enhanced Tactical Asset
Allocation Portfolio N.V., U.S. Tactical Asset Allocation Portfolio
N.V., Short-Term World Income Portfolio (Cayman), TBC Portfolio of
Fixed-Income Securities, U.S. Tactical Asset Allocation Portfolio
(Cayman), Offshore Daily Dividend Fund N.V. and the Global Advisors
Portfolio N.V. and various series of unit investment trusts.
Funds Distributor currently acts as distributor for The Boston
Company Fund, The Boston Company Tax-Free Municipal Funds, The Boston
Company Investment Series, Ambassador Funds, The FSB Funds, Glenmede
Fund, Inc. and The Glenmede Portfolios.
(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).
Funds Distributor is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of NASD. Funds
Distributor is a wholly-owned subsidiary of Lehman Brothers Inc., and is
located at One Exchange Place, Boston, Massachusetts 02109. The
information required by this Item 29 with respect to each director and
officer of Funds Distributor is incorporated by reference to Schedule A
of From BD filed by Funds Distributor pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-20518).
(c) Not Applicable.
Item 30. Location of Accounts and Records
(1) Lehman Brothers Institutional Funds Group Trust
One Exchange Place
Boston, Massachusetts 02109
(2) Lehman Brothers Global Asset Management Inc.
American Express Tower
World Financial Center
New York, New York 10285
(3) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
(4) Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
(5) The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
Not Applicable
Item 32. Undertakings
Registrant hereby undertakes as follows:
(1) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a
trustee or trustees of Registrant when requested in writing to do so by
the holders of at least 10% of Registrant's outstanding shares.
Registrant undertakes further, in connection with the meeting, to comply
with the provisions of Section 16(c) of the Investment Company Act of
1940, as amended, relating to communications with the shareholders of
certain common-law trusts.
(2) Registrant hereby undertakes to file a Post-Effective
Amendment, using financial statements which may not be certified, for
the Short Duration U. S. Government Fund and Floating Rate U.S.
Government Fund within four to six months from the effective date of
this Post-Effective Amendment.
Exhibit Index
Exhibit
No. Exhibit
(1) (d) Form of Certificate pertaining to
Classification of Shares dated February 18, 1994.
(5) (b) Investment Advisory Agreement between Registrant and
Lehman Brothers Global Asset Management Inc. ("LBGAM"), relating to
the Floating Rate U.S. Government Fund.
(5) (c) Investment Advisory Agreement between Registrant and
LBGAM, relating to the Short Duration U.S. Government Fund.
(10) (c) Opinion of Massachusetts Counsel.
(11) (c) Consent of Counsel.
(13) (b) Form of Purchase Agreement between Registrant and Lehman
Brothers Inc., relating to the Floating Rate U.S. Government Fund.
(13) (c) Form of Purchase Agreement between Registrant and Lehman
Brothers, Inc., relating to the Short Duration U.S. Government Fund.
(15) (h) Form of Shareholder Servicing Agreement for Class B Shares
of the non-money market portfolios.
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. 4 to the
Registration Statement meets the requirements for effectiveness pursuant
to Rule 485(b) of the Securities Act of 1933, as amended, and the
Registrant has duly caused this Post-Effective Amendment No. 4 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 18th day of February, 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. 4 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
February 18, 1994
*
Trustee
February 18, 1994
Charles F. Barber
*
Trustee
February 18, 1994
Burt N. Dorsett
*
Trustee
February 18, 1994
Edward J. Kaier
*
Trustee
February 18, 1994
S. Donald Wiley
*
Vincent Nave
Treasurer (Chief Financial
and Accounting Officer)
February 18, 1994
*By: /s/ Peter Meenan
Peter Meenan
Attorney-In-Fact
Exhibit 1(d)
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
(A Massachusetts Business Trust)
CERTIFICATE OF CLASSIFICATION OF SHARES
I, Patricia L. Bickimer, do hereby certify as follows:
(1) That I am the duly elected Assistant Secretary of Lehman
Brothers Institutional Funds Group Trust (the "Trust");
(2) That in such capacity I have examined the records of actions
taken by the Board of Trustees of the Trust at a regular meeting of the
Board held on November 10, 1993;
(3) That the following resolutions were duly adopted at the meeting by
the Board of Trustees of the Trust;
a. Creation of Floating Rate U.S. Government Fund and Creation of Short
Duration U.S. Government Fund (the "New Portfolios")
VOTED, that pursuant to Section 5.11 of the Trust's Declaration of
Trust, an unlimited number of authorized, unissued and unclassified shares of
beneficial interest in the Trust be, and hereby are, classified and designated
as Class A, Class B and Class C, representing interests in each of the New
Portfolios of the Trust; and further
VOTED, that each share of beneficial interest in the Trust created
pursuant to the foregoing resolutions shall have all of the preferences,
conversions and other rights, voting powers, restrictions, limitations,
qualifications and terms and conditions of redemption that are set forth in
the Trust's Declaration of Trust with respect to its shares of beneficial
interest; and further
b. Authorization of Documents and Other Acts
VOTED, that the Officers of the Trust be, and each of them hereby is,
authorized and empowered to execute, send and deliver any and all documents,
instruments, papers and writings, including but not limited to any instrument
to be filed with the State Secretary of the Commonwealth of Massachusetts or
the Boston City Clerk, and to do any and all other acts, in the name of the
Trust and on its behalf, as may be necessary or desirable in connection with
or in furtherance of the foregoing resolutions.
