LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST, 485A24E, 1995-03-31

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
485A24E, 1995-03-31

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As filed with the Securities and Exchange Commission on
March 30, 1995
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. 9 /X/

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/

Amendment No. 14 /X/

Lehman Brothers Institutional Funds Group Trust
(Exact Name of Registrant as Specified in Charter)

One Exchange Place
Boston, Massachusetts 02109
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (617) 248-3490

Patricia L. Bickimer, Esq.
The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(Name and Address of Agent for Service)

Copies to:

Burton M. Leibert, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022

It is proposed that this filing will become effective
(check appropriate box):

_____immediately upon filing pursuant to paragraph (b), or
_____on_________pursuant to paragraph (b)
x 60 days after filing pursuant to paragraph (a), or
_____on_________pursuant to paragraph (a) of Rule 485

The Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice for the
fiscal year ended January 31, 1995 was filed on March 29, 1995.

CALCULATION OF REGISTRATION FEE UNDER
THE SECURITIES ACT OF 1933(1)

Title of
Securities
Being
Registered

Amount
Being
Registered
Proposed
Maximum
Offering
Price Per
Unit (2)
Proposed
Maximum
Aggregate
Offering
Price (3)

Amount of
Registration
Fee

Shares of
Beneficial
Interest
par value $.001
per share

4,033,312,876

$1.00

$289,998

$100

(1) The shares being registered as set forth in this table are
in addition to the indefinite number of shares of beneficial interest
which Registrant has registered under the Securities Act of 1933, as
amended (the "1933 Act"), pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Registrant's Rule
24f-2 Notice for its fiscal year ended January 31, 1995 was filed on
March 29, 1995.

(2) Based on the Registrant's closing price of $1.00 on March
28, 1995 pursuant to Rule 457(d) under the 1933 Act and Rule 24e-2(a)
under the 1940 Act.

(3) In response to Rule 24e-2(b) under the 1940 Act: (1) the
calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2; (2) 102,870,097,377 shares of beneficial interest were
redeemed by the Registrant during the fiscal year ended January 31,
1995; (3) 98,837,074,499 of such shares are being used for reductions
pursuant to Rule 24f-2 during the current fiscal year; and (4)
4,033,022,878 shares are being used for reduction in this amendment
pursuant to Rule 24e-2(a).

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

3. Condensed Financial
Information....................... Financial Highlights
; Performance Information;
Performance and Yields; The
Fund's Performance; Yields

4. General Description of
Registrant Cover Page; Benefits to
Investors;

Summary of Investment Objectives;
Investment Objective(s) and
Policies; Description of Shares; Additional
Information

5. Management of the Fund Management of the Fund(s);
Dividends ; Annual Report; Additional
Information

6. Capital Stock and Other
Securities Cover Page; Dividends;
Taxes; Description of
Shares

7. Purchase of Securities Purchase of Shares;
Redemption of Shares; Purchase and
Redemption of Shares; Purchase,
Redemption and Exchange of Shares;
Exchange Privilege; Valuation of
Shares; Valuation of Shares Net Asset Value;
Management
of the Fund(s)

8. Redemption or Repurchase Purchase and Redemption
of Shares; Purchase, Redemption
and Exchange 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; Municipal
Obligations

14. Management of the Fund Management of the Fund

15. Control Persons and Principal
Holders of Securities Management of the Fund

16. Investment Advisory and
Other Services Management of the Fund

17. Brokerage Allocation Investment Objective and
Policies

18. Capital Stock and Other Additional Description
Securities Concerning Shares;
Dividends

19. Purchase, Redemption and Additional Purchase and
Pricing of Securities Redemption Information
Being Offered

20. Tax Status Additional Information
Concerning Taxes

21. Underwriters Management of the Fund

22. Calculation of Performance Additional Yield
Information

23. Financial Statements Financial Statements

PROSPECTUS

Lehman Brothers Institutional Funds Group Trust

One Exchange Place
Boston, Massachusetts 02109
For information call (800) 368-5556

Lehman Brothers Institutional Funds Group Trust (the
"Trust") is an open-end, management investment company that
currently offers a selection of eleven diversified investment
portfolios (individually, a "Fund" and collectively, the
"Funds"). This Prospectus describes one class of shares ("Class
A Shares") of the following investment portfolios.

Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
Cash Management Fund
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
Floating Rate U.S. Government Fund
Short Duration U.S. Government Fund
Short Duration Municipal Fund

Shares may not be purchased by individuals directly, but
institutional investors may purchase shares for accounts
maintained by individuals.

Lehman Brothers Inc. ("Lehman Brothers" or the
"Distributor") sponsors each Fund and acts as Distributor of its
shares. Lehman Brothers Global Asset Management Inc. (the
"Adviser") serves as each Fund's Investment Adviser.

This Prospectus briefly sets forth certain information
about the Funds that investors should know before investing.
Investors are advised to read this Prospectus and retain it for
future reference. Additional information about the Funds,
contained in a Statement of Additional Information dated May __,
1995, as amended or supplemented from time to time, has been
filed with the Securities and Exchange Commission and is
available to investors without charge by calling Lehman Brothers
at 1-800-368-5556. The Statement of Additional Information is
incorporated in its entirety by reference into this Prospectus.

Shares of the Funds involve certain investment risks,
including the possible loss of principal. An investment in a
Fund is neither insured nor guaranteed by the U.S. Government.
Although the Prime Money Market Fund, Prime Value Money Market
Fund, Government Obligations Money Market Fund, Cash Management
Fund, Treasury Instruments Money Market Fund II, 100% Treasury
Instruments Money Market Fund, Municipal Money Market Fund and
Tax-Free Money Market Fund (the "Money Market Funds") seek to
maintain a stable net asset value of $1.00 per share, there can
be no assurance that they will continue to do so. Shares of the
Money Market Funds 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.

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.

The date of this Prospectus is May __, 1995.

TABLE OF CONTENTS

Page

Summary of Investment Objectives

Background and Expense Information

Financial Highlights

Investment Objectives and Policies

Portfolio Instruments and Practices

Investment Restrictions

Purchase and Redemption of Shares

Dividends

Taxes

Management of the Funds

Performance and Yields

Description of Shares

SUMMARY OF INVESTMENT OBJECTIVES

The investment objectives of the Funds are summarized
below. See "Investment Objectives and Policies" beginning on
page __ for more detailed information.

Money Market Funds

Prime Money Market Fund seeks to provide current income
and stability of principal by investing in a broad range of
short-term instruments, including U.S. Government and U.S. bank
and commercial obligations and repurchase agreements relating to
such obligations.

Prime Value Money Market Fund seeks to provide current
income and stability of principal by investing in a portfolio
consisting of a broad range of short-term instruments, including
U.S. Government and U.S. bank and commercial obligations and
repurchase agreements relating to such obligations. Under
normal market conditions, at least 25% of the Fund's total
assets will be invested in obligations of issuers in the banking
industry and repurchase agreements relating to such obligations.

Government Obligations Money Market Fund seeks to provide
current income with liquidity and security of principal by
investing in a portfolio consisting of U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and repurchase
agreements relating to such obligations.

Cash Management Fund seeks to provide current income with
liquidity and security of principal by investing in a portfolio
consisting of U.S. Treasury bills, notes and other obligations
issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities and repurchase
agreements relating to such obligations. The Fund is designed
to provide a convenient means for the late day investment of
short-term assets held by banks, trust companies, corporations,
employee benefit plans and other institutional investors.

Treasury Instruments Money Market Fund II seeks to provide
current income with liquidity and security or principal by
investing in a portfolio consisting of U.S. Treasury bills,
notes and direct obligations of the U.S. Treasury and repurchase
agreements relating to direct Treasury obligations.

100% Treasury Instruments Money Market Fund seeks to
provide current income with liquidity and security of principal
by investing solely in U.S. Treasury bills, notes and direct
obligations of the U.S. Treasury. To the extent permissible by
federal and state law, the Fund is structured to provide
shareholders with income that is exempt or excluded from
taxation at the state and local level. The Fund does not invest
in repurchase agreements.

Municipal Money Market Fund seeks to provide as high a
level of current income exempt from federal taxation as is
consistent with relative stability of principal by investing in
a portfolio consisting of short-term tax-exempt obligations
issued by state and local governments and other tax-exempt
securities which are considered "Eligible Securities" as defined
below.

Tax-Free Money Market Fund seeks to provide as high a
level of current income exempt from federal taxation as is
consistent with relative stability of principal by investing in
a portfolio consisting of short-term tax-exempt obligations
issued by state and local governments and other tax-exempt
securities which are considered "First Tier Eligible Securities"
as defined below.

Non-Money Market Funds

Floating Rate U.S. Government Fund seeks to provide a high
level of current income consistent with minimal fluctuation of
net asset value by investing in a portfolio consisting of U.S.
Government and agency securities, including floating and
adjustable rate mortgage securities and repurchase agreements
collateralized by such obligations. Under normal interest rate
conditions, the Fund's average portfolio duration will be the
same as a one year U.S. Treasury Bill (approximately one year).

Short Duration U.S. Government Fund seeks to provide a
high level of current income consistent with minimal fluctuation
of net asset value by investing in a portfolio consisting of
short duration adjustable, floating and fixed rate U.S.
Government and agency securities and repurchase agreements
collateralized by such obligations. Under normal interest rate
conditions, the Fund's average portfolio duration will be
between that of a six month and one year U.S. Treasury Bill
(approximately six months to one year).

Short Duration Municipal Fund seeks to provide a high
level of current income consistent with minimal fluctuation of
net asset value by investing in tax-exempt obligations issued by
state and local governments, territories and possessions of the
United States (including the District of Columbia) and their
political subdivisions, agencies and instrumentalities. Under
normal interest rate conditions, the Fund's average portfolio
duration will be no more than three years.

There is no assurance that the Funds will achieve their
respective objectives.

BACKGROUND AND EXPENSE INFORMATION

Each Money Market Fund currently offers four classes of
shares and each Non-Money Market Fund currently offers three
classes of shares, only one of which, Class A Shares, is offered
by this Prospectus. Each class represents an equal, pro rata
interest in a Fund. Each Fund's other classes of shares have
different sales charges and expenses than Class A Shares which
would affect the performance of these classes of shares.
Investors may obtain information concerning the Funds' other
classes of shares by calling Lehman Brothers at 1-800-368-5556
or through Lehman Brothers ExpressNET, an automated order entry
system designed specifically for the Funds ("LEX").

The purpose of the following table is to assist an
investor in understanding the various costs and expenses that an
investor in a Fund would bear directly or indirectly. For more
complete descriptions of the various costs and expenses, see
"Management of the Funds" in this Prospectus and the Statement
of Additional Information.

Expense Summary
Class A Shares

Prime
Money
Market
Fund

Prime
Value
Money
Market
Fund
Government
Obligation
s Money
Market
Fund

Cash
Management
Fund

Annual Operating Expenses*
(as a percentage of average net
assets)

Advisory Fees (net of waivers)

Rule 12b-1 fees
None
None
None
None

Other Expenses - including
Administration Fees

Total Fund Operating Expenses
(after waivers or expense
reimbursement)

Treasury
Instrument
s Money
Market
Fund II
100%
Treasury
Instrument
s Money
Market
Fund

Municipal
Money
Market
Fund

Tax-Free
Money
Market
Fund

Annual Operating Expenses*
(as a percentage of average net
assets)

Advisory Fees (net of waivers)

Rule 12b-1 fees
None
None
None
None

Other Expenses - including
Administration Fees

Total Fund Operating Expenses
(after waivers or expense
reimbursement)

Floating
Rate U.S.
Government
Fund
Short
Duration
U.S.
Government
Fund
Short
Duration
Municipal
Fund

Annual Operating Expenses*
(as a percentage of average net
assets)

Advisory Fees (net of waivers)

Rule 12b-1 fees
None
None
None

Other Expenses - including
Administration Fees

Total Fund Operating Expenses
(after waivers or expense
reimbursement)

*The Expense Summary above has been restated to reflect current expected
fees and the Adviser's and Administrator's voluntary fee waiver and
expense reimbursement arrangements in effect for each Fund's fiscal year
ending January 31, 1996.

In order to maintain a competitive expense ratio, the
Adviser and Administrator have voluntarily agreed to waive fees
to the extent necessary to maintain an annualized expense ratio
at a level no greater than .18% of average daily net assets with
respect to the Money Market Funds and .40% with respect to the
Non-Money Market Funds. The voluntary fee waiver and expense
reimbursement arrangements described above will not be changed
unless shareholders are provided at least 60 days' advance
notice. The maximum annual contractual fees payable to the
Adviser and Administrator total .20% of average daily net assets
with respect to the Money Market Funds and .40% of average daily
net assets with respect to the Non-Money Market Funds. Absent
fee waivers, the Total Fund Operating Expenses of Class A Shares
would have been as follows.

Money Market Funds
Percentage of
Average Daily Net
Assets

Prime Money Market Fund
.24%

Prime Value Money Market Fund
.24%

Government Obligations Money Market Fund
.25%

Cash Management Fund
.36%

Treasury Instruments Money Market Fund II
.25%

100% Treasury Instruments Money Market
Fund
.25%

Municipal Money Market Fund
.24%

Tax-Free Money Market Fund
.26%

Non-Money Market Funds

Floating Rate U.S. Government Fund
.55%

Short Duration U.S. Government Fund
.55%

Short Duration Municipal Fund
___%

___________________

Example: An investor would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return and (2)
redemption at the end of each time period with respect to the
Class A Shares:

Money Market Funds

1 Year
3 Years
5 Years
10 Years

Non-Money Market Funds

1 Year
3 Years
5 Years*
10 Years*

*The Short Duration Municipal Fund is a new portfolio which has
not commenced operations as of the date of this Prospectus and,
accordingly, 5 and 10 year information is not applicable.

THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF
ACTUAL EXPENSES AND RATES OF RETURN, WHICH MAY BE GREATER OR
LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS

Money Market Funds

Prime Money Market
Fund
Prime Value Money
Market Fund

1/31/95
1/31/94*
1/31/95
1/31/94*

Net asset value, beginning of
period
$1.00
$1.00
$1.00
$1.00

Net investment income (1)
0.0442
0.0310
0.0442
0.0315

Dividends from net investment
income
(0.0442)
(0.0310)
(0.0442)
(0.0315)

Net asset value, end of period
$1.00
$1.00
$1.00
$1.00

Total return (2)
4.52%
3.14%
4.51%
3.21%

Ratios of average net
assets/supplemental data:

Net assets, end of period (in
000's)
$1,538,80
2
$2,866,35
3
$1,470,31
7
$3,981,18
4

Ratio of net investment income to
average net assets

4.30%

3.16%(3)

4.20%

3.23%(3)

Ratio of operating expenses to
average net assets (4)

0.12%

0.11%(3)

0.09%

0.07%(3)

* The Class A Shares commenced operations of February 8, 1993.
(1) Net investment income before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for the Class A Shares was
$0.0428 for the year ended January 31, 1995 and $0.0289 for the period
ended January 31, 1994 for the Prime Money Market Fund and $0.0426 for
the year ended January 31, 1995 and $0.0287 for the period ended January
31, 1994 for the Prime Value Money Market Fund.
(2) Total return represents aggregate total return for the periods
indicated.
(3) Annualized.
(4) Annualized expense ratios before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for Class A Shares were
0.25% for the year ended January 31, 1995 and 0.33% for the period ended
January 31, 1994 for the Prime Money Market Fund and 0.25% for the year
ended January 31, 1995 and 0.36% for the period ended January 31, 1994
for the Prime Value Money Market Fund.

Government
Obligations Money
Market Fund

Cash Management
Fund

1/31/95
1/31/94*
1/31/95
1/31/94*

Net asset value, beginning of
period
$1.00
$1.00
$1.00
$1.00

Net investment income (1)
0.0435
0.0309
0.0421
0.0304

Dividends from net investment
income
(0.0435)
(0.0309)
(0.0421)
(0.0304)

Net asset value, end of period
$1.00
$1.00
$1.00
$1.00

Total return (2)
4.45%
3.14%
4.26%
3.09%

Ratios of average net
assets/supplemental data:

Net assets, end of period (in
000's)
$40,080
$121,532
$4,740
$41,709

Ratio of net investment income to
average net assets

4.28%

3.18%(3)

3.52%

3.11%(3)

Ratio of operating expenses to
average net assets (4)

0.16%

0.03%(3)

0.17%

0.06%(3)

* The Class A Shares commenced operations of February 8, 1993.
(1) Net investment income before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for the Class A Shares was
$0.0419 for the year ended January 31, 1995 and $0.0261 for the period
ended January 31, 1994 for the Government Obligations Money Market Fund
and $0.0350 for the year ended January 31, 1995 and $0.0220 for the
period ended January 31, 1994 for the Cash Management Fund.
(2) Total return represents aggregate total return for the periods
indicated.
(3) Annualized.
(4) Annualized expense ratios before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for Class A Shares were
0.31% for the year ended January 31, 1995 and 0.53% for the period ended
January 31, 1994 for the Government Obligations Money Market Fund and
0.77% for the year ended January 31, 1995 and 0.92% for the period ended
January 31, 1994 for the Cash Management Fund.

Treasury
Instruments Money
Market Fund II
100% Treasury
Instruments Money
Market Fund

1/31/95
1/31/94*
1/31/95
1/31/94*

Net asset value, beginning of
period
$1.00
$1.00
$1.00
$1.00

Net investment income (1)
0.0424
0.0300
0.0408
0.0292

Dividends from net investment
income
(0.0424)
(0.0300)
(0.0408)
(0.0292)

Net asset value, end of period
$1.00
$1.00
$1.00
$1.00

Total return (2)
4.32%
3.04%
4.17%
2.95%

Ratios of average net
assets/supplemental data:

Net assets, end of period (in
000's)
$368,796
$156,782
$78,816
$127,463

Ratio of net investment income to
average net assets

4.38%

3.12%(3)

4.06%

3.03%(3)

Ratio of operating expenses to
average net assets 4)

0.12%

0.03%(3)

0.16%

0.05%(3)

* The Class A Shares commenced operations of February 8, 1993.
(1) Net investment income before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for the Class A Shares
$0.0407 for the year ended January 31, 1995 and $0.0256 for the period
ended January 31, 1994 for the Treasury Instruments Money Market Fund II
and $0.0391 for the year ended January 31, 1995 and $0.0248 for the
period ended January 31, 1994 for the 100% Treasury Instruments Money
Market Fund.
(2) Total return represents aggregate total return for the periods
indicated.
(3) Annualized.
(4) Annualized expense ratios before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for Class A Shares were
0.27% for the year ended January 31, 1995 and 0.49% for the period ended
January 31, 1994 for the Treasury Instruments Money Market Fund II and
0.33% for the year ended January 31, 1995 and 0.51% for the period ended
January 31, 1994 for the 100% Treasury Instruments Money Market Fund.