(4) That the foregoing resolutions remain in full force and effect on the
date thereof.
______________________________
Assistant Secretary
Date: _____________, 1994
Commonwealth of Massachusetts )
)
County of Suffolk )
Subscribed and sworn to
before me this ______ day
of _____________, 1994.
___________________
Notary Public
My Commission Expires:
ifg/misc/crtcl
Exhibit 5(b)
Floating Rate U.S. Government Fund
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
INVESTMENT ADVISORY AGREEMENT
December 31, 1993
Lehman Brothers Global Asset Management Inc.
New York, NY
Ladies and Gentlemen:
Lehman Brothers Institutional Funds Group Trust (the "Trust"), a
business trust organized under the laws of The Commonwealth of Massachusetts,
confirms its agreement with Lehman Brothers Global Asset Management Inc. (the
"Advisor") regarding investment advisory services to be provided by the
Advisor to Floating Rate U.S. Government Fund (the "Fund"), a portfolio of the
Trust. The Advisor agrees to provide services upon the following terms and
conditions:
1. Investment Description; Appointment.
The Trust anticipates that the Fund will employ its capital by
investing and reinvesting in investments of the kind and in accordance with
the limitations specified in the Trust's Declaration of Trust dated November
25, 1992, as amended from time to time (the "Declaration of Trust "), in the
prospectus (the "Prospectus") and the statement of additional information (the
"Statement") describing the Fund filed with the Securities and Exchange
Commission as part of the Trust's Registration Statement on Form N-1A, as
amended from time to time, and in the manner and to the extent as may from
time to time be approved by the Board of Trustees of the Trust. Copies of the
Prospectus, the Statement and the Declaration of Trust have been or will be
submitted to the Advisor. The Trust desires to employ and appoints the
Advisor to act as the Fund's investment adviser. The Advisor accepts the
appointment and agrees to furnish the services for the compensation set forth
below.
2. Services as Investment Adviser.
Subject to the supervision and direction of the Board of Trustees
of the Trust, the Advisor has general oversight responsibility for the
investment advisory services provided to the Fund and will exercise this
responsibility in accordance with the Declaration of Trust, the Investment
Company Act of 1940 and the Investment Advisers Act of 1940, as the same may
from time to time be amended, and with the Fund's investment objective and
policies as stated in the Prospectus and Statement of Additional Information
relating to the Fund as from time to time in effect. In connection therewith,
the Advisor will, among other things, (a) participate in the formulation of
the Fund's investment policies, (b) analyze economic trends affecting the
Fund, (c) monitor the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Act of 1934) that are provided to
the Fund and may be considered by the Fund's sub-investment adviser in
selecting brokers or dealers to execute particular transactions and (d)
monitor and evaluate the services provided by the Fund's sub-investment
adviser under its sub-investment advisory agreement, including, without
limitation, the sub-investment advisor's adherence to the Fund's investment
objective and policies and the Fund's investment performance.
3. Information Provided to the Trust.
The Advisor will keep the Trust informed of developments
materially affecting the Fund, and will, on its own initiative, furnish the
Trust from time to time with whatever information the Advisor believes is
appropriate for this purpose.
4. Standard of Care.
The Advisor will exercise its best judgment in rendering the
services described in paragraph 2 of this Agreement. The Advisor will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which this Agreement relates,
except that nothing in this Agreement may be deemed to protect or purport to
protect the Advisor against any liability to the Trust or to shareholders of
the Fund to which the Advisor would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or by reason of the Advisor's reckless disregard of its obligations
and duties under this Agreement.