Municipal Money
Market Fund
Tax-Free Money
Market Fund

1/31/95
1/31/94*
1/31/95
1/31/94*

Net asset value, beginning of
period
$1.00
$1.00
$1.00
$1.00

Net investment income (1)
0.0300
0.0243
0.0288
0.0228

Dividends from net investment
income
(0.0300)
(0.0243)
(0.0288)
(0.0228)

Net asset value, end of period
$1.00
$1.00
$1.00
$1.00

Total return (2)
3.04%
2.46%
2.93%
2.30%

Ratios of average net
assets/supplemental data:

Net assets, end of period (in
000's)
$93,595
$350,975
$60,351
$59,735

Ratio of net investment income to
average net assets

2.86%

2.53%(3)

2.99%

2.38%(3)

Ratio of operating expenses to
average net assets (4)

0.15%

0.13%(3)

0.16%

0.11%(3)

(4) Annualized expense ratios before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for Class A Shares were
0.31% for the year ended January 31, 1995 and 0.51% for the period ended
January 31, 1994 for the Municipal Money Market Fund and 0.38% for the
year ended January 31, 1995 and 1.52% for the period ended January 31,
1994 for the Tax-Free Money Market Fund.

Non-Money Market Funds

Floating Rate U.S.
Government Fund
Short Duration U.S.
Government Fund

1/31/95*

Net asset value, beginning of
period
$10.00

$10.00

Net investment income (1)
0.43

0.46

Net realized and unrealized
losses on investments

(0.14)

(0.12)

Net increase in net assets
resulting
from investment operations

0.29

0.34

Dividends from net investment
income
(0.44)

(0.45)

Net asset value, end of period
$9.85

$9.89

Total return (2)
2.96%

3.54%

Ratios of average net
assets/supplemental data:

Net assets, end of period (in
000's)
$44,638

$31,162

Ratio of net investment income to
average net assets (3)

5.21%

5.43%

Ratio of operating expenses to
average net assets (3)(4)

0.10%

Portfolio turnover rate
164%

112%

* The Class A Shares commenced operations of March 28, 1994.
(1) Net investment income before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for the Class A Shares was
$0.39 for the period ended January 31, 1995 for the Floating Rate U.S.
Government Fund and $0.40 for the period ended January 31, 1995 for the
Short Duration U.S .Government Fund.
(2) Total return represents aggregate total return for the period
indicated.
(3) Annualized.
(4) Annualized expense ratios before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for Class A Shares was 0.66%
for the period ended January 31, 1995 for the Floating Rate U.S.
Government Fund and 0.71% for the period ended January 31, 1995 for the
Short Duration U.S. Government Fund.

INVESTMENT OBJECTIVES AND POLICIES

The investment objectives and general policies of each
Fund are described below. Specific investment techniques that
may be employed by the Funds are described in a separate section
of this Prospectus. See "Portfolio Instruments and Practices."
Differences in objectives and policies among the Funds,
differences in the degree of acceptable risk and tax
considerations are some of the factors that can be expected to
affect the investment return of each Fund. Because of such
factors, the performance results of the Funds may differ even
though more than one Fund may utilize the same security
selections.

Unless otherwise stated, the investment objectives and
policies set forth in this Prospectus are not fundamental and
may be changed by the Board of Trustees without shareholder
approval. If there is a change in the investment objective and
policies of any Fund, shareholders should consider whether the
Fund remains an appropriate investment in light of their then
current financial position and needs. The market value of
certain fixed-rate obligations held by the Funds will generally
vary inversely with changes in market interest rates. Thus, the
market value of these obligations generally declines when
interest rates rise and generally rises when interest rates
decline. The Funds are subject to additional investment
policies and restrictions described in the Statement of
Additional Information, some of which are fundamental and may
not be changed without shareholder approval.

Money Market Funds

Prime Money Market Fund, Prime Value Money Market Fund,
Government Obligations Money Market Fund, Cash Management Fund,
Treasury Instruments Money Market Fund II, 100% Treasury
Instruments Money Market Fund, Municipal Money Market Fund and
Tax-Free Money Market Fund (the "Money Market Funds") seek to
maintain a net asset value of $1.00 per share, although there is
no assurance that they will be able to do so on a continuing
basis. Certain securities held by the Funds may have remaining
maturities in excess of stated limitations discussed below if
securities provide for adjustments in their interest rates not
less frequently than such time limitation. Each Fund maintains
a dollar-weighted average portfolio maturity of 90 days or less.

Prime Money Market Fund and Prime Value Money Market Fund
seek to provide current income and stability of principal. In
pursuing their investment objectives, the Funds, which operate
as diversified investment portfolios, invest in a broad range of
short-term instruments, including U.S. Government and U.S. bank
and commercial obligations and repurchase agreements relating to
such obligations. Prime Value Money Market Fund may also invest
in securities of foreign issuers. Each Fund invests only in
securities that are payable in U.S. dollars and that have (or,
pursuant to regulations adopted by the Securities and Exchange
Commission (the "SEC") will be deemed to have) remaining
maturities of thirteen months or less at the date of purchase by
the Fund.

Both Funds invest in securities rated by the "Requisite
NRSROs." "Requisite NRSROs" means (a) any two nationally
recognized statistical rating organizations ("NRSROs") that have
issued a rating with respect to a security or class of debt
obligations of an issuer, or (b) one NRSRO, if only one NRSRO
has issued such a rating at the time that the Fund acquires the
security. Currently, there are six NRSROs: Standard & Poor's
Corporation ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Fitch Investors Services, Inc., Duff and
Phelps, Inc., IBCA Limited and its affiliate, IBCA, Inc. and
Thomson Bankwatch. A discussion of the ratings categories of
the NRSROs is contained in the Appendix to the Statement of
Additional Information.

Prime Money Market Fund will limit its portfolio
investments to securities that the Board of Trustees determines
present minimal credit risks and which are "First Tier Eligible
Securities" at the time of acquisition by the Fund. The term
First Tier Eligible Securities includes securities rated by the
Requisite NRSROs in the highest short-term rating categories,
securities of issuers that have received such rating with
respect to other short-term debt securities and comparable
unrated securities.

Prime Value Money Market Fund will limit its portfolio
investments to securities that the Board of Trustees determines
present minimal credit risks and which are "Eligible Securities"
at the time of acquisition by the Fund. The term Eligible
Securities includes securities rated by the Requisite NRSROs in
one of the two highest short-term rating categories, securities
of issuers that have received such rating with respect to other
short-term debt securities and comparable unrated securities.

Each Fund generally may not invest more than 5% of it
total assets in the securities of any one issuer, except for
U.S. Government securities. In addition, Prime Value Money
Market Fund may not invest more than 5% of its total assets in
Eligible Securities that have not received the highest rating
from the Requisite NRSROs and comparable unrated securities
("Second Tier Securities") and may not invest more than 1% of
its total assets in the Second Tier Securities of any one
issuer. The Funds may invest more than 5% (but no more than
25%) of the then-current value of the Fund's total assets in the
securities of a single issuer for a period of up to three
business days, provided that (a) the securities either are rated
by the Requisite NRSROs in the highest short-term rating
category or are securities of issuers that have received such
rating with respect to other short-term debt securities or are
comparable unrated securities, and (b) the Fund does not make
more than one such investment at any one time.

Each Fund may purchase obligations of issuers in the
banking industry, such as commercial paper, notes, certificates
of deposit, bankers acceptances and time deposits and U.S.
dollar denominated instruments issued or supported by the credit
of the U.S. (or foreign in the case of Prime Value Money Market
Fund) banks or savings institutions having total assets at the
time of purchase in excess of $1 billion. The Funds may also
make interest-bearing savings deposits in commercial and savings
banks in amounts not in excess of 5% of their assets.

Government Obligations Money Market Fund, Cash Management
Fund, Treasury Instruments Money Market Fund II and 100%
Treasury Instruments Money Market Fund seek to provide income
with liquidity and security of principal. Each Fund operates as
a diversified investment company. Each Fund invests only in
securities that are payable in U.S. dollars and that have (or,
pursuant to regulations adopted by the SEC, will be deemed to
have) remaining maturities of thirteen months or less at the
date of purchase by the Fund (twelve months in the case of
Government Obligations Money Market Fund and 100% Treasury
Instruments Money Market Fund).

Government Obligations Money Market Fund and Cash
Management Fund invest in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities (in
addition to direct Treasury obligations) and repurchase
agreements relating to such obligations. Cash Management Fund
is designed to provide a convenient means for the late day
investment of short-term assets held by institutional investors
and is not intended to be a long-term investment vehicle.

Treasury Instruments Money Market Fund II and 100%
Treasury Instruments Money Market Fund invest solely in direct
obligations of the U.S. Treasury, such as Treasury bills and
notes, and Treasury Instruments Money Market Fund II may invest
in repurchase agreements relating to direct Treasury
obligations. 100% Treasury Instruments Money Market Fund does
not enter into repurchase agreements. Because 100% Treasury
Instruments Money Market Fund invests exclusively in direct
Treasury obligations, investors may benefit from income tax
exclusions or exemptions that are available in certain states
and localities. See "Taxes." Neither Fund will purchase
obligations of agencies or instrumentalities of the U.S.
Government.

As a fundamental policy, 100% Treasury Instruments Money
Market Fund will invest only in those instruments which will
permit Fund shares to qualify as "short-term liquid assets" for
federally regulated thrifts. The Fund has qualified its shares
as "short-term liquid assets" as established in the published
rulings, interpretations and regulations of the Federal Home
Loan Bank Board. However, investing institutions are advised to
consult their primary regulator for concurrence that Fund shares
qualify under applicable regulations and policies.

Municipal Money Market Fund and Tax-Free Money Market Fund
seek to provide investors with as high a level of current income
exempt from federal income tax as is consistent with relative
stability of principal. In pursuing their investment
objectives, the Funds, which operate as diversified investment
companies, invest substantially all of their assets in
diversified portfolios of short-term tax-exempt obligations
issued by or on behalf of states, territories and possessions of
the United States, the District of Columbia, and their
respective authorities, agencies, instrumentalities and
political subdivisions and tax-exempt derivative securities such
as tender option bonds, participations, beneficial interests in
trusts and partnership interests (collectively "Municipal
Obligations"). Each Fund invests only in securities that have
(or, pursuant to regulations adopted by the SEC, will be deemed
to have) remaining maturities of thirteen months or less at the
date of purchase by the Fund. The Funds will not knowingly
purchase securities the interest on which is subject to federal
income tax. Except during temporary defensive periods, each
Fund will invest substantially all, but in no event less than
80%, of its net assets in Municipal Obligations. Although it
has no present intent to do so, Tax-Free Money Market Fund may
invest up to 20% of its assets in securities the income from
which may be a specific tax preference item for purposes of
federal individual and corporate alternative minimum tax. See
"Taxes."

Both the Municipal Money Market Fund and Tax-Free Money
Market Fund purchase Municipal Obligations that present minimal
credit risk as determined by the Adviser pursuant to guidelines
approved by the Board of Trustees. The Municipal Money Market
Fund invests in Eligible Securities while the Tax-Free Money
Market Fund invests in only First Tier Eligible Securities. The
Funds may hold uninvested cash reserves pending investment,
during temporary defensive purposes, including when suitable
tax-exempt obligations are unavailable. There is no percentage
limitation on the amount of assets which may be held uninvested.
Uninvested cash reserves will not earn income.

Although the Tax-Free Money Market Fund may invest more
than 25% of its net assets in (a) Municipal Obligations whose
issuers are in the same state and (b) Municipal Obligations the
interest on which is paid solely from revenues of similar
projects, it does not presently intend to do so on a regular
basis. To the extent the Fund's assets are concentrated in
Municipal Obligations that are payable from the revenues of
similar projects, are issued by issuers located in the same
state or are private activity bonds, the Fund will be subject to
the peculiar risks presented by the laws and economic conditions
relating to such states, projects and bonds to a greater extent
than it would be if its assets were not so concentrated.

Non-Money Market Funds

Floating Rate U.S. Government Fund, Short Duration U.S.
Government Fund and Short Duration Municipal Fund (the "Non-
Money Market Funds") seek to provide a high level of current
income consistent with minimal fluctuation of net asset value.
While there can be no assurance that the Funds will be able to
maintain minimal fluctuation in net asset value or that they
will achieve their investment objectives, the Funds endeavor to
do so by following the investment policies described in this
Prospectus. The Funds are not money market funds and their net
asset values will fluctuate. Each Fund is a diversified
investment portfolio.

Floating Rate U.S. Government 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.

Floating Rate U.S. Government Fund seeks to be an
investment vehicle for savings associations. Accordingly, the
Fund is restricted by its investment policies to investments
that under current law or regulation a federal savings
association may, without limitation as to percentage of assets,
own or otherwise deal in. The Fund will not change the
foregoing policy without prior notice to shareholders; provided
that notice of such change shall not be required (a) if the Fund
is unaware that a savings association is a shareholder at the
time such change is to be made or (b) with respect to changes
made in conformity with changes in law or regulation governing
permissible investments of federal savings associations. Any
regulated institution considering an investment in the Fund
should consult its legal adviser with respect to the applicable
laws and regulations governing such institution's operations in
order to determine if the Fund is a permissible investment.

Short Duration U.S. Government 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.

The types of U.S. Government securities in which Floating
Rate U.S. Government Fund and Short Duration U.S. Government
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 Funds 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
Funds 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.

The Funds 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 Funds
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 (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 periodic payments consisting of both interest and principal.
The interest portion of these payments will be distributed by
the Funds as income, and the capital portion will be reinvested.

For temporary defensive purposes, the Adviser may
determine that it is prudent to hold all or a portion of the
Funds' portfolios 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 or P-1 by Moody's.

Short Duration Municipal Fund pursues its investment
objective by investing primarily in a professionally managed
portfolio of fixed income Municipal Obligations. Under normal
market conditions, the Fund will invest at least 80% of its net
assets in Municipal Obligations. Although the Fund is not
expected to do so, the Fund has the authority to invest as much
as 20% of its net assets in taxable investments, which are
obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities and repurchase agreements
collateralized by U.S. Government securities ("Taxable
Investments"). This activity may generate taxable interest.
See "Taxes."

The Fund's investments in Municipal Obligations will at
the time of investment be rated within the three highest rating
categories for municipal securities by S&P (AAA, AA or A) or by
Moody's (Aaa, Aa, or A) or any other comparable nationally-
recognized rating agency, or their equivalent ratings or, if
unrated, determined by the Adviser to be of comparable credit
quality. The credit rating assigned to Municipal Obligations by
these rating agencies may reflect the existence of guarantees,
letters of credit or other credit enhancement features available
to the issuers or holders of such Municipal Obligations.

Under normal interest rate conditions, the Floating Rate
U.S. Government Fund's average portfolio duration is expected to
be between that of a six-month and a one-year U.S. Treasury bill
(approximately six months to one year), and the Short Duration
U.S. Government Fund's average portfolio duration will be
approximately the same as a one-year U.S. Treasury bill
(approximately one year). This means that each Fund's net asset
value fluctuation is expected to be similar to the price
fluctuation of the stated U.S. Treasury bill. Each Fund's
average portfolio duration is not expected to exceed that of a
two-year U.S. Treasury note (approximately 1.9 years).
Generally, the Short Duration Municipal Fund's average portfolio
duration will be no more than three years. The individual
Municipal Obligations in which the Fund invests will have
effective maturities not exceeding five years. Unlike maturity,
which indicates when the security repays principal, "duration"
incorporates the cash flows of all interest and principal
payments and the proceeds from calls and redemptions over the
life of the security. These payments are multiplied by the
number of years over which they are received to produce a value
that is expressed in years (i.e., duration).

PORTFOLIO INSTRUMENTS AND PRACTICES

Investment strategies that are available to the Funds are
set forth below. Additional information concerning certain of
these strategies and their related risks is contained in the
Statement of Additional Information.

U.S. Government Obligations

Each Fund (other than Municipal Money Market Fund and Tax-
Free Money Market Fund) may purchase obligations issued or
guaranteed by the U.S. Government and, (except in the case of
Treasury Instruments Money Market Fund II and 100% Treasury
Instruments Money Market Fund), U.S. Government agencies and
instrumentalities. 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 bills generally have initial
maturities of greater than ten years. Some obligations issued
or guaranteed by U.S. Government agencies or 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 Funds will invest in such securities only when they
are satisfied that the credit risk with respect to the issuer is
minimal.

Securities issued or guaranteed by the U.S. Government,
its agencies and instrumentalities have historically involved
little risk of loss of principal if held to maturity. However,
due to fluctuations in interest rates, the market value of the
securities may vary during the period an investor owns shares of
a Fund.

Repurchase Agreements

The Funds (other than 100% Treasury Instruments Money
Market Fund, Municipal Money Market Fund and Tax-Free Money
Market Fund) may agree to purchase securities from financial
institutions subject to the seller's agreement to repurchase
them at an agreed upon time and price within one year from the
date of acquisition ("repurchase agreements"). Money Market
Funds which may enter into repurchase agreements will not invest
more than 10% of the value of their net assets in repurchase
agreements with terms which exceed seven days. The Non-Money
Market Funds will not invest more than 15% of the value of their
assets in repurchase agreements with terms which exceed seven
days. The seller under a repurchase agreement will be required
to maintain the value of the securities subject to the agreement
at not less than the repurchase price (including accrued
interest). Default by or bankruptcy of the seller would,
however, expose the Funds to possible loss because of adverse
market action or delay in connection with the disposition of the
underlying obligations.

Reverse Repurchase Agreements

Government Obligations Money Market Fund, Treasury
Instruments Money Market Fund II, Cash Management Fund, Floating
Rate U.S. Government Fund, Short Duration U.S. Government Fund
and Short Duration Municipal 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 Funds would sell portfolio
securities to financial institutions and agree to repurchase
them at an agreed upon date and price. The Funds would consider
entering into reverse repurchase agreements to avoid otherwise
selling securities during unfavorable market conditions.
Reverse repurchase agreements involve the risk that the market
value of the securities sold by the Funds may decline below the
price of the securities the Funds are obligated to repurchase.
Government Obligations Money Market Fund, Treasury Instruments
Money Fund II and Cash Management Fund may engage in reverse
repurchase agreements provided that the amount of the reverse
repurchase agreements and any other borrowings does not exceed
10% of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings). The
Non-Money Market Funds may engage in reverse repurchase
agreements provided that the amount of the reverse repurchase
agreements and any other borrowings does not exceed one-third of
the value of the Fund's total assets (including the amount
borrowed) less liabilities (other than borrowings).