5. Compensation.
(a) In consideration of the services rendered pursuant to this
Agreement, the Trust will pay the Advisor on the first business day of each
month a fee for the previous month at the annual rate of .30% of the value of
the Fund's average daily net assets. The fee for the period from the date the
Fund commences its investment operations to the end of the month during which
the Fund commences its investment operations will be prorated according to the
proportion that the period bears to the full monthly period. Upon any
termination of this Agreement before the end of a month, the fee for such part
of that month will be prorated according to the proportion that the period
bears to the full monthly period and will be payable upon the date of
termination of this Agreement. For the purpose of determining fees payable to
the Advisor, the value of the Fund's net assets will be computed at the times
and in the manner specified in the Prospectus and/or the Statement.
(b) The Advisor shall pay to the sub-investment advisers of the Fund
(the "Sub-Advisor") the fees payable under the Sub-Investment Advisory
Agreement relating to the Fund dated of even date herewith among the Trust,
the Advisor and the Sub-Advisor. In the event that a Sub-Investment Advisory
Agreement is terminated, the Advisor shall be responsible for furnishing to
the Fund the services required to be performed by the Sub-Advisor under the
Sub-Investment Advisory Agreement or arranging for a successor sub-investment
adviser with respect to such investments on terms and conditions acceptable to
the Trust and subject to the requirements of the Investment Company Act of
1940.
6. Expenses.
The Advisor will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear certain
other expenses to be incurred in its operation, including, but not limited to:
costs incurred in connection with the Trust's organization; investment
advisory, sub-investment advisory administration and shareholder servicing
fees; fees for necessary professional and brokerage services; fees for any
pricing service; the costs of regulatory compliance; and the costs associated
with maintaining the Trust's legal existence; and costs of corresponding with
shareholders of the Fund.
7. Reduction of Fee.
If in any fiscal year of the Fund, the aggregate expenses of the
Fund (including fees pursuant to this Agreement, the Fund's Sub-Investment
Advisory Agreement and the Trust's administration agreement relating to the
Fund, but excluding interest, taxes, brokerage fees, fees paid by the Fund
pursuant to the Trust's shareholder services plan and, if permitted by the
relevant state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the Fund, the Advisor
will reduce its fee to the Fund for that excess expense to the extent required
by state law in the same proportion as its advisory fee bears to the Fund's
aggregate fees for investment advice, sub-investment advice and
administration. A fee reduction pursuant to this paragraph 7, if any, will be
estimated, reconciled and paid on a monthly basis.
8. Services to Other Companies or Accounts.
(a) The Trust understands that the Advisor now acts, will
continue to act and may act in the future as investment adviser to fiduciary
and other managed accounts, and may act in the future as investment adviser to
other investment companies, and the Trust has no objection to the Advisor so
acting, provided that whenever the Fund and one or more fiduciary and other
managed accounts or other investment companies advised by the Advisor have
available funds for investment, investments suitable and appropriate for each
will be allocated in accordance with a formula believed by the Advisor to be
equitable to each. The Trust recognizes that in some cases this procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained or disposed of by the Fund.
(b) The Trust understands that the persons employed by the
Advisor to assist in the performance of the Advisor's duties under this
Agreement will not devote their full time to such service and nothing
contained in this Agreement will be deemed to limit or restrict the right of
the Advisor or any affiliate of the Advisor to engage in and devote time and
attention to other businesses or to render services of whatever kind or
nature.
9. Term of Agreement.
(a) This Agreement will become effective as of the date the Fund
commences its investment operations and will continue for an initial two-year
term and will continue thereafter so long as the continuance is specifically
approved at least annually by (i) the Board of Trustees of the Trust or (ii) a
vote of a "majority" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Fund's outstanding voting securities,
provided that in either event the continuance is also approved by a majority
of the Board of Trustees who are not "interested persons" (as defined in the
1940 Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on the approval.
(b) This Agreement is terminable, without penalty, on 60 days'
written notice, by the Board of Trustees of the Trust or by vote of holders of
a majority of the Fund's outstanding voting securities, or upon 90 days'
written notice, by the Advisor.
(c) This Agreement will terminate automatically in the event of
its "assignment" (as defined in the 1940 Act).
10. Representation by the Trust.
The Trust represents that a copy of the Declaration of Trust is on
file with the Secretary of The Commonwealth of Massachusetts and with the
Boston City Clerk.
11. Limitation of Liability.
The Trust and the Advisor agree that the obligations of the Trust
under this Agreement will not be binding upon any of the Trustees of the
Trust, shareholders of the Fund, nominees, officers, employees or agents,
whether past, present or future, of the Trust, individually, but are binding
only upon the assets and property of the Fund, as provided in the Declaration
of Trust. The execution and delivery of this Agreement have been authorized
by the Trustees of the Trust and signed by an authorized officer of the Trust,
acting as such, and neither the authorization by the Trustees, nor the
execution and delivery by the officer will be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
will bind only the assets and property of the Fund as provided in its
Declaration of Trust . No series of the Trust, including the Fund, will be
liable for any claims against any other series.
* * * * *
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning the
enclosed copy of this Agreement.
Very truly yours,
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
By: /s/ Peter Meenan
Name: Peter Meenan
Title: President
Accepted:
LEHMAN BROTHERS GLOBAL
ASSET MANAGEMENT INC.
By: /s/ Steven Spiegel
Name: Steven Spiegel
Title: President
Short Duration U. S. Government Fund
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
INVESTMENT ADVISORY AGREEMENT
December 31, 1993
Lehman Brothers Global Asset Management Inc.
New York, NY
Ladies and Gentlemen:
Lehman Brothers Institutional Funds Group Trust (the "Trust"), a
business trust organized under the laws of The Commonwealth of Massachusetts,
confirms its agreement with Lehman Brothers Global Asset Management Inc. (the
"Advisor") regarding investment advisory services to be provided by the
Advisor to Short Duration U. S. Government Fund (the "Fund"), a portfolio of
the Trust. The Advisor agrees to provide services upon the following terms
and conditions:
1. Investment Description; Appointment.
The Trust anticipates that the Fund will employ its capital by
investing and reinvesting in investments of the kind and in accordance with
the limitations specified in the Trust's Declaration of Trust dated November
25, 1992, as amended from time to time (the "Declaration of Trust "), in the
prospectus (the "Prospectus") and the statement of additional information (the
"Statement") describing the Fund filed with the Securities and Exchange
Commission as part of the Trust's Registration Statement on Form N-1A, as
amended from time to time, and in the manner and to the extent as may from
time to time be approved by the Board of Trustees of the Trust. Copies of the
Prospectus, the Statement and the Declaration of Trust have been or will be
submitted to the Advisor. The Trust desires to employ and appoints the
Advisor to act as the Fund's investment adviser. The Advisor accepts the
appointment and agrees to furnish the services for the compensation set forth
below.
2. Services as Investment Adviser.
Subject to the supervision and direction of the Board of Trustees
of the Trust, the Advisor has general oversight responsibility for the
investment advisory services provided to the Fund and will exercise this
responsibility in accordance with the Declaration of Trust, the Investment
Company Act of 1940 and the Investment Advisers Act of 1940, as the same may
from time to time be amended, and with the Fund's investment objective and
policies as stated in the Prospectus and Statement of Additional Information
relating to the Fund as from time to
time in effect. In connection therewith, the Advisor will, among other
things, (a) participate in the formulation of the Fund's investment policies,
(b) analyze economic trends affecting the Fund, (c) monitor the brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Act of 1934) that are provided to the Fund and may be considered by
the Fund's sub-investment adviser in selecting brokers or dealers to execute
particular transactions and (d) monitor and evaluate the services provided by
the Fund's sub-investment adviser under its sub-investment advisory agreement,
including, without limitation, the sub-investment advisor's adherence to the
Fund's investment objective and policies and the Fund's investment
performance.
3. Information Provided to the Trust.
The Advisor will keep the Trust informed of developments
materially affecting the Fund, and will, on its own initiative, furnish the
Trust from time to time with whatever information the Advisor believes is
appropriate for this purpose.
4. Standard of Care.
The Advisor will exercise its best judgment in rendering the
services described in paragraph 2 of this Agreement. The Advisor will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which this Agreement relates,
except that nothing in this Agreement may be deemed to protect or purport to
protect the Advisor against any liability to the Trust or to shareholders of
the Fund to which the Advisor would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or by reason of the Advisor's reckless disregard of its obligations
and duties under this Agreement.
5. Compensation.
(a) In consideration of the services rendered pursuant to this
Agreement, the Trust will pay the Advisor on the first business day of each
month a fee for the previous month at the annual rate of .30% of the value of
the Fund's average daily net assets. The fee for the period from the date the
Fund commences its investment operations to the end of the month during which
the Fund commences its investment operations will be prorated according to the
proportion that the period bears to the full monthly period. Upon any
termination of this Agreement before the end of a month, the fee for such part
of that month will be prorated according to the proportion that the period
bears to the full monthly period and will be payable upon the date of
termination of this Agreement. For the purpose of determining fees payable to
the Advisor, the value of the Fund's net assets will be computed at the times
and in the manner specified in the Prospectus and/or the Statement.
(b) The Advisor shall pay to the sub-investment advisers of the Fund
(the "Sub-Advisor") the fees payable under the Sub-Investment Advisory
Agreement relating to the Fund dated of even date herewith among the Trust,
the Advisor and the Sub-Advisor. In the event that a Sub-Investment Advisory
Agreement is terminated, the Advisor shall be responsible for furnishing to
the Fund the services required to be performed by the Sub-Advisor under the
Sub-Investment Advisory Agreement or arranging for a successor sub-investment
adviser with respect to such investments on terms and conditions acceptable to
the Trust and subject to the requirements of the Investment Company Act of
1940.