When-Issued Securities

The Funds (other than Municipal Money Market Fund and Tax-
Free Money Market Fund) may purchase securities on a "when-
issued" basis. When-issued securities are securities purchased
for delivery beyond the normal settlement date at a stated price
and yield. The Funds 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 Funds expect that
commitments to purchase when-issued securities will not exceed
25% of the value of their total assets absent unusual market
conditions. The Funds do not intend to purchase when-issued
securities for speculative purposes but only in furtherance of
their investment objectives.

Illiquid Securities

Floating Rate U.S. Government Fund, Short Duration U.S.
Government Fund and Short Duration Municipal Fund will not
knowingly invest more than 15%, and Prime Money Market Fund,
Prime Value Money Market Fund, Municipal Money Market Fund and
Tax-Free Money Market Fund will not knowingly invest more than
10%, of the value of their 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). Each of the Funds 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"). Each of the Funds 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 Funds who agree
that they are purchasing the paper for investment and not with a
view to public distribution. Any resale by the purchaser must
be in an exempt transaction. Section 4(2) paper is normally
resold to other institutional investors like the Fund through or
with the assistance of the issuer or investment dealers who make
a market in the Section 4(2) paper, thus providing liquidity.
Rule 144A securities generally must be sold to other qualified
institutional buyers. If a particular investment in Section
4(2) paper or Rule 144A securities is not determined to be
liquid, that investment will be included within the percentage
limitation on investment in illiquid securities.

Foreign Securities

Prime Value Money Market Fund may invest substantially in
securities of foreign issuers, including obligations of foreign
banks or foreign branches of U.S. banks and debt securities of
foreign issuers, where the Adviser deems the instrument to
present minimal credit risks. Investments in foreign banks or
foreign issuers present certain risks, including those resulting
from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments and the
possible imposition of currency exchange blockages or other
foreign governmental laws or restrictions and reduced
availability of public information. Foreign issuers are not
generally subject to uniform accounting, auditing and financial
reporting standards or to other regulatory practices and
requirements applicable to domestic issuers.

Zero Coupon and Capital Appreciation Bonds

The Funds may invest in zero coupon and capital
appreciation bonds, which are debt securities issued or sold at
a discount from their face value and which do not entitle the
holder to any periodic payment of interest prior to maturity or
a specified redemption date (or cash payment date). The amount
of the discount varies depending on the time remaining until
maturity or cash payment date, prevailing interest rates, the
liquidity of the security and the perceived credit quality of
the issuer. These securities may also take the form of debt
securities that have been stripped of their unmatured interest
coupons, the coupons themselves or receipts or certificates
representing interest in such stripped debt obligations or
coupons. Discount with respect to stripped tax-exempt
securities or their coupons may be taxable. The market prices
of capital appreciation bonds generally are more volatile than
the market prices of interest-bearing securities and are likely
to respond to a greater degree to changes in interest rates than
interest-bearing securities having similar maturity and credit
quality.

Lending of Portfolio Securities

Government Obligations Money Market Fund, Treasury
Instruments Money Market Fund II, Cash Management Fund, Floating
Rate U.S. Government Fund, Short Duration U.S. Government Fund
and Short Duration Municipal Fund may lend portfolio securities
up to one-third of the value of their total assets to
broker/dealers, banks or other institutional borrowers of
securities. The Funds will only enter into loan arrangements
with broker/dealers, banks or other institutions which the
Adviser has determined are creditworthy under guidelines
established by the Board of Trustees and will receive collateral
in the form of cash or U.S. Government securities equal to at
least 100% of the value of the securities owned.

Variable and Floating Rate Securities

The interest rates payable on certain securities in which
Prime Money Market Fund, Prime Value Money Market Fund,
Government Obligations Money Market Fund, Cash Management Fund,
Municipal Money Market Fund, Tax-Free Money Market Fund and
Short Duration Municipal Fund may invest are not fixed and may
fluctuate based upon changes in market rates. A variable rate
obligation has an interest rate which is adjusted at
predesignated periods. Interest on a floating rate obligation
is adjusted whenever there is a change in the market rate of
interest on which the interest rate payable is based. Tax-
exempt variable or floating rate obligations generally permit
the holders of such obligations to demand payment of principal
from the issuer or a third party at stated intervals. Variable
and floating rate obligations are less effective than fixed rate
instruments at locking in a particular yield. Such obligations
may fluctuate in value in response to interest rate changes if
there is a delay between changes in market interest rates and
the interest reset date for the obligation. The Funds will take
demand or reset features into consideration in determining the
average portfolio duration of the Fund and the effective
maturity of individual Municipal Obligations. In addition, the
absence of an unconditional demand feature exercisable within
seven days will require a tax-exempt variable or floating rate
obligation to be treated as illiquid for purposes of a Fund's
limitation on illiquid investments. The failure of the issuer
or a third party to honor its obligations under a demand or put
feature might also require a tax-exempt variable or floating
rate obligation to be treated as illiquid for purposes of a
Fund's limitation on illiquid investments.

Tax-Exempt Commercial Paper

Municipal Money Market Fund, Tax-Free Money Market Fund
and Short Duration Municipal Fund may invest in tax-exempt
commercial paper. Issues of commercial paper typically
represent short-term, unsecured, negotiable promissory notes.
These obligations are issued by state and local governments and
their agencies to finance working capital needs of
municipalities or to provide interim construction financing and
are paid from general or specific revenues of municipalities or
are re-financed with long-term debt. In some cases, tax-exempt
commercial paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility
arrangements offered by banks or other institutions. The Funds
will invest only in tax-exempt commercial paper rated at least
Prime-2 by Moody's or A-2 by S&P.

Municipal Obligations

Municipal Money Market Fund, Tax-Free Money Market Fund
and Short Duration Municipal Fund may invest in the Municipal
Obligations described below. Each Fund may invest in a type of
Municipal Obligation except where specifically noted.

Municipal Obligations. Municipal Obligations include
bonds, notes and other instruments issued by or on behalf of
states, territories and possessions of the United States
(including the District of Columbia) and their political
subdivisions, agencies or instrumentalities, the interest on
which is, in the opinion of bond counsel, exempt from regular
federal income tax (i.e., excluded from gross income for federal
income tax purposes but not necessarily exempt from the federal
alternative minimum tax or from the personal income taxes of any
state). In addition, Municipal Obligations include
participation interests in such securities the interest on which
is, in the opinion of bond counsel for the issuers or counsel
selected by the Adviser exempt from regular federal income tax.
The definition of Municipal Obligations includes other types of
securities that currently exist or may be developed in the
future and that are, or will be, in the opinion of counsel, as
described above, exempt from regular federal income tax,
provided that investing in such securities is consistent with a
Fund's investment objective and policies.

The two principal classifications of Municipal Obligations
which may be held by the Funds are "general obligation"
securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the
revenues derived from a particular facility or class of
facilities, or in some cases, from the proceeds of a special
excise tax or other specific revenue source such as the user of
the facility being financed. Revenue securities include private
activity bonds which are not payable from the unrestricted
revenues of the issuer. While some private activity bonds are
general obligation securities, the vast majority are revenue
bonds. Consequently, the credit quality of private activity
bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Each of the Municipal
Obligations described below may take the form of either general
obligation or revenue securities.

Municipal Obligations are often issued to obtain funds for
various public purposes, including the construction of a wide
range of public facilities such as bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and
sewer works. Other public purposes for which Municipal
Obligations may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses, and
obtaining funds to lend to other public institutions and
facilities. Municipal Obligations also include "private
activity" or industrial development bonds, which are issued by
or on behalf of public authorities to obtain funds for
privately-operated housing facilities, airport, mass transit or
port facilities, sewage disposal, solid waste disposal or
hazardous waste treatment or disposal facilities and certain
local facilities for water supply, gas or electricity. In
addition, proceeds of certain industrial development bonds are
used for the construction, equipment, repair or improvement of
privately operated industrial or commercial facilities. The
interest income from private activity bonds may subject certain
investors to the federal alternative minimum tax.

Municipal Leases, Certificates of Participation and Other
Participation Interests. The Funds may invest in municipal
leases and certificates of participation in municipal leases. A
municipal lease is an obligation in the form of a lease or
installment purchase which is issued by a state or local
government to acquire equipment and facilities. Income from
such obligations is generally exempt from state and local taxes
in the state of issuance. Municipal leases frequently involve
special risks not normally associated with general obligation or
revenue bonds. Leases and installment purchase or conditional
sale contracts (which normally provide for title to the leased
asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property
and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. The debt issuance
limitations are deemed to be inapplicable because of the
inclusion in many leases or contracts of "non-appropriation"
clauses that relieve the governmental issuer of any obligation
to make future payments under the lease or contract unless money
is appropriated for such purpose by the appropriate legislative
body on a yearly or other periodic basis. In addition, such
leases or contracts may be subject to the temporary abatement of
payments in the event the issuer is prevented from maintaining
occupancy of the leased premises or utilizing the leased
equipment. Although the obligation may be secured by the leased
equipment or facilities, the disposition of the property in the
event of nonappropriation or foreclosure might prove difficult,
time consuming and costly, and result in an unsatisfactory or
delayed recoupment of the Fund's original investment.

Certificates of participation represent undivided
interests in municipal leases, installment purchase agreements
or other instruments. The certificates are typically issued by
a trust or other entity which has received an assignment of the
payments to be made by the state or political subdivision under
such leases or installment purchase agreements.

Certain municipal lease obligations and certificates of
participation may be deemed illiquid for the purpose of a Fund's
limitation on investments in illiquid securities. Other
municipal lease obligations and certificates of participation
acquired by the Funds may be determined by the Adviser, pursuant
to guidelines adopted by the Trustees, to be liquid securities
for the purpose of such limitation. In determining the
liquidity of municipal lease obligations and certificates of
participation, the Adviser will consider a variety of factors
including: (a) the willingness of dealers to bid for the
security; (b) the number of dealers willing to purchase or sell
the obligation and the number of other potential buyers; (c) the
frequency of trades or quotes for the obligation; and (d) the
nature of marketplace trades. In addition, the Adviser will
consider factors unique to particular lease obligations and
certificates of participation affecting the marketability
thereof. These include the general creditworthiness of the
issuer, the importance of the property covered by the lease to
the issuer and the likelihood that the marketability of the
obligation will be maintained throughout the time the obligation
is held by the Funds.

The Funds may also purchase participations in Municipal
Obligations held by a commercial bank or other financial
institution. Such participations provide the Funds with the
right to a pro rata undivided interest in the underlying
Municipal Obligations. In addition, such participations
generally provide the Funds with the right to demand payment, on
not more than seven days notice, of all or any part of a Fund's
participation interest in the underlying Municipal Obligation,
plus accrued interest. These demand features will be taken into
consideration in determining the effective maturity of such
participations and the average portfolio duration of the Funds.
The Funds will only invest in such participations if, in the
opinion of bond counsel for the issuers or counsel selected by
the Adviser, the interest from such participations is exempt
from regular federal income tax.

Municipal Notes. Municipal Obligations purchased by the
Funds may include fixed rate notes or variable rate demand
notes. Such notes may not be rated by credit rating agencies,
but unrated notes purchased by the Funds will be determined by
the Adviser to be of comparable quality at the time of purchase
to rated instruments purchasable by the Funds. Where necessary
to determine that a note is an Eligible Security or First Tier
Eligible Security, the Funds will require the issuer's
obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or
commitment to lend. While there may be no active secondary
market with respect to a particular variable rate demand note
purchased by the Funds, the Funds may, upon notice specified in
the note, demand payment of the principal of the note at any
time or during specified periods not exceeding thirteen months,
depending upon the instrument involved, and may resell the note
at any time to a third party. The absence of such an active
secondary market, however, could make it difficult for the Funds
to dispose of a variable rate demand note if the issuer were to
default on its payment obligation or during periods that the
Funds are not entitled to exercise its demand rights, and the
Funds could, for this or other reasons, suffer losses to the
extent of the default.

Pre-Refunded Municipal Obligations. The Funds may invest
in pre-refunded Municipal Obligations. The principal of and
interest on pre-refunded Municipal Obligations are no longer
paid from the original revenue source for the Municipal
Obligations. Instead, the source of such payments is typically
an escrow fund consisting of obligations issued or guaranteed by
the U.S. ^ Government. The assets in the escrow fund are
derived from the proceeds of refunding bonds issued by the same
issuer as the pre-refunded Municipal Obligations, but usually on
terms more favorable to the issuer. Issuers of Municipal
Obligations use this advance refunding technique to obtain more
favorable terms with respect to Municipal Obligations which are
not yet subject to call or redemption by the issuer. For
example, advance refunding enables an issuer to refinance debt
at lower market interest rates, restructure debt to improve cash
flow or eliminate restrictive covenants in the indenture or
other governing instrument for the pre-refunded Municipal
Obligations. However, except for a change in the revenue source
from which principal and interest payments are made, the pre-
refunded Municipal Obligations remain outstanding on their
original terms until they mature or are redeemed by the issuer.
The effective maturity of pre-refunded Municipal Obligations
will be the redemption date if the issuer has assumed an
obligation or indicated its intention to redeem such obligations
on the redemption date. Pre-refunded Municipal Obligations are
often purchased at a price which represents a premium over their
face value.

Tender Option Bonds. The Funds may purchase tender option
bonds. A tender option bond is a Municipal Obligation
(generally held pursuant to a custodial arrangement) having a
relatively long maturity and bearing interest at a fixed rate
substantially higher than prevailing short-term tax-exempt
rates, that has been coupled with the agreement of a third
party, such as a bank, broker-dealer or other financial
institution, pursuant to which such institution grants the
security holders the option, at periodic intervals, to tender
their securities to the institution and receive the face value
thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the
difference between the municipal obligation's fixed coupon rate
and the rate, as determined by a remarketing or similar agent at
or near the commencement of such period, that would cause the
securities, coupled with the tender option, to trade at or near
par on the date of such determination. Thus, after payment of
this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax
exempt rate. The Adviser will consider on an ongoing basis the
creditworthiness of the issuer of the underlying municipal
obligation, of any custodian and of the third party provider of
the tender option. In certain instances and for certain tender
option bonds, the option may be terminable in the event of a
default in payment of principal or interest on the underlying
municipal obligations and for other reasons. Additionally, the
above description of tender option bonds is meant only to
provide an example of one possible structure of such
obligations, and the Funds may purchase tender option bonds with
different types of ownership, payment, credit and/or liquidity
arrangements.

Auction Rate Municipal Obligations. The Municipal
Obligations in which the Short Duration Municipal Fund may
invest include auction rate securities. Provided that the
auction mechanism is successful, auction rate securities usually
permit the holder to sell the securities in an auction at par
value at specified intervals. The interest rate is reset by
"Dutch" auction in which bids are made by broker-dealers and
other institutions for a certain amount of securities at a
specified minimum yield. The interest rate set by the auction
is the lowest interest or dividend rate that covers all
securities offered for sale. While this process is designed to
permit auction rate securities to be traded at par value, there
is the risk that the auction will fail due to insufficient
demand for the securities. The Fund will take the next
schedules auction date of auction rate securities into
consideration in determining the average portfolio duration of
the Fund and the effective maturity of individual auction rate
securities.

Inverse Floating Rate Instruments. Short Duration
Municipal Fund may invest in "leveraged" inverse floating rate
debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market
rate of interest to which the inverse floater is indexed. An
inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the
magnitude of the change in the index rate of interest. The
higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values.
Accordingly the duration of an inverse floater may exceed its
stated final maturity.

Futures Contracts and Options on Futures Contracts

To assist in reducing fluctuations in net asset value, the
Floating Rate U.S. Government Fund, Short Duration U.S.
Government Fund and Short Duration Municipal Fund may purchase
and sell futures contracts on U.S. Government securities and
Mortgage Securities and Eurodollar Securities in the case of
Floating Rate U.S. Government Fund and Short Duration U.S.
Government Fund, and Municipal Securities in the case of Short
Duration Municipal Fund, or purchase call and put options on
such futures contracts. The Funds will engage in futures and
related options transactions only for bona fide hedging
purposes. Although the use of hedging strategies is intended to
reduce a Fund's exposure to interest rate volatility, it may
cause fluctuations in net asset value. Unanticipated changes in
interest rates or securities prices may result in a poorer
overall performance for a Fund than if it had not entered into
any futures contracts or options transactions. The risks
associated with the use of futures contracts and options on
futures contracts include (1) the imperfect correlation between
the change in market value of the securities held by a Fund and
the prices of the futures and options, and (2) the possible
absence of a liquid secondary market for a futures contract or
option and the resulting inability to close a futures position
prior to its maturity date. See "Investment Objective and
Policies - Additional Information on Investment Practices -
Futures Contracts and Options on Futures Contracts" in the
Statement of Additional Information.

Short Sales

The Floating Rate U.S. Government Fund, Short Duration
U.S. Government Fund and Short Duration Municipal Fund may from
time to time make short sales of securities which are acceptable
investments of the Fund and are listed on a national securities
exchange. 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. When a Fund makes a short sale,
it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale in order to
satisfy its obligation to deliver the security upon conclusion
of the sale. 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. If the price of the security sold
short increases between the time of the short sale and the time
the Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a
capital gain. However, a 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, a Fund will place in a segregated account with the
Custodian an amount of cash, 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 Funds expect to make short sales
as a form of hedging to offset potential declines in securities
positions they hold. The Funds may also make short sales
"against the box". In a short sale "against the box," 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. See the Statement of Additional
Information for additional information on short sales.

Mortgage Securities

Floating Rate U.S. Government Fund and Short Duration U.S.
Government Fund may invest in the mortgage securities described
below. Each Fund may invest in a type of mortgage security
except where specifically noted.

Adjustable Rate Mortgage Securities ("ARMS"). ARMS are
pass-through mortgage securities with adjustable rather than
fixed interest rates. The ARMS in which the Funds invest 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 a 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 Funds 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 Funds are investment grade, as rated
by a NRSRO.

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"). Short
Duration U.S. Government 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 Adviser will seek to manage these risks (and
potential benefits) by investing in a variety of such securities
and by using certain hedging techniques.

Resets. The interest rates paid on the ARMS, CMOs and
REMICs in which the Funds invest 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 six-
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 Funds
invest 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 Funds invest
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.

Dollar Roll Transactions. In order to enhance portfolio
returns and manage prepayment risks, the Funds may engage in
dollar roll transactions with respect to mortgage securities
issued by GNMA, FNMA and FHLMC. In a dollar roll transaction, a
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. When a
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.

INVESTMENT LIMITATIONS

The Funds' investment objectives and policies described
above are not fundamental and may be changed by the Board of
Trustees without a vote of shareholders. If there is a change
in the investment objective of a Fund, shareholders should
consider whether the Fund remains an appropriate investment in
light of their then current financial position and needs. The
Funds' investment limitations described below may not be changed
without the affirmative vote of the holders of a majority of its
outstanding shares. There can be no assurance that the Funds
will achieve their investment objectives. (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 Objectives and Policies.")

The Funds may not:

1. Borrow money, except that a Fund may (i) borrow money
from banks for temporary or emergency purposes (not for
leveraging or investment) and (ii) in the case of Government
Obligations Money Market Fund, Treasury Instruments Money Market
Fund II, Cash Management Fund, Floating Rate U.S. Government
Fund, Short Duration U.S. Government Fund and Short Duration
Municipal Fund engage in reverse repurchase agreements; provided
that (i) and (ii) in combination do not exceed 10% with respect
to the Money Market Funds and one-third with respect to the Non-
Money Market Funds of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than
borrowings). Additional investments will not be made by the
Money Market Funds when borrowings exceed 5% of a Fund's assets.
The Money Market Funds also may not mortgage, pledge or
hypothecate any assets except in connection with any permitted
borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of the Fund's total
assets at the time of such borrowing.

Each Fund may, in the future, seek to its achieve
investment objective by investing all of its assets in a no-
load, open-end management investment company having the same
investment objective and policies and substantially the same
investment restrictions as those applicable to the Fund. In
such event, each Fund's investment advisory agreement would be
terminated. Such investment would be made only if the Trust's
Board of Trustees believes that the aggregate per share expenses
of each class of the Fund and such other investment company will
be less than or approximately equal to the expenses which each
class of the Fund would incur if the Fund were to continue to
retain the services of an investment adviser for the Fund and
the assets of the Fund were to continue to be invested directly
in portfolio securities.

PURCHASE AND REDEMPTION OF SHARES

To allow the Adviser to manage the Funds effectively,
investors are strongly urged to initiate all investments or
redemptions of Fund shares as early in the day as possible and
to notify Lehman Brothers at least one day in advance of
transactions in excess of $5 million.

Purchase Procedures

Shares of the Funds are sold at the net asset value per
share of the Fund next determined after receipt of a purchase
order by Lehman Brothers, the Distributor of the Fund's shares.
Purchase orders for shares are accepted only on days on which
both Lehman Brothers and the Federal Reserve Bank of Boston are
open for business and must be transmitted to Lehman Brothers, by
telephone at 1-800-851-3134 or through LEX. Orders for the
purchase of shares must be made according to the following
schedule.

Order
Received By*
Payment
Received By*

Effective*

Prime Money Market Fund,
Prime Value Money Market
Fund,
Government Obligations
Money Market Fund and
Treasury Instruments
Money Market Fund II
noon

3:00 P.M.

after 3:00
P.M.
noon

3:00 P.M.

4:00 P.M.
noon

3:00 P.M.

4:00 P.M.

100% Treasury Instruments
Money Market Fund
noon

1:00 P.M.

after 1:00
P.M.
noon

1:00 P.M.

4:00 P.M.
noon

1:00 P.M.

4:00 P.M.

Cash Management Fund**
noon

3:00 P.M.

5:00 P.M.
noon

3:00 P.M.

5:30 P.M.
noon

3:00 P.M.

5:00 P.M.

Municipal Money Market
Fund and Tax-Free Money
Market Fund
noon

after noon
noon

4:00 P.M.
noon

4:00 P.M.

Floating Rate U.S.
Government Fund,
Short Duration U.S.
Government Fund
and Short Duration
Municipal Fund
4:00 P.M.
3:00 P.M.
(next
business day)
4:00 P.M.

* All times stated are Eastern time.
** In order to receive same day acceptance of purchases in Cash
Management Fund after 3:00 P.M., Eastern time, investors must
telephone the Lehman Brothers Client Service Center at 1-800-
851-3134 before 5:00 P.M., Eastern time to place the trade and
obtain an order reference number for each trade. It is
necessary to obtain a new order reference number for each
investment in Cash Management Fund after 3:00 P.M., Eastern
time.

Payment for Money Market Fund shares may be made only in
federal funds immediately available to Boston Safe. (Payment
for orders which are not received or accepted by Lehman Brothers
will be returned after prompt inquiry to the sending
institution.) Payment for Non-Money Market Fund shares may be
made only in federal funds immediately available to Boston Safe
and must be received by Boston Safe before 3:00 P.M., Eastern
time, on the next business day following the order. A Fund may
in its discretion reject any order for shares.

The minimum aggregate initial investment by an institution
in the Funds is $1 million (with not less than $25,000 invested
in any one Fund); 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 subaccounting system offered by The Shareholder
Services Group, Inc. ("TSSG"), the Funds' Transfer Agent, to
minimize their internal record keeping requirements. The
Transfer Agent charges a fee based on the level of subaccounting
services rendered. Institutions holding Fund shares in a
fiduciary, agency, custodial or similar capacity may charge or
pass through subaccounting fees as part of or in addition to
normal trust or agency account fees. They may also charge fees
for other services provided which may be related to the
ownership of Fund shares. This Prospectus should, therefore, be
read together with any agreement between the customer and the
institution with regard to the services provided, the fees
charged for those services and any restrictions and limitations
imposed.

Redemption Procedures

Redemption orders must be transmitted to Lehman Brothers
by telephone at 1-800-851-3134 or through LEX on a day that both
Lehman Brothers and the Federal Reserve Bank of Boston are open
for business. Payment for redeemed shares will be made
according to the following schedule.

Order
Received
By*

Payment Made

Prime Money Market Fund,
Prime Value Money Market
Fund,
Government Obligations
Money Market Fund,
Treasury Instruments
Money Market Fund II and
Cash Management Fund
3:00 P.M.

after 3:00
P.M.
same business
day

next business
day

100% Treasury Instruments
Money Market Fund
1:00 P.M.

after 1:00
P.M.
same business
day

next business
day

Municipal Money Market
Fund and Tax-Free Money
Market Fund
noon

after noon
same business
day

next business
day

Floating Rate U.S.
Government Fund, Short
Duration U.S. Government
Fund and Short Duration
Municipal Fund
4:00 P.M.

after 4:00
P.M
next business
day

second
business day

*All times stated are Eastern time.

Shares are redeemed at the net asset value per share next
determined after Lehman Brothers' receipt of the redemption
order. While the Money Market Funds intend to use their best
efforts to maintain their net asset value per share at $1.00,
the proceeds paid to an investor upon redemption may be more or
less than the amount invested depending upon a share's net asset
value at the time of redemption.

The Funds reserve the right to wire redemption proceeds
within seven days after receiving the redemption order if, in
the judgment of the Adviser, an earlier payment could adversely
affect the Funds. The Funds shall have the right to redeem
involuntarily shares in any account at their net asset value if
the value of the account is less than $10,000 after 60 days'
prior written notice to the investor. Any such redemption shall
be effected at the net asset value per share next determined
after the redemption order is entered. If during the 60-day
period the investor increases the value of its account to
$10,000 or more, no such redemption shall take place. In
addition, the Funds may redeem shares involuntarily or suspend
the right of redemption as permitted under the Investment
Company Act of 1940, as amended (the "1940 Act"), or under
certain special circumstances described in the Statement of
Additional Information under "Additional Purchase and Redemption
Information."

The ability to give telephone instructions for the
redemption (and purchase or exchange) of shares is automatically
established on an investor's account. However, the Funds
reserve 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 Funds or Lehman Brothers. In addition,
neither the Funds, 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 Funds
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 Funds fail to use reasonable procedures to
verify the genuineness of telephone instructions, the Funds or
their service providers may be liable for such instructions that
prove to be fraudulent or unauthorized.

Exchange Procedures

The Exchange Privilege enables an investor to exchange
shares of a Fund without charge for shares of the same class of
other Funds which have different investment objectives that may
be of interest to investors. To use the Exchange Privilege,
exchange instructions must be given to Lehman Brothers by
telephone. See "Redemption Procedures." In exchanging shares,
an investor must meet the minimum initial investment requirement
of the other Fund and the shares involved must be legally
available for sale in the state where the investor resides.
Before any exchange, the investor must also obtain and should
review a copy of the prospectus of the Fund into which the
exchange is being made. Prospectuses may be obtained from
Lehman Brothers by calling 1-800-368-5556. Shares will be
exchanged at the net asset value next determined after receipt
of an exchange request in proper form. The exchange of shares
of one Fund for shares of another Fund is treated for federal
income tax purposes as a sale of the shares given in exchange by
the investor and, therefore, an investor may realize a taxable
gain or loss. The Funds reserve the right to reject any
exchange request in whole or in part. The Exchange Privilege
may be modified or terminated at any time upon notice to
investors.

Valuation of Shares-Net Asset Value

Each Fund's net asset value per share for purposes of
pricing purchase and redemption orders is determined by the
Fund's Administrator on each weekday, with the exception of
those holidays on which either Lehman Brothers or the Federal
Reserve Bank of Boston is closed, according to the following
schedule.

Net Asset
Value
Calculated*

Prime Money Market Fund,
Prime Value Money Market Fund,
Government Obligations Money
Market Fund,
and Treasury Instruments Money
Market Fund II
noon

3:00 P.M.

4:00 P.M.

100% Treasury Instruments
Money Market Fund
noon

1:00 P.M.

4:00 P.M.

Cash Management Fund
noon

3:00 P.M.

5:00 P.M.

Municipal Money Market Fund
and Tax-Free Money Market Fund
noon

4:00 P.M.

Floating Rate U.S. Government
Fund, Short Duration U.S.
Government Fund and Short
Duration Municipal Fund
4:00 P.M.

*All times stated are Eastern time.

Currently, one or both of Lehman Brothers and the Federal
Reserve Bank of Boston are closed on the customary national
business holidays of New Year's Day, Martin Luther King, Jr's.
Birthday (observed), Presidents' Day (Washington's Birthday),
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus
Day (observed), Veterans Day, Thanksgiving Day and Christmas
Day, and on the preceding Friday or subsequent Monday when one
of these holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of Fund shares is calculated
separately for each class by adding the value of all securities
and other assets of the Fund, subtracting class-specific
liabilities, and dividing the result by the total number of the
Fund's outstanding shares. In computing net asset value, each
Money Market Fund uses the amortized cost method of valuation as
described in the Statement of Additional Information under
"Additional Purchase and Redemption Information." A Fund's net
asset value per share for purposes of pricing purchase and
redemption orders is determined independently of the net asset
values of the shares of each other Fund.

Other Matters

Fund shares are sold and redeemed without charge by the
Funds. Institutional investors purchasing or holding Fund
shares for their customer accounts may charge customers fees for
cash management and other services provided in connection with
their accounts. A customer should, therefore, consider the
terms of its account with an institution before purchasing Fund
shares. An institution purchasing or redeeming Fund shares on
behalf of its customers is responsible for transmitting orders
to Lehman Brothers in accordance with its customer agreements.

DIVIDENDS

Investors of a Fund are entitled to dividends and
distributions arising only from the net investment income and
capital gains, if any, earned on investments held by that Fund.
Each 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 through the day before such shares
are redeemed. Dividends are paid monthly by wire transfer
within five business days after the end of the month or within
five business days after a redemption of all of an investor's
shares of a particular class. The Money Market Funds do not
expect to realize net long-term capital gains. The Non-Money
Market Funds will distribute net capital gains distributions, if
any, annually.

Dividends are determined in the same manner and are paid
in the same amount for each Fund share, except that shares of
other classes bear all the expenses associated with the specific
class.

Institutional investors may elect to have their dividends
reinvested in additional full and fractional shares of the same
class of shares with respect to which such dividends are
declared at the net asset value of such shares on the payment
date. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Such election, or any revocation
thereof, must be made in writing to the Fund's Distributor, 260
Franklin Street, 15th Floor, Boston, Massachusetts 02110-9624,
and will become effective after its receipt by Lehman Brothers,
with respect to dividends paid.

TSSG, as Transfer Agent, will send each investor or its
authorized representative an annual statement designating the
amount of any dividends and capital gains distributions, if any,
made during each year and their federal tax qualification.

TAXES

Each Fund which has commenced operations qualified in its
last taxable year and each Fund intends to qualify in future
years as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). A regulated
investment company is exempt from federal income tax on amounts
distributed to its investors.

Qualification as a regulated investment company under the
Code for a taxable year requires, among other things, that a
Fund distribute to its investors at least 90% of its investment
company taxable income for such year. In general, a 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. Each Fund
intends to distribute substantially all of its investment
company taxable income each year. Such distributions will be
taxable as ordinary income to Fund investors who are not
currently exempt from federal income taxes, whether such income
is received in cash or reinvested in additional shares. It is
anticipated that none of a Fund's distributions will be eligible
for the dividends received deduction for corporations. The
Money Market Funds do not expect to realize long-term capital
gains and, therefore, do not contemplate payment of any "capital
gain dividends" as described in the Code.

Dividends derived from exempt-interest income from Tax-
Free Money Market Fund, Municipal Money Market Fund and Short
Duration Municipal Fund may be treated by the Fund's investors
as items of interest excludable from their gross income under
Section 103(a) of the Code, unless under the circumstances
applicable to the particular investor the exclusion would be
disallowed.

Tax-Free Money Market Fund, Municipal Money Market Fund
and Short Duration Municipal Fund may hold without limit certain
private activity bonds issued after August 7, 1986. Investors
must include, as an item of tax preference, the portion of
dividends paid by the Fund that is attributable to interest on
such bonds in their federal alternative minimum taxable income
for purposes of determining liability (if any) for the 24%
alternative minimum tax applicable to individuals and the 20%
alternative minimum tax and the environmental tax applicable to
corporations. Corporate investors must also take all exempt-
interest dividends into account in determining certain
adjustments for federal alternative minimum and environmental
tax purposes. The environmental tax applicable to corporations
is imposed at the rate of .12% on the excess of the
corporation's modified federal alternative minimum taxable
income over $2,000,000. Investors receiving Social Security
benefits should note that all exempt-interest dividends will be
taken into account in determining the taxability of such
benefits.

To the extent, if any, dividends paid to investors by Tax-
Free Money Market Fund, Municipal Money Market Fund or Short
Duration Municipal Fund are derived from taxable income or from
long-term or short-term capital gains, such dividends will not
be exempt from federal income tax, whether such dividends are
paid in the form of cash or additional shares, and may also be
subject to state and local taxes.

The Non-Money Market Funds may engage in hedging involving
futures contracts, options on futures contracts and short sales.
See "Portfolio Instruments and Practices." Such transactions
will be subject to special provisions of the Code that, among
other things, may affect the character of gains and losses
realized by a Fund (that is, may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to a
Fund and defer recognition of certain of a Fund's losses. These
rules could therefore affect the character, amount and timing of
distributions to shareholders. In addition, these provisions
(1) will require a Fund to "mark-to-market" certain types of
positions in its portfolio (that is, treat them as if they were
closed out) and (2) may cause a Fund to recognize income without
receiving cash with which to pay dividends or make distributions
in amounts necessary to satisfy the distribution requirements
for avoiding income and excise taxes. The extent to which each
Fund may be able to use such hedging techniques and continue to
qualify as a regulated investment company may be limited by the
30% limitation discussed above. The Funds intend to monitor
their transactions, will make the appropriate tax elections and
will make the appropriate entries in their books and records
when they acquire any futures contract, option or hedged
investment in order to mitigate the effect of these rules and
prevent disqualification of the Funds as regulated investment
companies.

In addition to federal taxes, an investor may be subject
to state, local or foreign taxes on payments received from a
Fund. A state tax exemption may be available in some states to
the extent distributions of the Fund are derived from interest
on certain U.S. Government securities or on securities issued by
public authorities in the state. The Funds will provide
investors annually with information about federal income tax
consequences of distributions made each year. Investors should
be aware of the application of their state and local tax laws to
investments in the Funds.

Dividends declared in October, November or December of any
year payable to investors of record on a specified date in such
months will be deemed to have been received by the investors and
paid by the Fund on December 31 of such year in the event such
dividends are actually paid during January of the following
year.

Investors will be advised at least annually as to the
federal income tax status of distributions made to them each
year.

The foregoing discussion is only a brief summary of some
of the important federal tax considerations generally affecting
a Fund and its shareholders. No attempt is made to present a
detailed explanation of the federal, state or local income tax
treatment of a Fund or its investors, and this discussion is not
intended as a substitute for careful tax planning. Accordingly,
potential investors in the Funds should consult their tax
advisers with specific reference to their own tax situation.
See the Statement of Additional Information for a further
discussion of tax consequences of investing in shares of the
Funds.

MANAGEMENT OF THE FUNDS

The business and affairs of the Funds 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 Funds,
including agreements with its Distributor, Adviser,
Administrator and Transfer Agent, and Custodian. The day-to-day
operations of the Funds are delegated to the Funds' Adviser and
Administrator. The Statement of Additional Information contains
general background information regarding each Trustee and
executive officer of the Trust.

Distributor

Lehman Brothers, located at 3 World Financial Center, New
York, New York 10285, is the Distributor of each Fund's shares.
Lehman Brothers is a wholly-owned subsidiary of Lehman Brothers
Holdings Inc. ("Holdings"). As of December 31, 1994, FMR Corp.
beneficially owned approximately 12.3%, Nippon Life Insurance
Company beneficially owned approximately 8.7% and Heine
Securities Corporation beneficially owned approximately 5.1% of
the outstanding voting securities of Holdings. Lehman Brothers,
a leading full service investment firm, meets the diverse
financial needs of individuals, institutions and governments
around the world. Lehman Brothers has entered into a
Distribution Agreement with the Trust pursuant to which it has
the responsibility for distributing shares of the Funds.

The Trust has adopted a Plan of Distribution with respect
to Class A shares of the Funds pursuant to Rule 12b-1 under the
1940 Act. The Plan of Distribution does not provide for the
payment by the Funds of any Rule 12b-1 fees for distribution or
shareholder services for Class A shares but provides that Lehman
Brothers may make payments to assist in the distribution of
Class A shares out of the other fees received by it or its
affiliates from the Funds, its past profits or any other sources
available to it.

Investment Adviser - Lehman Brothers Global Asset Management
Inc.

Lehman Brothers Global Asset Management Inc. ("LBGAM" or
the "Adviser"), located at 3 World Financial Center, New York,
New York 10285, serves as each Fund's Investment Adviser. LBGAM
is a wholly owned subsidiary of Holdings. LBGAM, together with
other Lehman Brother investment advisory affiliates, serves as
investment adviser to investment companies and private accounts
and has assets under management of approximately $__ billion as
of April 30, 1995.