6. Expenses.
The Advisor will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear certain
other expenses to be incurred in its operation, including, but not limited to:
costs incurred in connection with the Trust's organization; investment
advisory, sub-investment advisory administration and shareholder servicing
fees; fees for necessary professional and brokerage services; fees for any
pricing service; the costs of regulatory compliance; and the costs associated
with maintaining the Trust's legal existence; and costs of corresponding with
shareholders of the Fund.
7. Reduction of Fee.
If in any fiscal year of the Fund, the aggregate expenses of the
Fund (including fees pursuant to this Agreement, the Fund's Sub-Investment
Advisory Agreement and the Trust's administration agreement relating to the
Fund, but excluding interest, taxes, brokerage fees, fees paid by the Fund
pursuant to the Trust's shareholder services plan and, if permitted by the
relevant state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the Fund, the Advisor
will reduce its fee to the Fund for that excess expense to the extent required
by state law in the same proportion as its advisory fee bears to the Fund's
aggregate fees for investment advice, sub-investment advice and
administration. A fee reduction pursuant to this paragraph 7, if any, will be
estimated, reconciled and paid on a monthly basis.
8. Services to Other Companies or Accounts.
(a) The Trust understands that the Advisor now acts, will
continue to act and may act in the future as investment adviser to fiduciary
and other managed accounts, and may act in the future as investment adviser to
other investment companies, and the Trust has no objection to the Advisor so
acting, provided that whenever the Fund and one or more fiduciary and other
managed accounts or other investment companies advised by the Advisor have
available funds for investment, investments suitable and appropriate for each
will be allocated in accordance with a formula believed by the Advisor to be
equitable to each. The Trust recognizes that in some cases this procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained or disposed of by the Fund.
(b) The Trust understands that the persons employed by the
Advisor to assist in the performance of the Advisor's duties under this
Agreement will not devote their full time to such service and nothing
contained in this Agreement will be deemed to limit or restrict the right of
the Advisor or any affiliate of the Advisor to engage in and devote time and
attention to other businesses or to render services of whatever kind or
nature.
9. Term of Agreement.
(a) This Agreement will become effective as of the date the Fund
commences its investment operations and will continue for an initial two-year
term and will continue thereafter so long as the continuance is specifically
approved at least annually by (i) the Board of Trustees of the Trust or (ii) a
vote of a "majority" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Fund's outstanding voting securities,
provided that in either event the continuance is also approved by a majority
of the Board of Trustees who are not "interested persons" (as defined in the
1940 Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on the approval.
(b) This Agreement is terminable, without penalty, on 60 days'
written notice, by the Board of Trustees of the Trust or by vote of holders of
a majority of the Fund's outstanding voting securities, or upon 90 days'
written notice, by the Advisor.
(c) This Agreement will terminate automatically in the event of
its "assignment" (as defined in the 1940 Act).
10. Representation by the Trust.
The Trust represents that a copy of the Declaration of Trust is on
file with the Secretary of The Commonwealth of Massachusetts and with the
Boston City Clerk.
11. Limitation of Liability.
The Trust and the Advisor agree that the obligations of the Trust
under this Agreement will not be binding upon any of the Trustees of the
Trust, shareholders of the Fund, nominees, officers, employees or agents,
whether past, present or future, of the Trust, individually, but are binding
only upon the assets and property of the Fund, as provided in the Declaration
of Trust. The execution and delivery of this Agreement have been authorized
by the Trustees of the Trust and signed by an authorized officer of the Trust,
acting as such, and neither the authorization by the Trustees, nor the
execution and delivery by the officer will be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
will bind only the assets and property of the Fund as provided in its
Declaration of Trust . No series of the Trust, including the Fund, will be
liable for any claims against any other series.
* * * * *
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning the
enclosed copy of this Agreement.
Very truly yours,
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
By: /s/ Peter Meenan
Name: Peter Meenan
Title: President
Accepted:
LEHMAN BROTHERS GLOBAL
ASSET MANAGEMENT INC.
By: /s/ Steven Spiegel
Name: Steven Spiegel
Title: President
ifg/newpros/agreem/invadvs.doc
February 18, 1994
Lehman Brothers Institutional Funds Group Trust
American Express Tower
World Financial Center
New York, NY 10285
Re: Form N-1A Registration Statement
Post-Effective Amendment No. 4
File No. 33-55034
Gentlemen:
The undersigned is Vice President and Associate General Counsel of The
Boston Company Advisors, Inc., which serves as administrator, to the
portfolios of Lehman Brothers Institutional Funds Group Trust (the "Trust").