As Adviser to the Funds, LBGAM manages each Fund's
portfolio in accordance with its investment objective and
policies, makes investment decisions for the Funds, places
orders to purchase and sell securities and employs professional
portfolio managers and securities analysts who provide research
services to the Funds. For its services LBGAM is entitled to
receive a monthly fee from the Funds at the annual rate of .10%
of the value of the Fund's average daily net assets with respect
to the Money Market Funds and .30% of the value of the Fund's
average daily net assets with respect to the Non-Money Market
Funds.

Kirk D. Hartman, a Managing Director of LBGAM, is the
portfolio manager of Floating Rate U.S. Government Fund and
Short Duration U.S. Government Fund. Mr. Hartman is also Co-
Chairman of the Board and Trustee of the Trust. Mr. Hartman
joined LBGAM's Mortgage Department in 1987 and was Senior Vice
President of Mortgage Finance, responsible for RTC, FNMA and the
Scudder FNMA MBS Fund. Mr. Hartman is the portfolio manager
primarily responsible for managing the day-to-day operations of
the Funds, including making investment selections. Mr. Hartman
will be assisted by Andrew J. Stenwall, a Senior Vice President
of LBGAM, and Timothy Neumann, a Vice President of LBGAM.

Nicholas Rabiecki, III, a Vice President and Investment
Officer of the Trust, is the portfolio manager of Short Duration
Municipal Fund. Mr. Rabiecki, a Vice President and Senior
Portfolio Manager of LBGAM, joined LBGAM in July 1993 as
Portfolio Manager of the Tax-Free Money Market Funds.
Previously, Mr. Rabiecki was a Senior Fixed-Income Portfolio
Manager with Chase Private Banking where he was responsible for
the short and intermediate term tax-free investment strategy and
the management of the Vista Tax-Exempt Money Market Funds, as
well as the management of separately managed accounts. Mr.
Rabiecki is the portfolio manager primarily responsible for
managing the day-to-day operations of the Fund, including the
making of investment selections. Mr. Rabiecki will manage the
Fund as of commencement of operations.

Administrator and Transfer Agent - The Shareholder Services
Group, Inc.

The Shareholder Services Group, Inc. ("TSSG"), located at
One Exchange Place, 53 State Street, Boston, Massachusetts
02109, serves as each Fund's Administrator and Transfer Agent.
TSSG is a wholly owned subsidiary of First Data Corporation. As
Administrator, TSSG calculates the net asset value of each
Fund's shares and generally assists in all aspects of each
Fund's administration and operation. As compensation for TSSG's
services as Administrator, TSSG is entitled to receive from each
Fund a monthly fee at the annual rate of .10% of the value of
the Fund's average daily net assets. TSSG is also entitled to
receive a fee from the Funds for its services as Transfer Agent.
TSSG pays Boston Safe, each Fund's Custodian, a portion of its
monthly administration fee for custody services rendered to the
Funds.

On May 6, 1994, TSSG acquired the third party mutual fund
administration business of The Boston Company Advisors, Inc., an
indirect wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). In connection with the transaction, Mellon assigned
to TSSG its agreement with Lehman Brothers that Lehman Brothers
and its affiliates, consistent with their fiduciary duties and
assuming certain service quality standards are met, would
recommend TSSG as the provider of administration services to the
Funds. This duty to recommend expires on May 21, 2000.

Custodian - Boston Safe Deposit and Trust Company

Boston Safe Deposit and Trust Company ("Boston Safe"), a
wholly owned subsidiary of Mellon Bank Corporation, located at
One Boston Place, Boston, Massachusetts 02108, serves as each
Fund's Custodian. Under the terms of the Stock Purchase
Agreement dated September 14, 1992 between Mellon and Lehman
Brothers (then named Shearson Lehman Brothers Inc.), Lehman
Brothers agreed to recommend Boston Safe as Custodian of mutual
funds affiliated with Lehman Brothers until May 21, 2000 to the
extent consistent with its fiduciary duties and other applicable
law.

Expenses

Each Fund bears all its own expenses. A Fund's expenses
include taxes, interest, fees and salaries of the Trust's
trustees and officers who are not directors, officers or
employees of the Fund's service contractors, Securities and
Exchange Commission fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory
purposes and for distribution to investors, advisory and
administration fees, charges of the custodian, administrator,
transfer agent and dividend disbursing agent, Service
Organization fees, certain insurance premiums, outside auditing
and legal expenses, costs of shareholder reports and shareholder
meetings and any extraordinary expenses. Each 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, the Adviser and
Administrator have voluntarily agreed to waive fees to the
extent necessary to maintain an annualized expense ratio at a
level no greater than .18% of average daily net assets with
respect to the Money Market Funds and .40% with respect to the
Non-Money Market Funds. This voluntary reimbursement will not
be changed unless investors are provided at least 60 days'
advance notice. In addition, these service providers have
agreed to reimburse the Funds to the extent required by
applicable state law for certain expenses that are described in
the Statement of Additional Information. Any fees charged by
Service Organizations or other institutional investors to their
customers in connection with investments in Fund shares are not
reflected in a Fund's expenses.

PERFORMANCE AND YIELDS

From time to time, the "yields" and "effective yields"
with respect to all Funds, "tax-equivalent yields" with respect
to 100% Treasury Instruments Money Market Fund, Municipal Money
Market Fund and Tax-Free Money Market Fund and "total return"
with respect to the Non-Money Market Funds for the shares may be
quoted in advertisements or in reports to shareholders. Yield
and total return quotations are computed separately for each
Class of shares. 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
seven-day period) identified in the advertisement. This income
is then "annualized;" that is, the amount of income generated by
the investment during that period is assumed to be generated
each such period over a 52-week or one-year period and is shown
as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by
an investment in a particular class or sub-class is assumed to
be reinvested. The "effective yield" will be slightly higher
than the "yield" because of the compounding effect of this
assumed reinvestment. The "tax-equivalent yield" demonstrates
the level of taxable yield necessary to produce an after-tax
yield equivalent to the Fund's tax-free yield for each class or
sub-class of shares. It is calculated by increasing the yield
(calculated as above) by the amount necessary to reflect the
payment of federal taxes at a stated rate. The "tax-equivalent
yield" will always be higher than the "yield." "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.

Distribution rates may also be quoted for the Non-Money
Market Funds. 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.

A Fund's performance may be compared to those of other
mutual funds with similar objectives, to 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 Money Fund Report, The Wall Street
Journal and The New York Times, reports prepared by Lipper
Analytical Service, Inc. and publications of a local or regional
nature. A Non-Money Market Fund's Lipper ranking in its
appropriate category may also be quoted from time to time in
advertising and sales literature.

A Fund's yield figures for a Class of shares represent
past performance, will fluctuate and should not be considered as
representative of future results. The yield of any investment
is generally a function of portfolio quality and maturity, type
of investment and operating expenses. Any fees charged by
institutional investors directly to their customers in
connection with investments in Fund shares are not reflected in
a Fund's expenses or yields; and, such fees, if charged, would
reduce the actual return received by customers on their
investments. The methods used to compute a Fund's yields are
described in more detail in the Statement of Additional
Information. Investors may call 1-800-238-2560 to obtain
current yield information.

DESCRIPTION OF SHARES AND MISCELLANEOUS

The Trust is a Massachusetts business trust established on
November 25, 1992. The Trust's Declaration of Trust authorizes
the Board of Trustees to issue an unlimited number of full and
fractional shares of beneficial interest in the Trust and to
classify or reclassify any unissued shares into one or more
additional classes of shares. The Trust is an open-end
management investment company, which currently offers eleven
portfolios. The Trust has authorized the issuance of seven
classes of shares for Prime Value Money Market Fund, Government
Obligations Money Market Fund and Municipal Money Market Fund,
four classes of shares for Prime Money Market Fund, Cash
Management Fund, Treasury Instruments Money Market Fund II, 100%
Treasury Instruments Money Market Fund, Tax-Free Money Market
Fund, Floating Rate U.S. Government Fund and Short Duration U.S.
Government Fund and three classes of shares for Short Duration
Municipal Fund. The issuance of separate classes of shares is
intended to address the different service needs of different
types of investors. The Declaration of Trust further authorizes
the Trustees to classify or reclassify any class of shares into
one or more sub-classes.

The Trust does not presently intend to hold annual
meetings of shareholders except as required by the 1940 Act or
other applicable law. The Trust will call a meeting of
shareholders for the purpose of voting upon the question of
removal of a member of the Board of Trustees upon written
request of shareholders owning at least 10% of the outstanding
shares of the Trust entitled to vote.

Each Fund share represents an equal, proportionate
interest in the assets belonging to the Fund. Each share, which
has a par value of $.001, has no preemptive or conversion
rights. When issued for payment as described in this Prospectus,
Fund shares will be fully paid and non-assessable.

Holders of the Fund's shares will vote in the aggregate
and not by class on all matters, except where otherwise required
by law and except when the Board of Trustees determines that the
matter to be voted upon affects only the shareholders of a
particular class. Further, shareholders of the Funds will vote
in the aggregate and not by portfolio except as otherwise
required by law or when the Board of Trustees determines that
the matter to be voted upon affects only the interests of the
shareholders of a particular portfolio. (See the Statement of
Additional Information under "Additional Description Concerning
Fund Shares" for examples where the 1940 Act requires voting by
portfolio.) Shareholders of the Trust are entitled to one vote
for each full share held (irrespective of class or portfolio)
and fractional votes for fractional shares held. Voting rights
are not cumulative; and, accordingly, the holders of more than
50% of the aggregate shares of the Trust may elect all of the
trustees.

For information concerning the redemption of Fund shares
and possible restrictions on their transferability, see
"Purchase and Redemption of Shares."

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.

- 16 -

lehman/institut/peas/prospect/95coma.doc 03/23/95

PROSPECTUS

Lehman Brothers Institutional Funds Group Trust

One Exchange Place
Boston, Massachusetts 02109
For information call (800) 368-5556

Shares may not be purchased by individuals directly, but
institutional investors may purchase shares for accounts
maintained by individuals.

This Prospectus briefly sets forth certain information
about the Funds that investors should know before investing.
Investors are advised to read this Prospectus and retain it for
future reference. Additional information about the Funds,
contained in a Statement of Additional Information dated May
____, 1995, as amended or supplemented from time to time, has
been filed with the Securities and Exchange Commission and is
available to investors without charge by calling Lehman Brothers
at 1-800-368-5556. The Statement of Additional Information is
incorporated in its entirety by reference into this Prospectus.

The date of this Prospectus is May ____, 1995.

TABLE OF CONTENTS

Page

Summary of Investment Objectives

Background and Expense Information

Financial Highlights

Investment Objectives and Policies

Portfolio Instruments and Practices

Investment Restrictions

Purchase and Redemption of Shares

Dividends

Taxes

Management of the Funds

Performance and Yields

Description of Shares

SUMMARY OF INVESTMENT OBJECTIVES

The investment objectives of the Funds are summarized
below. See "Investment Objectives and Policies" beginning on
page __ for more detailed information.

Money Market Funds

Non-Money Market Funds

There is no assurance that the Funds will achieve their
respective objectives.

BACKGROUND AND EXPENSE INFORMATION

Each Money Market Fund currently offers four classes of
shares and each Non-Money Market Fund currently offers three
classes of shares, only one of which, Class B Shares, is offered
by this Prospectus. Each class represents an equal, pro rata
interest in a Fund. Each Fund's other classes of shares have
different sales charges and expenses than Class B Shares which
would affect the performance of those classes of shares.
Investors may obtain information concerning the Funds' other
classes by calling Lehman Brothers at 1-800-368-5556 or through
Lehman Brothers ExpressNET, an automated order entry system
designed specifically for the Funds ("LEX").

The purpose of the following table is to assist an
investor in understanding the various costs and expenses that an
investor in a Fund would bear directly or indirectly. Certain
institutions may also charge their clients fees in connection
with investments in Class B Shares, which fees are not reflected
in the table below. For more complete descriptions of the
various costs and expenses, see "Management of the Funds" in
this Prospectus and the Statement of Additional Information.

Expense Summary
Class B Shares

Prime
Money
Market
Fund

Prime
Value
Money
Market
Fund
Government
Obligation
s Money
Market
Fund

Cash
Management
Fund

Annual Operating Expenses*
(as a percentage of average net
assets)

Advisory Fees (net of waivers)

Rule 12b-1 fees
.25%
.25%
.25%
.25%

Other Expenses - including
Administration Fees

Total Fund Operating Expenses
(after waivers or expense
reimbursement)

Treasury
Instrument
s Money
Market
Fund II
100%
Treasury
Instrument
s Money
Market
Fund

Municipal
Money
Market
Fund

Tax-Free
Money
Market
Fund

Annual Operating Expenses*
(as a percentage of average net
assets)

Advisory Fees (net of waivers)

Rule 12b-1 fees
.25%
.25%
.25%
.25%

Other Expenses - including
Administration Fees

Total Fund Operating Expenses
(after waivers or expense
reimbursement)

Floating
Rate U.S.
Government
Fund
Short
Duration
U.S.
Government
Fund
Short
Duration
Municipal
Fund

Annual Operating Expenses*
(as a percentage of average net
assets)

Advisory Fees (net of waivers)

Rule 12b-1 fees
.25%
.25%
.25%

Other Expenses - including
Administration Fees

Total Fund Operating Expenses
(after waivers or expense
reimbursement)

In order to maintain a competitive expense ratio, the
Adviser and Administrator have voluntarily agreed to waive fees
to the extent necessary to maintain an annualized expense ratio
at a level no greater than .43% of average daily net assets with
respect to the Money Market Funds and .65% with respect to the
Non-Money Market Funds. The voluntary fee waiver and expense
reimbursement arrangements described above will not be changed
unless shareholders are provided at least 60 days' advance
notice. The maximum annual contractual fees payable to the
Adviser and Administrator total .20% of average daily net assets
with respect to the Money Market Funds and .40% of average daily
net assets with respect to the Non-Money Market Funds. Absent
fee waivers, the Total Fund Operating Expenses of Class B Shares
would have been as follows.

Money Market Funds
Percentage of
Average Daily Net
Assets

Prime Money Market Fund
.49%

Prime Value Money Market Fund
.49%

Government Obligations Money Market Fund
.50%

Cash Management Fund
.61%

Treasury Instruments Money Market Fund II
.50%

100% Treasury Instruments Money Market
Fund
.50%

Municipal Money Market Fund
.49%

Tax-Free Money Market Fund
.51%

Non-Money Market Funds

Floating Rate U.S. Government Fund
.80%

Short Duration U.S. Government Fund
.80%

Short Duration Municipal Fund
___%

___________________
Example: An investor would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return and (2)
redemption at the end of each time period with respect to the
Class B Shares:

Money Market Funds

1 Year
3 Years
5 Years
10 Years

Non-Money Market Funds

1 Year
3 Years
5 Years*
10 Years*

*The Short Duration Municipal Fund is a new portfolio which has
not commenced operations as of the date of this Prospectus and,
accordingly, 5 and 10 year information is not applicable.

THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF
ACTUAL EXPENSES AND RATES OF RETURN, WHICH MAY BE GREATER OR
LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS

The following financial highlights for the fiscal year
ended January 31, 1995, are derived from the Funds' Financial
Statements audited by Ernst & Young LLP, independent auditors,
whose report thereon appears in the Trust's Annual Report dated
January 31, 1995. This information should be read in conjunction
with the financial statements and notes thereto that also appear
in the Trust's Annual Report, which are incorporated by
reference into the Statement of Additional Information. Class B
Shares of the 100% Treasury Instruments Money Market Fund,
Municipal Money Market Fund and Floating Rate U.S. Government
Fund had not been offered to the public as of January 31, 1995
and, accordingly, no financial information is provided with
respect to such shares. Financial information with respect to
Class A Shares of such Funds is included in that Class'
prospectus and the Trust's Annual Report dated January 31, 1995,
which are available upon request. Financial information is not
provided with respect to the Short Duration Municipal Fund
because it has not commenced operations as of the date of this
Prospectus.

Money Market Funds

Prime Money Market
Fund
Prime Value Money
Market Fund

1/31/95
1/31/94*
1/31/95
1/31/94*

Net asset value, beginning of
period
$1.00
$1.00
$1.00
$1.00

Net investment income (1)
0.0417
0.0110
0.0417
0.0125

Dividends from net investment
income
(0.0147)
(0.0110)
(0.0417)
(0.0125)

Net asset value, end of period
$1.00
$1.00
$1.00
$1.00

Total return (2)
4.21%
0.99%
4.26%
1.26%

Ratios of average net
assets/supplemental data:

Net assets, end of period (in
000's)
$342,673
$350,666
$21,739
$17,504

Ratio of net investment income to
average net assets

4.05%

2.91%(3)

3.95%

2.98%(3)

Ratio of operating expenses to
average net assets (4)

0.37%

0.36%(3)

0.34%

0.32%(3)

* The Class B Shares commenced operations on September 2, 1993 with
respect to Prime Money Market Fund and September 1, 1993 with respect to
Prime Value Money Market Fund.
(1) Net investment income before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for the Class B Shares was
$0.0403 for the year ended January 31, 1995 and $0.0102 for the period
ended January 31, 1994 for the Prime Money Market Fund and $0.0398 for
the year ended January 31, 1995 and $0.0113 for the period ended January
31, 1994 for the Prime Value Money Market Fund.
(2) Total return represents aggregate total return for the periods
indicated.
(3) Annualized.
(4) Annualized expense ratios before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for Class B Shares were
0.50% for the year ended January 31, 1995 and 0.58% for the period ended
January 31, 1994 for the Prime Money Market Fund and 0.50% for the year
ended January 31, 1995 and 0.61% for the period ended January 31, 1994
for the Prime Value Money Market Fund.

Government
Obligations Money
Market Fund

Cash Management
Fund

1/31/95
1/31/94*
1/31/95*

Net asset value, beginning of
period
$1.00
$1.00
$1.00

Net investment income (1)
0.0410
0.0091
0.0001

Dividends from net investment
income
(0.0410)
(0.0091)
(0.0001)

Net asset value, end of period
$1.00
$1.00
$1.00

Total return (2)
4.19%
0.90%
-----(6)

Ratios of average net
assets/supplemental data:
$9,322
------(5)
-----(5)

Net assets, end of period (in
000's)

Ratio of net investment income to
average net assets

4.03%

2.93%(3)

3.27%

Ratio of operating expenses to
average net assets (4)

0.41%

0.28%(3)

0.42%

* The Class B Shares commenced operations on August 16, 1993 with
respect to the Government Obligations Money Market Fund and January 15,
1995 with respect to the Cash Management Fund.
(1) Net investment income before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for the Class B Shares was
$0.0394 for the year ended January 31, 1995 and $0.0075 for the period
ended January 31, 1994 for the Government Obligations Money Market Fund
and $0.0001 for the period ended January 31, 1995 for the Cash
Management Fund.
(2) Total return represents aggregate total return for the periods
indicated.
(3) Annualized.
(4) Annualized expense ratios before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for Class B Shares were
0.56% for the year ended January 31, 1995 and 0.78% for the period ended
January 31, 1994 for the Government Obligations Money Market Fund and
1.02% for the period ended January 31, 1995 for the Cash Management
Fund.
(5) Total net assets for Class B Shares were $100 at January 31, 1995.
(6) All Class B Shares of the Cash Management Fund offered to the
public on January 30, 1995 were redeemed on January 31, 1995; therefore
total return is not deemed to be meaningful.

Treasury
Instruments Money
Market Fund II

100% Treasury
Instruments Money
Market

1/31/95
1/31/94*
1/31/94*

Net asset value, beginning of
period
$1.00
$1.00
$1.00

Net investment income (1)
0.0399
0.0198
0.0149

Dividends from net investment
income
(0.0399)
(0.0198)
(0.0149)

Net asset value, end of period
$1.00
$1.00
$1.00

Total return (2)
4.05%
2.00%
1.55%

Ratios of average net
assets/supplemental data:
$27,242
$33,862
------(5)

Net assets, end of period (in
000's)

Ratio of net investment income to
average net assets

4.13%

2.87%(3)

2.78%(3)

Ratio of operating expenses to
average net assets (4)

0.37%

0.28%(3)

0.30%(3)

* The Class B Shares commenced operations on May 24, 1993 with
respect to the Treasury Instruments Money Market Fund II and May 2, 1993
with respect to the 100% Treasury Instruments Money Market Fund.
(1) Net investment income before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for the Class B Shares was
$0.0384 for the year ended January 31, 1995 and 0.0166 for the period
ended January 31, 1994 for the Treasury Instruments Money Market Fund II
and $0.0124 for the period ended January 31, 1994 for the 100% Treasury
Instruments Money Market Fund.
(2) Total return represents aggregate total return for the periods
indicated.
(3) Annualized.
(4) Annualized expense ratios before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for Class B Shares were
0.52% for the year ended January 31, 1995 and 0.74% for the period ended
January 31, 1994 for the Treasury Instruments Money Market Fund II and
0.76% for the period ended January 31, 1994 for the 100% Treasury
Instruments Money Market Fund.
(5) Total net assets for Class B Shares of the 100% Treasury
Instruments Money Market Fund were $100 at January 31, 1994.

Tax-Free Money
Market Fund

1/31/95*

Net asset value, beginning of
period
$1.00

Net investment income (1)
0.0263

Dividends from net investment
income
(0.0263)

Net asset value, end of period

Total return (2)
2.63%

Ratios of average net
assets/supplemental data:

Net assets, end of period (in
000's)
-----(4)

Ratio of net investment income to
average net assets

2.74%

Ratio of operating expenses to
average net assets (3)

0.15%

* The Class B Shares commenced operations on December 30, 1994.
(1) Net investment income before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for the Class B Shares was
$0.0242 for the year ended January 31, 1995.
(2) Total return represents aggregate total return for the period
indicated.
(3) Annualized expense ratio before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for Class B Shares was 0.63%
for the year ended January 31, 1995.
(4) Total net assets for the Class B Shares were $100 at January 31,
1995.

Non-Money Market Funds

Short Duration U.S.
Government Fund

1/31/95*

Net asset value, beginning of
period
$9.94

Net investment income (1)
0.30

Net realized and unrealized
losses on investments

(0.04)

Net increase in net assets
resulting
from investment operations

0.26

Dividends from net investment
income
(0.31)

Net asset value, end of period
$9.89

Total return (2)
2.72%

Ratios of average net
assets/supplemental data:

Net assets, end of period (in
000's)
$1,942

Ratio of net investment income to
average net assets (3)

5.18%

Ratio of operating expenses to
average net assets (3)(4)

0.35%

Portfolio turnover rate
112%

* The Class B Shares commenced operations on June 29, 1994.
(1) Net investment income before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for the Class B Shares was
$0.27 for the period ended January 31, 1995.
(2) Total return represents aggregate total return for the period
indicated.
(3) Annualized.
(4) Annualized expense ratio before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for Class B Shares was 0.96%
for the period ended January 31, 1995.

INVESTMENT OBJECTIVES AND POLICIES

Unless otherwise stated, the investment objectives and
policies set forth in this Prospectus are not fundamental and
may be changed by the Board of Trustees without shareholder
approval. If there is a change in the investment objective and
policies of any Fund, shareholders should consider whether the
Fund remains an appropriate investment in light of their then
current financial position and needs. The market value of
certain fixed-rate obligations held by the Funds will generally
vary inversely with changes in market interest rates. Thus, the
market value of these obligations generally declines when
interest rates rise and generally rises when interest rates
declines. The Funds are subject to additional investment
policies and restrictions described in the Statement of
Additional Information, some of which are fundamental and may
not be changed without shareholder approval.

Money Market Funds

Prime Value Money Market Fund will limit its portfolio
investments to securities that the Board of Trustees determines
present minimal credit risks and which are "Eligible Securities"
at the time of acquisition by the Fund. The term Eligible
Securities includes securities rated by the Requisite NRSROs in
one of the two highest short-term rating categories, securities
of issuers that have received such ratings with respect to other
short-term debt securities and comparable unrated securities.

Non-Money Market Funds

PORTFOLIO INSTRUMENTS AND PRACTICES

U.S. Government Obligations

Repurchase Agreements

Reverse Repurchase Agreements

Government Obligations Money Market Fund, Treasury
Instruments Money Market Fund II, Cash Management Fund, Floating
Rate U.S. Government Fund, Short Duration U.S. Government Fund
and Short Duration Municipal 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 Funds would sell portfolio
securities to financial institutions and agree to repurchase
them at an agreed upon date and price. The Funds would consider
entering into reverse repurchase agreements to avoid otherwise
selling securities during unfavorable market conditions.
Reverse repurchase agreements involve the risk that the market
value of the securities sold by the Funds may decline below the
price of the securities the Funds are obligated to repurchase.
Governemnt Obligations Money Market Fund, Treasury Instruments
Money Market Fund II and Cash Management Fund may engage in
reverse repurchase agreements provided that the amount of the
reverse repurchase agreements and any other borrowings does not
exceed 10% of the value of the Fund's total assets (including
the amount borrowed) less liabilities (other than borrowings).
The Non-Money Market Funds may engage in reverse repurchase
agreements provided that the amount of the reverse repurchase
agreements and any other borrowings does not exceed one-third of
the value of the Fund's total assets (including the amount
borrowed) less liabilities (other than borrowings).

When-Issued Securities

Illiquid Securities

Foreign Securities

Zero Coupon and Capital Appreciation Bonds

Lending of Portfolio Securities

Government Obligations Money Market Fund, Treasury
Instruments Money Market Fund II, Cash Management Fund, Floating
Rate U.S. Government Fund, Short Duration U.S. Government Fund
and Short Duration Municipal Fund may lend portfolio securities
up to one-third of the value of their total assets to
broker/dealers, banks or other institutional borrowers of
securities. The Funds will only enter into loan arrangements
with broker/dealers, banks or other institutions which the
Adviser has determined are creditworthy under guidelines
established by the Board of Trustees and will receive collateral
in the form of cash or U.S. Government securities equal to at
least 100% of the value of the securities owned.

Variable and Floating Rate Securities

The interest rates payable on certain securities in which
Prime Money Market Fund, Prime Value Money Market Fund,
Government Obligations Money Market Fund, Cash Management Fund,
Municipal Money Market Fund, Tax-Free Money Market Fund and
Short Duration Municipal Fund may invest are not fixed and may
fluctuate based upon changes in market rates. A variable rate
obligation has an interest rate which is adjusted at
predesignated periods. Interest on a floating rate obligation
is adjusted whenever there is a change in the market rate of
interest on which the interest rate payable is based. Tax-
Exempt variable or floating rate obligations generally permit
the holders of such obligations to demand payment of principal
from the issuer or a third party at stated intervals. Variable
and floating rate obligations are less effective than fixed rate
instruments at locking in a particular yield. Such obligations
may fluctuate in value in response to interest rate changes if
there is a delay between changes in market interest rates and
the interest reset date for the obligation. The Funds will take
demand or reset features into consideration in determining the
average portfolio duration of the Fund and the effective
maturity of individual Municipal Obligations. In addition, the
absence of an unconditional demand feature exercisable within
seven days will require a tax-exempt variable or floating rate
obligation to be treated as illiquid for purposes of a Fund's
limitation on illiquid investments. The failure of the issuer
or a third party to honor its obligations under a demand or put
feature might also require a tax-exempt variable or floating
rate obligation to be treated as illiquid for purposes of a
Fund's limitation on illiquid investments.

Tax-Exempt Commercial Paper

Municipal Obligations

Pre-Refunded Municipal Obligations. The Funds may invest
in pre-refunded Municipal Obligations. The principal of and
interest on pre-refunded Municipal Obligations are no longer
paid from the original revenue source for the Municipal
Obligations. Instead, the source of such payments is typically
an escrow fund consisting of obligations issued or guaranteed by
the U.S. Government. The assets in the escrow fund are derived
from the proceeds of refunding bonds issued by the same issuer
as the pre-refunded Municipal Obligations, but usually on terms
more favorable to the issuer. Issuers of Municipal Obligations
use this advance refunding technique to obtain more favorable
terms with respect to Municipal Obligations which are not yet
subject to call or redemption by the issuer. For example,
advance refunding enables an issuer to refinance debt at lower
market interest rates, restructure debt to improve cash flow or
eliminate restrictive covenants in the indenture or other
governing instrument for the pre-refunded Municipal Obligations.
However, except for a change in the revenue source from which
principal and interest payments are made, the pre-refunded
Municipal Obligations remain outstanding on their original terms
until they mature or are redeemed by the issuer. The effective
maturity of pre-refunded Municipal Obligations will be the
redemption date if the issuer has assumed an obligation or
indicated its intention to redeem such obligations on the
redemption date. Pre-refunded Municipal Obligations are often
purchased at a price which represents a premium over their face
value.

Futures Contracts and Options on Futures Contracts

Short Sales

Mortgage Securities

Resets. The interest rates paid on the ARMS, CMOs and
REMICs in which the Funds invest 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
six-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.

INVESTMENT LIMITATIONS

The Funds may not:

PURCHASE AND REDEMPTION OF SHARES

Purchase Procedures

Order
Received By*
Payment
Received By*

Effective*

Prime Money Market Fund,
Prime Value Money Market
Fund,
Government Obligations
Money Market Fund, and
Treasury Instruments
Money Market Fund II
noon

3:00 P.M.

after 3:00
P.M.
noon

3:00 P.M.

4:00 P.M.
noon

3:00 P.M.

4:00 P.M.

100% Treasury Instruments
Money Market Fund
noon

1:00 P.M.

after 1:00
P.M.
noon

1:00 P.M.

4:00 P.M.
noon

1:00 P.M.

4:00 P.M.

Cash Management Fund**
noon

3:00 P.M.

5:00 P.M.
noon

3:00 P.M.

5:30 P.M.
noon

3:00 P.M.

5:00 P.M.

Municipal Money Market
Fund and Tax-Free Money
Market Fund
noon

after noon
noon

4:00 P.M.
noon

4:00 P.M.

Floating Rate U.S.
Government Fund, Short
Duration U.S. Government
Fund and Short Duration
Municipal Fund
4:00 P.M.
3:00 P.M.
(next
business day)
4:00 P.M.

*All times stated are Eastern time.
**In order to receive same day acceptance of purchases in Cash
Management Fund after 3:00 P.M., Eastern time, investors must
telephone the Lehman Brothers Client Service Center at 1-800-
851-3134 before 5:00 P.M., Eastern time to place the trade and
obtain an order reference number for each trade. It is
necessary to obtain a new order reference number for each
investment in Cash Management Fund after 3:00 P.M., Eastern
time.

Payment for Money Market Fund shares may be made only in
federal funds immediately available to Boston Safe. (Payment
for orders which are not received or accepted by Lehman Brothers
will be returned after prompt inquiry to the sending
institution.) Payment for Non-Money Market Fund shares may be
made only in federal funds immediately available to Boston Safe
and must be received by Boston Safe before 3:00 P.M., Eastern
time on the next business day following the order. A Fund may
in its discretion reject any order for shares. Any person
entitled to receive compensation for selling or servicing shares
of the Funds may receive different compensation for selling or
servicing one Class of shares over another Class.

Conflicts of interest restrictions may apply to an
institution's receipt of compensation paid by the Funds on
fiduciary funds that are invested in Class B Shares. See also
"Management of the Funds - Services Organizations."
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, are urged to consult their
legal advisers before investing fiduciary funds in Class B
Shares.

Redemption Procedures

Order
Received
By*

Payment Made

Prime Money Market Fund,
Prime Value Money Market
Fund,
Government Obligations
Money Market Fund,
Treasury Instruments
Money Market Fund II and
Cash Management Fund
3:00 P.M.

after 3:00
P.M.
same business
day

next business
day

100% Treasury Instruments
Money Market Fund
1:00 P.M.

after 1:00
P.M.
same business
day

next business
day

Municipal Money Market
Fund and Tax-Free Money
Market Fund
noon

after noon
same business
day

next business
day

Floating Rate U.S.
Government Fund, Short
Duration U.S. Government
Fund and Short Duration
Municipal Fund
4:00 P.M.

after 4:00
P.M
next business
day

second
business day

*All times stated are Eastern time.

Exchange Procedures

Valuation of Shares-Net Asset Value

Net Asset
Value
Calculated*

Prime Money Market Fund,
Prime Value Money Market Fund,
Government Obligations Money
Market Fund,
and Treasury Instruments Money
Market Fund II
noon

3:00 P.M.

4:00 P.M.

100% Treasury Instruments
Money Market Fund
noon

1:00 P.M.

4:00 P.M.

Cash Management Fund
noon

3:00 P.M.

5:00 P.M.

Municipal Money Market Fund
and
Tax-Free Money Market Fund
noon

4:00 P.M.

Floating Rate U.S. Government
Fund,
Short Duration U.S. Government
Fund and Short Duration
Municipal Fund
4:00 P.M.

*All times stated are Eastern time.

Other Matters

DIVIDENDS

Investors of a Fund are entitled to dividends and
distributions arising only from the net investment income and
capital gains, if any, earned on investments held by that Fund.
Each 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 a purchase order and
continue to accrue dividends through the day before such shares
are redeemed. Dividends are paid monthly by wire transfer
within five business days after the end of the month or within
five business days after a redemption of all of an investor's
shares of a particular class. The Money Market Funds do not
expect to realize net long-term capital gains. The Non-Money
Market Funds will distribute net capital gains distributions, if
any, annually.

Dividends are determined in the same manner and are paid
in the same amount for each Fund share, except that Class B
Shares and certain other classes bear all the expenses
associated with the specific class.

TAXES

The Non-Money Market Funds may engage in hedging involving
futures contracts, options on futures contracts and short sales.
See "Portfolio Instruments and Practices." Such transactions
will be subject to special provisions of the Code that, among
other things, may affect the character of gains and losses
realized by a Fund (that is, may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to a
Fund and defer recognition of certain of a Fund's losses. These
rules could therefore affect the character, amount and timing of
distributions to shareholders. In addition, these provisions
(1) will require a Fund to "mark-to-market" certain types of
positions in its portfolio (that is, treat them as if they were
closed out) and (2) may cause a Fund to recognize income without
receiving cash with which to pay dividends or make distributions
in amounts necessary to satisfy the distribution requirements
for avoiding income and excise taxes. The extent to which each
Fund may be able to use such hedging techniques and continue to
qualify as a regulated investment company may be limited by the
30% limitation discussed above. The Funds intends to monitor
their transactions, will make the appropriate tax elections and
will make the appropriate entries in their books and records
when they acquire any futures contract, option or hedged
investment in order to mitigate the effect of these rules and
prevent disqualification of the Funds as regulated investment
companies.

Investors will be advised at least annually as to the
federal income tax status of distributions made to them each
year.

MANAGEMENT OF THE FUNDS

Distributor

Investment Adviser - Lehman Brothers Global Asset Management
Inc.

Administrator and Transfer Agent - The Shareholder Services
Group, Inc.

Custodian - Boston Safe Deposit and Trust Company

Boston Safe Deposit and Trust Company ("Boston Safe"), a
wholly owned subsidiary of Mellon Bank Corporation, located at
One Boston Place, Boston, Massachusetts 02108, serves as each
Fund's Custodian. In addition, Under the terms of the Stock
Purchase Agreement dated September 14, 1992 between Mellon and
Lehman Brothers (then named Shearson Lehman Brothers Inc.),
Lehman Brothers agreed to recommend Boston Safe as Custodian of
mutual funds affiliated with Lehman Brothers until May 21, 2000
to the extent consistent with its fiduciary duties and other
applicable law.

Service Organizations

Under a Plan of Distribution (the "Plan") adopted pursuant
to Rule 12b-1 under the 1940 Act, Class B Shares bear fees
("Rule 12b-1 fees") payable by the Funds at the aggregate rate
of up to .25% (on an annualized basis) of the average daily net
asset value of such shares to Lehman Brothers for providing
certain services to the Funds and holders of Class B 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 .25% 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 Funds 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 also allows Lehman Brothers to use its own
resources to provide distribution services and shareholder
services. Under the terms of related 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 Class B Shares.

Expenses

Each Fund bears all its own expenses. A Fund's expenses
include taxes, interest, fees and salaries of the Trust's
trustees and officers who are not directors, officers or
employees of the Fund's service contractors, Securities and
Exchange Commission fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory
purposes and for distribution to investors, advisory,
administration and distribution fees, charges of the custodian,
administrator, transfer agent and dividend disbursing agent,
Service Organization fees, certain insurance premiums, outside
auditing and legal expenses, costs of shareholder reports and
shareholder meetings and any extraordinary expenses. Each 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, the Adviser
and Administrator have voluntarily agreed to waive fees to the
extent necessary to maintain an annualized expense ratio at a
level no greater than .33% of average daily net assets with
respect to the Money Market Funds and .65% with respect to the
Non-Money Market Funds. This voluntary reimbursement will not
be changed unless investors are provided at least 60 days'
advance notice. In addition, these service providers have
agreed to reimburse the Funds to the extent required by
applicable state law for certain expenses that are described in
the Statement of Additional Information. Any fees charged by
Service Organizations or other institutional investors to their
customers in connection with investments in Fund shares are not
reflected in a Fund's expenses.