In such capacity, from time to time and for certain purposes, I act as counsel
for the Trust. You have asked that I render my opinion with respect to the
offer and sale of an indefinite number of shares of beneficial interest (the
"Shares") of the Lehman Brothers Floating Rate U.S. Government Fund and the
Lehman Brothers Short Duration U.S. Government Fund (the "Funds") of the Trust
covered by the above-referenced Post-Effective Amendment.
The Trust was organized as a Massachusetts business trust pursuant to a
Declaration of Trust dated November 16, 1992 (the "Declaration of Trust"), as
from time to time amended. The execution and delivery of the Declaration of
Trust took place in Boston, Massachusetts. The Funds were established as
separate series of the Trust pursuant to an amendment to the Trust's
Declaration of Trust approved by at least a majority of the Trust's Trustees
at a meeting duly called and held on January 27, 1994.
I have examined the Trust's Declaration of Trust, its By-Laws, the
minutes of meetings of the Board of Trustees of the Trust, the Trust's
Prospectuses and Statement of Additional Information included as part of the
aforementioned Post-Effective Amendment, and such other documents, records,
and certificates as I deemed necessary for purposes of this opinion.
Based on the foregoing, I am of the opinion that the Trust has been duly
organized and is validly existing in accordance with the laws of The
Commonwealth of Massachusetts and that the Shares which are the subject of
Post-Effective Amendment No. 4 will, when sold in accordance with the terms of
the current Prospectuses and Statement of Additional Information at the time
of sale, be duly authorized and validly issued and fully paid and non-
assessable by the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts laws, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Trust's Declaration of Trust provides that if a shareholder of
any series of the Trust (such as the Funds) is charged or held personally
liable by reason of being or having been a shareholder, the shareholder shall
be entitled out of the assets of said series to be held harmless from and
indemnified against all loss and expense arising from such liability. Thus,
the risk of a shareholder incurring financial loss on account of shareholders
liability is limited to circumstances in which that series itself would be
unable to meet its obligations.
I consent to the filing of this opinion with and part of the
aforementioned Post-Effective Amendment to the Trust's Registration Statement.
Very truly yours,
/s/ Patricia L. Bickimer
Patricia L. Bickimer
Vice President and
Associate General Counsel
PLB/kjm
Lehman Brothers Institutional Funds Group Trust
February 18, 1994
Page 2
ifg\correspond\letters\opinion.doc
Exhibit 11 (c)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
Firm under the caption "Counsel" in the Statement of Additional Information
that is included in Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A under the Securities Act of 1933, as amended, of Lehman
Brothers Institutional Funds Group Trust.
/s/ Willkie, Farr, &
Gallagher
Willkie, Farr, & Gallagher
New York, NY
February 18, 1994
February 10, 1994
VIA FEDERAL EXPRESS
Mr. Burt M. Leibert
Willkie, Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022
Re: Lehman Brothers Institutional Funds Group Trust Registration Statement
Dear Burt:
Enclosed please find a Consent of Counsel form that will require your
signature for the Floating Rate U.S. Government Fund and Short Duration U.S.
Government Fund Post-Effective Amendment No. 3 that will be filed with the SEC
on Friday, February 18, 1994. Kindly make two copies using the firm's
letterhead and return them to me by Thursday, February 17, 1994.
Should you have any questions, please do not hesitate to call me at
(617) 248-3525. Thank you for your assistance.
Very truly yours,
Susan Wong
Legal Product Manager
ifg\newpros\edgar1\consent.doc
Exhibit 13(b)
PURCHASE AGREEMENT
Lehman Brothers Institutional Funds Group Trust (the "Trust"), a
Massachusetts business trust, and Lehman Brothers Inc. (the "Distributor"),
hereby agree as follows:
1. The Trust hereby offers the Distributor and the Distributor hereby
purchases ten shares at $1.00 per share in such classes of the Trust's
Floating Rate U.S. Government Fund with a par value of $.001 per share (the
"Portfolio") as determined by Distributor. The shares are the "initial
shares" of the Portfolio. The Distributor hereby acknowledges receipt of a
purchase confirmation reflecting the purchase of ten shares, and the Trust
hereby acknowledges receipt from the Distributor of funds in the amount of $10
in full payment for the shares.
2. The Distributor represents and warrants to the Trust that the shares
are being acquired for investment purposes and not for the purpose of
distribution.