PERFORMANCE AND YIELDS

A Fund's yield figures for a Class of shares represent
past performance, will fluctuate and should not be considered as
representative of future results. The yield of any investment
is generally a function of portfolio quality and maturity, type
of investment and operating expenses. Any fees charged by
Service Organizations or other institutional investors directly
to their customers in connection with investments in Fund shares
are not reflected in a Fund's expenses or yields; and, such
fees, if charged, would reduce the actual return received by
customers on their investments. The methods used to compute a
Fund's yields are described in more detail in the Statement of
Additional Information. Investors may call 1-800-238-2560 to
obtain current yield information.

DESCRIPTION OF SHARES AND MISCELLANEOUS

For information concerning the redemption of Fund shares
and possible restrictions on their transferability, see
"Purchase and Redemption of Shares."

- 38 -

lehman/institut/peas/prospect/95comb.doc draft date: 03/23/95

PROSPECTUS

Lehman Brothers Institutional Funds Group Trust

One Exchange Place
Boston, Massachusetts 02109
For information call (800) 368-5556

Lehman Brothers Institutional Funds Group Trust (the
"Trust") is an open-end, management investment company that
currently offers a selection of eleven diversified investment
portfolios, eight of which are described in this Prospectus
(individually, a "Fund" and collectively, the "Funds" or the
"Money Market Funds"). This Prospectus describes one class of
shares ("Class C Shares") of the following investment
portfolios.

Shares may not be purchased by individuals directly, but
institutional investors may purchase shares for accounts
maintained by individuals.

Shares of the Funds involve certain investment risks,
including the possible loss of principal. An investment in a
Fund is neither insured nor guaranteed by the U.S. Government.
Although the Money Market Funds seek to maintain a stable net
asset value of $1.00 per share, there can be no assurance that
they will continue to do so. Shares of the Money Market Funds
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.

The date of this Prospectus is May __, 1995.

TABLE OF CONTENTS

Page

Summary of Investment Objectives

Background and Expense Information

Financial Highlights

Investment Objectives and Policies

Portfolio Instruments and Practices

Investment Restrictions

Purchase and Redemption of Shares

Dividends

Taxes

Management of the Funds

Performance and Yields

Description of Shares

SUMMARY OF INVESTMENT OBJECTIVES

The investment objectives of the Funds are summarized
below. See "Investment Objectives and Policies" beginning on
page __ for more detailed information.

There is no assurance that the Funds will achieve their
respective objectives.

BACKGROUND AND EXPENSE INFORMATION

Each Money Market Fund currently offers four classes of
shares, only one of which, Class C Shares, is offered by this
Prospectus. Each class represents an equal, pro rata interest
in a Fund. Each Fund's other classes of shares have different
sales charges and expenses than Class C Shares which would
affect the performance of those classes of shares. Investors
may obtain information concerning the Funds' other classes of
shares by calling Lehman Brothers at 1-800-368-5556 or through
Lehman Brothers ExpressNET, an automated order entry system
specifically designed for the Funds ("LEX").

The purpose of the following table is to assist an
investor in understanding the various costs and expenses that an
investor in a Fund would bear directly or indirectly. Certain
institutions may also charge their clients fees in connection
with investments in Class C Shares, which fees are not reflected
in the table below. For more complete descriptions of the
various costs and expenses, see "Management of the Funds" in
this Prospectus and the Statement of Additional Information.

Expense Summary
Class C Shares

Prime
Money
Market
Fund

Prime
Value
Money
Market
Fund
Government
Obligation
s Money
Market
Fund

Cash
Management
Fund

Annual Operating Expenses*
(as a percentage of average net
assets)

Advisory Fees (net of waivers)

Rule 12b-1 fees
.35%
.35%
.35%
.35%

Other Expenses - including
Administration Fees

Total Fund Operating Expenses
(after waivers or expense
reimbursement)

Treasury
Instrument
s Money
Market
Fund II
100%
Treasury
Instrument
s Money
Market
Fund

Municipal
Money
Market
Fund

Tax-Free
Money
Market
Fund

Annual Operating Expenses*
(as a percentage of average net
assets)

Advisory Fees (net of waivers)

Rule 12b-1 fees
.35%
.35%
.35%
.35%

Other Expenses - including
Administration Fees

Total Fund Operating Expenses
(after waivers or expense
reimbursement)

In order to maintain a competitive expense ratio, the
Adviser and Administrator have voluntarily agreed to waive fees
to the extent necessary to maintain an annualized expense ratio
at a level no greater than .53% of average daily net assets with
respect to the Money Market Funds. The voluntary fee waiver and
expense reimbursement arrangements described above will not be
changed unless shareholders are provided at least 60 days'
advance notice. The maximum annual contractual fees payable to
the Adviser and Administrator total .20% of average daily net
assets with respect to the Money Market Funds. Absent fee
waivers, the Total Fund Operating Expenses of Class C Shares
would have been as follows.

Percentage of
Average Daily Net
Assets

Prime Money Market Fund
.59%

Prime Value Money Market Fund
.59%

Government Obligations Money Market Fund
.60%

Cash Management Fund
.71%

Treasury Instruments Money Market Fund II
.60%

100% Treasury Instruments Money Market
Fund
.60%

Municipal Money Market Fund
.59%

Tax-Free Money Market Fund
.61%

__________________
Example: An investor would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return and (2)
redemption at the end of each time period with respect to the
Class C Shares:

1 Year
3 Years
5 Years
10 Years

THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF
ACTUAL EXPENSES AND RATES OF RETURN, WHICH MAY BE GREATER OR
LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS

The following financial highlights for the fiscal year ended
January 31, 1995, are derived
from the Funds' Financial Statements audited by Ernst & Young
LLP, independent auditors, whose
report thereon appears in the Trust's Annual Report
dated January 31, 1995. This information
should be read in conjunction with the financial statements
and notes thereto that also appear in the
Trust's Annual Report, which are incorporated by reference
into the Statement of Additional
Information. Class C Shares of the Money Market Funds,
other than Prime Money Market Fund
and Cash Management Fund, had not been offered to the
public as of January 31, 1995 and,
accordingly, no financial information is provided with
respect to such shares. Financial
information with respect to Class A Shares of such Funds
is included in that Class' prospectus and
the Trust's Annual Report dated January 31, 1995,
which are available upon request.

Prime Money Market
Fund
Cash Management
Fund

1/31/95
1/31/94*
1/31/95*

Net asset value, beginning of
period
$1.00
$1.00
$1.00

Net investment income (1)
0.0407
0.0001
0.0001

Dividends from net investment
income
(0.0407)
(0.0001)
(0.0001)

Net asset value, end of period
$1.00
$1.00
$1.00

Total return (2)
4.07%
------
(5)
0.01%

Ratios of average net
assets/supplemental data:

Net assets, end of period (in
000's)
$7,245
------(6)
$200

Ratio of net investment income to
average net assets

3.95%

2.81%(3)

3.17%

Ratio of operating expenses to
average net assets (4)

0.47%

0.46%(3)

0.52%

* The Class C Shares commenced operations on December 27, 1993 with
respect to Prime Money Market Fund and January 31, 1995 with respect to
Cash Management Fund.
(1) Net investment income before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for the Class C Shares was
$0.0393 for the year ended January 31, 1995 and $0.0001 for the period
ended January 31, 1994 for the Prime Money Market Fund and $0.0001 for
the period ended January 31, 1995 for the Cash Management Fund.
(2) Total return represents aggregate total return for the periods
indicated.
(3) Annualized.
(4) Annualized expense ratios before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for Class C Shares were
0.60% for the year ended January 31, 1995 and 0.68% for the period ended
January 31, 1994 for the Prime Money Market Fund and 1.12% for the
period ended January 31, 1995 for the Cash Management Fund.
(5) All Class C Shares of the Prime Money Market Fund offered to the
public on December 27, 1993 were redeemed on December 28, 1993;
therefore, total return deemed not to be meaningful.
(6) Total net assets for Class C Shares of the Prime Money Market Fund
were $100 at January 31, 1994.

INVESTMENT OBJECTIVES AND POLICIES

Unless otherwise stated, the investment objectives and
policies set forth in this Prospectus are not fundamental and
may be changed by the Board of Trustees without shareholder
approval. If there is a change in the investment objective and
policies of any Fund, shareholders should consider whether the
Fund remains an appropriate investment in light of their then
current financial position and needs. The market value of
certain fixed-rate obligations held be the Funds will generally
vary inversely with changes in market interest rates. Thus, the
market value of these obligations generally declines when
interest rates rise and generally rises when interest rates
decline. The Funds are subject to additional investment
policies and restrictions described in the Statement of
Additional Information, some of which are fundamental and may
not be changed without shareholder approval.

Prime Value Money Market Fund will limit its portfolio
investments to securities that the Board of Trustees determines
present minimal credit risks and which are "Eligible Securities"
at the time of acquisition by the Fund. The term Eligible
Securities includes securities rated by the Requisite NRSROs in
one of the two highest short-term rating categories, securities
of issuers that have received such ratings with respect to other
short-term debt securities and comparable unrated securities.

PORTFOLIO INSTRUMENTS AND PRACTICES

U.S. Government Obligations

Repurchase Agreements

The Funds (other than 100% Treasury Instruments Money
Market Fund, Municipal Money Market Fund and Tax-Free Money
Market Fund) may agree to purchase securities from financial
institutions subject to the seller's agreement to repurchase
them at an agreed upon time and price within one year from the
date of acquisition ("repurchase agreements"). Funds which may
enter into repurchase agreements will not invest more than 10%
of the value of their net assets in repurchase agreements with
terms which exceed seven days. The seller under a repurchase
agreement will be required to maintain the value of the
securities subject to the agreement at not less than the
repurchase price (including accrued interest). Default by or
bankruptcy of the seller would, however, expose the Funds to
possible loss because of adverse market action or delay in
connection with the disposition of the underlying obligations.

Reverse Repurchase Agreements

Government Obligations Money Market Fund, Treasury
Instruments Money Market Fund II and Cash Management 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
Funds would sell portfolio securities to financial institutions
and agree to repurchase them at an agreed upon date and price.
The Funds would consider entering into reverse repurchase
agreements to avoid otherwise selling securities during
unfavorable market conditions. Reverse repurchase agreements
involve the risk that the market value of the securities sold by
the Funds may decline below the price of the securities the
Funds are obligated to repurchase. The Funds may engage in
reverse repurchase agreements provided that the amount of the
reverse repurchase agreements and any other borrowings does not
exceed 10% of the value of the Fund's total assets (including
the amount borrowed) less liabilities (other than borrowings).

When-Issued Securities

Illiquid Securities

Prime Money Market Fund, Prime Value Money Market Fund,
Municipal Money Market Fund and Tax-Free Money Market Fund will
not knowingly invest more than 10% of the value of their 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). Each of the
Funds 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"). Each of the Funds 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 Funds who agree
that they are purchasing the paper for investment and not with a
view to public distribution. Any resale by the purchaser must
be in an exempt transaction. Section 4(2) paper is normally
resold to other institutional investors like the Fund through or
with the assistance of the issuer or investment dealers who make
a market in the Section 4(2) paper, thus providing liquidity.
Rule 144A securities generally must be sold to other qualified
institutional buyers. If a particular investment in Section
4(2) paper or Rule 144A securities is not determined to be
liquid, that investment will be included within the percentage
limitation on investment in illiquid securities.

Foreign Securities

Zero Coupon and Capital Appreciation Bonds

Lending of Portfolio Securities

Government Obligations Money Market Fund, Treasury
Instruments Money Market Fund II and Cash Management Fund may
lend portfolio securities up to one-third of the value of their
total assets to broker/dealers, banks or other institutional
borrowers of securities. The Funds will only enter into loan
arrangements with broker/dealers, banks or other institutions
which the Adviser has determined are creditworthy under
guidelines established by the Board of Trustees and will receive
collateral in the form of cash or U.S. Government securities
equal to at least 100% of the value of the securities owned.

Variable and Floating Rate Securities

The interest rates payable on certain securities in which
Prime Money Market Fund, Prime Value Money Market Fund,
Government Obligations Money Market Fund, Cash Management Fund,
Municipal Money Market Fund and Tax-Free Money Market Fund may
invest are not fixed and may fluctuate based upon changes in
market rates. A variable rate obligation has an interest rate
which is adjusted at predesignated periods. Interest on a
floating rate obligation is adjusted whenever there is a change
in the market rate of interest on which the interest rate
payable is based. Tax-exempt variable or floating rate
obligations generally permit the holders of such obligations to
demand payment of principal from the issuer or a third party at
stated intervals. Variable and floating rate obligations are
less effective than fixed rate instruments at locking in a
particular yield. Such obligations may fluctuate in value in
response to interest rate changes if there is a delay between
changes in market interest rates and the interest reset date for
the obligation. The Funds will take demand or reset features
into consideration in determining the average portfolio duration
of the Fund and the effective maturity of individual Municipal
Obligations. In addition, the absence of an unconditional
demand feature exercisable within seven days will require a tax-
exempt variable or floating rate obligation to be treated as
illiquid for purposes of a Fund's limitation on illiquid
investments. The failure of the issuer or a third party to
honor its obligations under a demand or put feature might
require a tax-exempt variable or floating rate obligation to be
treated as illiquid for purposes of a Fund's limitation on
illiquid investments.

Tax-Exempt Commercial Paper

Municipal Money Market Fund and Tax-Free Money Market Fund
may invest in tax-exempt commercial paper. Issues of commercial
paper typically represent short-term, unsecured, negotiable
promissory notes. These obligations are issued by state and
local governments and their agencies to finance working capital
needs of municipalities or to provide interim construction
financing and are paid from general or specific revenues of
municipalities or are re-financed with long-term debt. In some
cases, tax-exempt commercial paper is backed by letters of
credit, lending agreements, note repurchase agreements or other
credit facility arrangements offered by banks or other
institutions. The Funds will invest only in tax-exempt
commercial paper rated at least Prime-2 by Moody's or A-2 by
S&P.

Municipal Obligations

Municipal Money Market Fund and Tax-Free Money Market Fund
may invest in the Municipal Obligations described below. Each
Fund may invest in a type of Municipal Obligation except where
specifically noted.

Pre-Refunded Municipal Obligations. The Funds may invest
in pre-refunded Municipal Obligations. The principal of and
interest on pre-refunded Municipal Obligations are no longer
paid from the original revenue source for the Municipal
Obligations. Instead, the source of such payments is typically
an escrow fund consisting of obligations issued or guaranteed by
the U.S. Government. The assets in the escrow fund are derived
from the proceeds of refunding bonds issued by the same issuer
as the pre-refunded Municipal Obligations, but usually on terms
more favorable to the issuer. Issuers of Municipal Obligations
use this advance refunding technique to obtain more favorable
terms with respect to Municipal Obligations which are not yet
subject to call or redemption by the issuer. For example,
advance refunding enables an issuer to refinance debt at lower
market interest rates, restructure debt to improve cash flow or
eliminate restrictive covenants in the indenture or other
governing instrument for the pre-refunded Municipal Obligations.
However, except for a change in the revenue source from which
principal and interest payments are made, the pre-refunded
Municipal Obligations remain outstanding on their original terms
until they mature or are redeemed by the issuer. The effective
maturity of pre-refunded Municipal Obligations will be the
redemption date if the issuer has assumed an obligation or
indicated its intention to redeem such obligations on the
redemption date. Pre-refunded Municipal Obligations are often
purchased at a price which represents a premium over their face
value.

INVESTMENT LIMITATIONS

The Funds may not:

1. Borrow money, except that a Fund may (i) borrow money
from banks for temporary or emergency purposes (not for
leveraging or investment) and (ii) in the case of Government
Obligations Money Market Fund, Treasury Instruments Money Market
Fund II and Cash Management Fund engage in reverse repurchase
agreements; provided that (i) and (ii) in combination do not
exceed 10% of the value of the Fund's total assets (including
the amount borrowed) less liabilities (other than borrowings).
Additional investments will not be made by the Funds when
borrowings exceed 5% of a Fund's assets. The Funds also may not
mortgage, pledge or hypothecate any assets except in connection
with any permitted borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the
Fund's total assets at the time of such borrowing.

PURCHASE AND REDEMPTION OF SHARES

Purchase Procedures

Order
Received By*
Payment
Received By*

Effective*

Prime Money Market Fund,
Prime Value Money Market
Fund,
Government Obligations
Money Market Fund, and
Treasury Instruments
Money Market Fund
noon

3:00 P.M.

after 3:00
P.M.
noon

3:00 P.M.

4:00 P.M.
noon

3:00 P.M.

4:00 P.M.

100% Treasury Instruments
Money Market Fund
noon

1:00 P.M.

after 1:00
P.M.
noon

1:00 P.M.

4:00 P.M.
noon

1:00 P.M.

4:00 P.M.

Cash Management Fund**
noon

3:00 P.M.

5:00 P.M.
noon

3:00 P.M.

5:30 P.M.
noon

3:00 P.M.

5:00 P.M.

Municipal Money Market
Fund and Tax-Free Money
Market Fund
noon

after noon
noon

4:00 P.M.
noon

4:00 P.M.

Conflicts of interest restrictions may apply to an
institution's receipt of compensation paid by the Funds on
fiduciary funds that are invested in Class C Shares. See also
"Management of the Funds - Services Organizations."
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, are urged to consult their
legal advisers before investing fiduciary funds in Class C
Shares.

Redemption Procedures

Order
Received
By*

Payment Made

Prime Money Market Fund,
Prime Value Money Market
Fund,
Government Obligations
Money Market Fund,
Treasury Instruments
Money Market Fund II and
Cash Management Fund
3:00 P.M.

after 3:00
P.M.
same business
day

next business
day

100% Treasury Instruments
Money Market Fund
1:00 P.M.

after 1:00
P.M.
same business
day

next business
day

Municipal Money Market
Fund and Tax-Free Money
Market Fund
noon

after noon
same business
day

next business
day

*All times stated are Eastern time.

Exchange Procedures

Valuation of Shares-Net Asset Value

Net Asset
Value
Calculated*

Prime Money Market Fund,
Prime Value Money Market Fund,
Government Obligations Money
Market Fund,
and Treasury Instruments Money
Market Fund II
noon

3:00 P.M.

4:00 P.M.

100% Treasury Instruments
Money Market Fund
noon

1:00 P.M.

4:00 P.M.

Cash Management Fund
noon

3:00 P.M.

5:00 P.M.

Municipal Money Market Fund
and
Tax-Free Money Market Fund
noon

4:00 P.M.

*All times stated are Eastern time.