3. The Distributor agrees that if it or any direct or indirect
transferee of the shares redeems the shares prior to the fifth anniversary of
the date that the Trust begins its investment activities, the Distributor will
pay to the Trust an amount equal to the number resulting from multiplying the
Trust's total unamortized organizational expenses by a fraction, the numerator
of which is equal to the number of shares redeemed by the Distributor or such
transferee and the denominator of which is equal to the number of shares
outstanding as of the date of such redemption, as long as the administrative
position of the staff of the Securities and Exchange Commission requires such
reimbursement.
4. The Trust represents that a copy of its Declaration of Trust, dated
November 25, 1992, is on file in the Office of the Secretary of the
Commonwealth of Massachusetts.
5. This Agreement has been executed on behalf of the Trust by the
undersigned officer of the Trust in his capacity as an officer of the Trust.
The obligations of this Agreement shall be binding only upon the assets and
property of the Portfolio and not upon the assets and property of any other
portfolio of the Trust and shall not be binding upon any Trustee, officer or
shareholder of a Portfolio or the Trust individually.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day of , 1994.
LEHMAN BROTHERS INSTITUTIONAL
FUNDS GROUP TRUST
Attest:
____________________________ By: _____________________________
Attest: LEHMAN BROTHERS INC.
____________________________ By: _____________________________
Exhibit 13(c)
PURCHASE AGREEMENT
Lehman Brothers Institutional Funds Group Trust (the "Trust"), a
Massachusetts business trust, and Lehman Brothers Inc. (the "Distributor"),
hereby agree as follows:
1. The Trust hereby offers the Distributor and the Distributor hereby
purchases ten shares at $1.00 per share in such classes of the Trust's Short
Duration U.S. Government Fund with a par value of $.001 per share (the
"Portfolio") as determined by Distributor. The shares are the "initial
shares" of the Portfolio. The Distributor hereby acknowledges receipt of a
purchase confirmation reflecting the purchase of ten shares, and the Trust
hereby acknowledges receipt from the Distributor of funds in the amount of $10
in full payment for the shares.
2. The Distributor represents and warrants to the Trust that the shares
are being acquired for investment purposes and not for the purpose of
distribution.
3. The Distributor agrees that if it or any direct or indirect
transferee of the shares redeems the shares prior to the fifth anniversary of
the date that the Trust begins its investment activities, the Distributor will
pay to the Trust an amount equal to the number resulting from multiplying the
Trust's total unamortized organizational expenses by a fraction, the numerator
of which is equal to the number of shares redeemed by the Distributor or such
transferee and the denominator of which is equal to the number of shares
outstanding as of the date of such redemption, as long as the administrative
position of the staff of the Securities and Exchange Commission requires such
reimbursement.
4. The Trust represents that a copy of its Declaration of Trust, dated
November 25, 1992, is on file in the Office of the Secretary of the
Commonwealth of Massachusetts.
5. This Agreement has been executed on behalf of the Trust by the
undersigned officer of the Trust in his capacity as an officer of the Trust.
The obligations of this Agreement shall be binding only upon the assets and
property of the Portfolio and not upon the assets and property of any other
portfolio of the Trust and shall not be binding upon any Trustee, officer or
shareholder of a Portfolio or the Trust individually.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day of , 1994.
LEHMAN BROTHERS INSTITUTIONAL
FUNDS GROUP TRUST
Attest:
____________________________ By: _____________________________
Attest: LEHMAN BROTHERS INC.
____________________________ By: _____________________________
ifg/newpros/edgar1/purchase.doc
Exhibit 15(h)
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
FORM OF
SHAREHOLDER SERVICING AGREEMENT
CLASS B SHARES
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement ("Agreement")
with you concerning the provision of administrative support services to your
clients ("Customers") who may from time to time beneficially own Class B
Shares in one or more of the non-money market portfolios (the "Funds") of
Lehman Brothers Institutional Funds Group Trust (the "Trust").
The terms and conditions of this Agreement are as follows:
Section 1. You agree to provide the following administrative support
services to your Customers who may from time to time beneficially own Class B
Shares: (i) aggregating and processing purchase and redemption requests for
Class B Shares from Customers and placing net purchase and redemption orders
with the distributor of the Class B Shares; (ii) processing dividend payments
from the Funds on behalf of Customers; (iii) providing information
periodically to Customers showing their positions in Class B Shares; (iv)
arranging for bank wires; (v) responding to Customer inquiries relating to
their investment in Class B Shares and handling correspondence; (vi)
forwarding shareholder communications from the Funds (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; (vii) acting as shareholder of
record and nominee; (viii) arranging for the reinvestment of dividend
payments; and (ix) providing such other similar services as the Funds may
reasonably request to the extent that you are permitted to do so under
applicable statutes, rules or regulations. All services rendered hereunder by
you shall be performed in a professional, competent and timely manner.
Section 2. You will perform only those activities which are consistent
with statutes and regulations applicable to you. You will act solely as agent
or, upon the order of, and for the account of, your Customers.
Section 3. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you)
as may be reasonably necessary or beneficial in order to provide the
administrative support services contemplated hereby.
Section 4. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning us or the Class B Shares
except those contained in our then current prospectus and statement of
additional information, as amended or supplemented from time to time, copies
of which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by the Distributor or us in writing.
Section 5. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for us
in any matter or in any respect, except as provided herein. By your written
acceptance of this Agreement, you agree to and do release, indemnify and hold
us harmless from and against any and all direct or indirect liabilities or
losses resulting from requests, directions, actions or inactions of or by you
or your officers, employees or agents regarding your responsibilities
hereunder or the purchase, redemption, transfer or registration of Class B
Shares (or orders relating to the same) by or on behalf of Customers. You and
your employees will, upon request, be available during normal business hours
to consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
Section 6. In consideration of the services and facilities provided by
you hereunder, we will pay to you, and you will accept as full payments
therefor, a fee as described in the applicable then current prospectus. The
fee rate payable to you may be prospectively increased or decreased by us, in
our sole discretion, at any time upon notice to you. Further, we may, in our
discretion and without notice, suspend or withdraw the sale of Class B Shares
of any and all Funds, including the sale of Class B Shares to you for the
account of any Customer or Customers. Compensation payable under this
Agreement is subject to, among other things, the National Association of
Securities Dealers, Inc. ("NASD") Rules of Fair Practice governing receipt by
NASD members of shareholder servicing plan fees from registered investment
companies (the "NASD Servicing Plan Rule"), which became effective on July 7,
1993. Such compensation shall only be paid for services determined to be
permissible under the NASD Servicing Plan Rule.
Section 7. You agree to provide to us at least quarterly, a written
report of the amounts expended by you in connection with the provision of
administrative support services hereunder and the purposes for which such
expenditures were made. In addition, you will furnish us or our designees
with such information as we or they may reasonably request (including, without
limitation, periodic certifications confirming the provision to Customers of
the services described herein), and will otherwise cooperate with us and our
designees (including, without limitation, any auditors or legal counsel
designated by us), in connection with the preparation of reports to our Board
of Trustees concerning this Agreement and the monies paid or payable by us
pursuant hereto, as well as any other reports or filings that may be required
by law.
Section 8. We may enter into other similar Agreements with any other
person or persons without your consent.
Section 9. By your written acceptance of this Agreement, you represent,
warrant and agree that: (i) in no event will any of the services provided by
you hereunder be primarily intended to result in the sale of any shares issued
by us; (ii) the compensation payable to you hereunder, together with any other
compensation you receive in connection with the investment of your Customers'
assets in Class B Shares of the Funds, will be disclosed by you to your
Customers to the extent required by applicable laws or regulations, will be
authorized by your Customers and will not result in an excessive or
unreasonable fee to you and (iii) in the event an issue pertaining to this
Agreement is submitted for shareholder approval, and you have the authority
for your Customer to do so, you will vote any Class B Shares held for your own
account in the same proportion as the vote of the Class B Shares held for your
Customers' benefit.
Section 10. You agree to conform to compliance standards adopted by the
Trustor its distributor as to when a class of shares in a Fund may be
appropriately sold to particular investors.
Section 11. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or our designee and
continues in effect until terminated. This Agreement is terminable with
respect to any series of Class B Shares, without penalty, at any time by us
(which termination may be by a vote of a majority of the disinterested
Trustees of the Trust) or by you upon written notice to the other party
hereto.
Section 12. All notices and other communications to either you or us
will be duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address or number stated herein
(with a confirming copy by mail), or to such other address as either party
shall so provide in writing to the other.
Section 13. This Agreement will be construed in accordance with the
internal laws of The Commonwealth of Massachusetts without giving effect to
principles of conflict of laws, and is nonassignable by the parties hereto.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us, at the following address: One Exchange Place, Boston, Massachusetts,
02109; fax number (617) 248-3473; Attention: Ms. Patricia L. Bickimer.
Very truly yours,
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Date: ___________________ By: _________________________________
Name: ______________________________
Title: ________________________________
Accepted and Agreed to:
Servicing Agent
_____________________________________
(Firm Name)
_____________________________________
(Address)
_____________________________________
(City) (State)
Fax # _______________________________
Attention: ___________________________
Date: ___________________ By: _________________________________
Name: ______________________________
Title: _______________________________
Services may be modified or omitted in the particular case and items
relettered or renumbered.
4
ifg\agreem\shrservb