Currently, one or both of Lehman Brothers and the Federal
Reserve Bank of Boston are closed on the customary national
business holidays of New Year's Day, Martin Luther King, Jr's.
Birthday (observed), Presidents' Day (Washington's Birthday),
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus
Day (observed), Veterans Day, Thanksgiving Day and Christmas
Day, and on the preceding Friday or subsequent Monday when one
of these holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of Fund shares is calculated
separately for each class by adding the value of all securities
and other assets of the Fund, subtracting class specific
liabilities, and dividing the result by the total number of the
Fund's outstanding shares. In computing net asset value, each
Fund uses the amortized cost method of valuation as described in
the Statement of Additional Information under "Additional
Purchase and Redemption Information." A Fund's net asset value
per share for purposes of pricing purchase and redemption orders
is determined independently of the net asset values of the
shares of each other Fund.

Other Matters

DIVIDENDS

Dividends are determined in the same manner and are paid
in the same amount for each Fund share, except that Class C
Shares and certain other classes bear all the expenses
associated with the specific class.

TAXES

Dividends derived from exempt-interest income from Tax-
Free Money Market Fund and Municipal Money Market Fund may be
treated by the Fund's investors as items of interest excludable
from their gross income under Section 103(a) of the Code, unless
under the circumstances applicable to the particular investor
the exclusion would be disallowed.

Tax-Free Money Market Fund and Municipal Money Market Fund
may hold without limit certain private activity bonds issued
after August 7, 1986. Investors must include, as an item of tax
preference, the portion of dividends paid by the Fund that is
attributable to interest on such bonds in their federal
alternative minimum taxable income for purposes of determining
liability (if any) for the 24% alternative minimum tax
applicable to individuals and the 20% alternative minimum tax
and the environmental tax applicable to corporations. Corporate
investors must also take all exempt-interest dividends into
account in determining certain adjustments for federal
alternative minimum and environmental tax purposes. The
environmental tax applicable to corporations is imposed at the
rate of .12% on the excess of the corporation's modified federal
alternative minimum taxable income over $2,000,000. Investors
receiving Social Security benefits should note that all exempt-
interest dividends will be taken into account in determining the
taxability of such benefits.

To the extent, if any, dividends paid to investors by Tax-
Free Money Market Fund or Municipal Money Market Fund are
derived from taxable income or from long-term or short-term
capital gains, such dividends will not be exempt from federal
income tax, whether such dividends are paid in the form of cash
or additional shares, and may also be subject to state and local
taxes.

Investors will be advised at least annually as to the
federal income tax status of distributions made to them each
year.

MANAGEMENT OF THE FUNDS

Distributor

Investment Adviser - Lehman Brothers Global Asset Management
Inc.

As Adviser to the Funds, LBGAM manages each Fund's
portfolio in accordance with its investment objective and
policies, makes investment decisions for the Funds, places
orders to purchase and sell securities and employs professional
portfolio managers and securities analysts who provide research
services to the Funds
. For its services LBGAM is entitled to receive a monthly fee
from the Funds at the annual rate of .10% of the value of the
Fund's average daily net assets with respect to the Money Market
Funds.

Administrator and Transfer Agent - The Shareholder Services
Group, Inc.

Custodian - Boston Safe Deposit and Trust Company

Service Organizations

Under a Plan of Distribution (the "Plan") adopted pursuant
to Rule 12b-1 under the 1940 Act, Class C Shares bear fees
("Rule 12b-1 fees") payable by the Funds 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 Funds and holders of Class C 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 Funds 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 also allows Lehman Brothers to use its own
resources to provide distribution services and shareholder
services. Under the terms of related 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 Class C Shares.

Expenses

Each Fund bears all its own expenses. A Fund's expenses
include taxes, interest, fees and salaries of the Trust's
trustees and officers who are not directors, officers or
employees of the Fund's service contractors, Securities and
Exchange Commission fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory
purposes and for distribution to investors, advisory,
administration and distribution fees, charges of the custodian,
administrator, transfer agent and dividend disbursing agent,
Service Organization fees, certain insurance premiums, outside
auditing and legal expenses, costs of shareholder reports and
shareholder meetings and any extraordinary expenses. Each 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, the Adviser
and Administrator have voluntarily agreed to waive fees to the
extent necessary to maintain an annualized expense ratio at a
level no greater than .53% of average daily net assets with
respect to the Money Market Funds. This voluntary reimbursement
will not be changed unless investors are provided at least 60
days' advance notice. In addition, these service providers have
agreed to reimburse the Funds to the extent required by
applicable state law for certain expenses that are described in
the Statement of Additional Information. Any fees charged by
Service Organizations or other institutional investors to their
customers in connection with investments in Fund shares are not
reflected in a Fund's expenses.

PERFORMANCE AND YIELDS

From time to time, the "yields" and "effective yields"
with respect to all Funds and "tax-equivalent yields" with
respect to 100% Treasury Instruments Money Market Fund,
Municipal Money Market Fund and Tax-Free Money Market Fund for
the shares may be quoted in advertisements or in reports to
shareholders. Yield and total return quotations are computed
separately for each Class of shares. 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 seven-day period) identified in the
advertisement. This income is then "annualized;" that is, the
amount of income generated by the investment during that period
is assumed to be generated each such period over a 52-week or
one-year period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in a particular
class or sub-class is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. The "tax-
equivalent yield" demonstrates the level of taxable yield
necessary to produce an after-tax yield equivalent to the Fund's
tax-free yield for each class or sub-class of shares. It is
calculated by increasing the yield (calculated as above) by the
amount necessary to reflect the payment of federal taxes at a
stated rate. The "tax-equivalent yield" will always be higher
than the "yield."

A Fund's yield figures for a Class of shares represent
past performance, will fluctuate and should not be considered as
representative of future results. The yield of any investment
is generally a function of portfolio quality and maturity, type
of investment and operating expenses. Any fees charged by
Service Organizations or other institutional investors directly
to their customers in connection with investments in Fund shares
are not reflected in a Fund's expenses or yields; and, such
fees, if charged, would reduce the actual return received by
customers on their investments. The methods used to compute a
Fund's yields are described in more detail in the Statement of
Additional Information. Investors may call 1-800-238-2560 to
obtain current yield information.

DESCRIPTION OF SHARES AND MISCELLANEOUS

For information concerning the redemption of Fund shares
and possible restrictions on their transferability, see
"Purchase and Redemption of Shares."

- 13 -

lehman/institut/peas/prospect/95comc.doc draft date:03/23/95

PROSPECTUS

Lehman Brothers Institutional Funds Group Trust

One Exchange Place
Boston, Massachusetts 02109
For information call (800) 368-5556

Lehman Brothers Institutional Funds Group Trust (the
"Trust") is an open-end, management investment company that
currently offers a selection of eleven diversified investment
portfolios, eight of which are described in this Prospectus
(individually, a "Fund" and collectively, the "Funds or the
"Money Market Funds"). This Prospectus describes one class of
shares ("Class E Shares") of the following investment
portfolios.

Shares may not be purchased by individuals directly, but
institutional investors may purchase shares for accounts
maintained by individuals.

Shares of the Funds involve certain investment risks,
including the possible loss of principal. An investment in a
Fund is neither insured nor guaranteed by the U.S. Government.
Although the Money Market Funds seek to maintain a stable net
asset value of $1.00 per share, there can be no assurance that
they will continue to do so. Shares of the Money Market Funds
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.

The date of this Prospectus is May __, 1995.

TABLE OF CONTENTS

Page

Summary of Investment Objectives

Background and Expense Information

Financial Highlights

Investment Objectives and Policies

Portfolio Instruments and Practices

Investment Restrictions

Purchase and Redemption of Shares

Dividends

Taxes

Management of the Funds

Performance and Yields

Description of Shares

SUMMARY OF INVESTMENT OBJECTIVES

The investment objectives of the Funds are summarized
below. See "Investment Objectives and Policies" beginning on
page __ for more detailed information.

There is no assurance that the Funds will achieve their
respective objectives.

BACKGROUND AND EXPENSE INFORMATION

Each Money Market Fund currently offers four classes of
shares, only one of which, Class E Shares, is offered by this
Prospectus. Each class represents an equal, pro rata interest
in a Fund. Each Fund's other classes of shares have different
sales charges and expenses than Class E Shares which would
affect the performance of those classes of shares. Investors
may obtain information concerning the Fund's other classes of
shares by calling Lehman Brothers at 1-800-568-5556 or through
Lehman Brothers ExpressNET, an automated order entry system
designed specifically for the Funds ("LEX").

The purpose of the following table is to assist an
investor in understanding the various costs and expenses that an
investor in a Fund would bear directly or indirectly. Certain
institutions may also charge their clients fees in connection
with investments in Class E Shares, which fees are not reflected
in the table below. For more complete descriptions of the
various costs and expenses, see "Management of the Funds" in
this Prospectus and the Statement of Additional Information.

Expense Summary
Class E Shares

Prime
Money
Market
Fund

Prime
Value
Money
Market
Fund
Government
Obligation
s Money
Market
Fund

Cash
Management
Fund

Annual Operating Expenses*
(as a percentage of average net
assets)

Advisory Fees (net of waivers)

Rule 12b-1 fees
.15%
.15%
.15%
.15%

Other Expenses - including
Administration Fees

Total Fund Operating Expenses
(after waivers or expense
reimbursement)

Treasury
Instrument
s Money
Market
Fund II
100%
Treasury
Instrument
s Money
Market
Fund

Municipal
Money
Market
Fund

Tax-Free
Money
Market
Fund

Annual Operating Expenses*
(as a percentage of average net
assets)

Advisory Fees (net of waivers)

Rule 12b-1 fees
.15%
.15%
.15%
.15%

Other Expenses - including
Administration Fees

Total Fund Operating Expenses
(after waivers or expense
reimbursement)

In order to maintain a competitive expense ratio, the
Adviser and Administrator have voluntarily agreed to waive fees
to the extent necessary to maintain an annualized expense ratio
at a level no greater than .33% of average daily net assets with
respect to the Money Market Funds. The voluntary fee waiver and
expense reimbursement arrangements described above will not be
changed unless shareholders are provided at least 60 days'
advance notice. The maximum annual contractual fees payable to
the Adviser and Administrator total .20% of average daily net
assets with respect to the Money Market Funds. Absent fee
waivers, the Total Fund Operating Expenses of Class E Shares
would have been as follows.

Percentage of
Average Daily Net
Assets

Prime Money Market Fund
.39%

Prime Value Money Market Fund
.39%

Government Obligations Money Market Fund
.40%

Cash Management Fund
.51%

Treasury Instruments Money Market Fund II
.40%

100% Treasury Instruments Money Market
Fund
.40%

Municipal Money Market Fund
.39%

Tax-Free Money Market Fund
.41%

___________________

Example: An investor would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return and (2)
redemption at the end of each time period with respect to the
Class E Shares:

1 Year
3 Years
5 Years
10 Years

THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF
ACTUAL EXPENSES AND RATES OF RETURN, WHICH MAY BE GREATER OR
LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS

The following financial highlights for the fiscal year ended
January 31, 1995, are derived
from the Funds' Financial Statements audited
by Ernst & Young, LLP, independent auditors,
whose report thereon appears in the Trust's
Annual Report dated January 31, 1995. This
information should be read in conjunction with
the financial statements and notes thereto that also
appear in the Trust's Annual Report,
which are incorporated by reference into the Statement of
Additional Information. Class E Shares of the
Money Market Funds, other than Prime Money
Market Fund, had not been offered to the
public as of January 31, 1995, and, accordingly, no
financial information is provided with respect
to such shares. Financial information with respect to
Class A Shares of such Funds is included
in that Class' prospectus and the Trust's Annual Report
dated January 31, 1995, which are available upon request.

Prime Money Market
Fund

1/31/95*

Net asset value, beginning of
period
$1.00

Net investment income (1)
0.281

Dividends from net investment
income
(0.281)

Net asset value, end of period
$1.00

Total return (2)
1.72%

Ratios of average net
assets/supplemental data:

Net assets, end of period (in
000's)
$8,318

Ratio of net investment income to
average net assets (3)

4.15%

Ratio of operating expenses to
average net assets (3)(4)

0.27%

* The Class E Shares commenced operations on October 6, 1994.
(1) Net investment income before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer Agent and/or expenses
reimbursed by the Adviser and Administrator for the Class E Shares was
$0.0272 for the period ended January 31, 1995.
(2) Total return represents aggregate total return for the period
indicated.
(3) Annualized.
(4) Annualized expense ratio before waiver of fees by the Adviser,
Administrator, Custodian and/or Transfer
Agent and/or expenses reimbursed by the Adviser and Administrator
for Class E Shares was 0.39% for
the period ended January 31, 1995.

INVESTMENT OBJECTIVES AND POLICIES

Prime Value Money Market Fund will limit its portfolio
investments to securities that the Board of Trustees determines
present minimal credit risks and which are "Eligible Securities"
at the time of acquisition by the Fund. The term Eligible
Securities includes securities rated by the Requisite NRSROs in
one of the two highest short-term rating categories, securities
of issuers that have received such ratings with respect to other
short-term debt securities and comparable unrated securities.

PORTFOLIO INSTRUMENTS AND PRACTICES

U.S. Government Obligations

Repurchase Agreements

The Funds (other than 100% Treasury Instruments Money
Market Fund, Municipal Money Market Fund and Tax-Free Money
Market Fund) may agree to purchase securities from financial
institutions subject to the seller's agreement to repurchase
them at an agreed upon time and price within one year from the
date of acquisition ("repurchase agreements"). Funds which may
enter into repurchase agreements will not invest more than 10%
of the value of their net assets in repurchase agreements with
terms which exceed seven days. The seller under a repurchase
agreement will be required to maintain the value of the
securities subject to the agreement at not less than the
repurchase price (including accrued interest). Default by or
bankruptcy of the seller would, however, expose the Funds to
possible loss because of adverse market action or delay in
connection with the disposition of the underlying obligations.

Reverse Repurchase Agreements

Government Obligations Money Market Fund, Treasury
Instruments Money Market Fund II and Cash Management 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
Funds would sell portfolio securities to financial institutions
and agree to repurchase them at an agreed upon date and price.
The Funds would consider entering into reverse repurchase
agreements to avoid otherwise selling securities during
unfavorable market conditions. Reverse repurchase agreements
involve the risk that the market value of the securities sold by
the Funds may decline below the price of the securities the
Funds are obligated to repurchase. The Funds may engage in
reverse repurchase agreements provided that the amount of the
reverse repurchase agreements and any other borrowings does not
exceed .10% of the value of the Fund's total assets (including
the amount borrowed) less liabilities (other than borrowings).

When-Issued Securities

Illiquid Securities

Foreign Securities

Zero Coupon and Capital Appreciation Bonds

Lending of Portfolio Securities

Variable and Floating Rate Securities

The interest rates payable on certain securities in which
Prime Money Market Fund, Prime Value Money Market Fund,
Government Obligations Money Market Fund, Cash Management Fund,
Municipal Money Market Fund and Tax-Free Money Market Fund may
invest are not fixed and may fluctuate based upon changes in
market rates. A variable rate obligation has an interest rate
which is adjusted at predesignated periods. Interest on a
floating rate obligation is adjusted whenever there is a change
in the market rate of interest on which the interest rate
payable is based. Tax-exempt variable or floating rate
obligations generally permit the holders of such obligations to
demand payment of principal from the issuer or a third party at
stated intervals. Variable and floating rate obligations are
less effective than fixed rate instruments at locking in a
particular yield. Such obligations may fluctuate in value in
response to interest rate changes if there is a delay between
changes in market interest rates and the interest reset date for
the obligation. The Funds will take demand or reset features
into consideration in determining the average portfolio duration
of the Fund and the effective maturity of individual Municipal
Obligations. In addition, the absence of an unconditional
demand feature exercisable within seven days will require a tax-
exempt variable or floating rate obligation to be treated as
illiquid for purposes of a Fund's limitation on illiquid
investments. The failure of the issuer or a third party to
honor its obligations under a demand or put feature might also
require a tax-exempt variable or floating rate obligation to be
treated as illiquid for purposes of a Fund's limitation on
illiquid investments.

Tax-Exempt Commercial Paper

Municipal Obligations

Pre-Refunded Municipal Obligations. The Funds may invest
in pre-refunded Municipal Obligations. The principal of and
interest on pre-refunded Municipal Obligations are no longer
paid from the original revenue source for the Municipal
Obligations. Instead, the source of such payments is typically
an escrow fund consisting of obligations issued or guaranteed by
the U.S. Government. The assets in the escrow fund are derived
from the proceeds of refunding bonds issued by the same issuer
as the pre-refunded Municipal Obligations, but usually on terms
more favorable to the issuer. Issuers of Municipal Obligations
use this advance refunding technique to obtain more favorable
terms with respect to Municipal Obligations which are not yet
subject to call or redemption by the issuer. For example,
advance refunding enables an issuer to refinance debt at lower
market interest rates, restructure debt to improve cash flow or
eliminate restrictive covenants in the indenture or other
governing instrument for the pre-refunded Municipal Obligations.
However, except for a change in the revenue source from which
principal and interest payments are made, the pre-refunded
Municipal Obligations remain outstanding on their original terms
until they mature or are redeemed by the issuer. The effective
maturity of pre-refunded Municipal Obligations will be the
redemption date if the issuer has assumed an obligation or
indicated its intention to redeem such obligations on the
redemption date. Pre-refunded Municipal Obligations are often
purchased at a price which represents a premium over their face
value.

INVESTMENT LIMITATIONS

The Funds may not:

1. Borrow money, except that a Fund may (i) borrow money
from banks for temporary or emergency purposes (not for
leveraging or investment) and (ii) in the case of Government
Obligations Money Market Fund, Treasury Instruments Money Market
Fund II and Cash Management Fund engage in reverse repurchase
agreements; provided that (i) and (ii) in combination do not
exceed 10% of the value of the Fund's total assets (including
the amount borrowed) less liabilities (other than borrowings).
Additional investments will not be made by the Money Market
Funds when borrowings exceed 5% of a Fund's assets. The Funds
also may not mortgage, pledge or hypothecate any assets except
in connection with any permitted borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of
the value of the Fund's total assets at the time of such
borrowing.

PURCHASE AND REDEMPTION OF SHARES

Purchase Procedures

Order
Received By*
Payment
Received By*

Effective*

Prime Money Market Fund,
Prime Value Money Market
Fund,
Government Obligations
Money Market Fund and
Treasury Instruments
Money Market Fund II
noon

3:00 P.M.

after 3:00
P.M.
noon

3:00 P.M.

4:00 P.M.
noon

3:00 P.M.

4:00 P.M.

100% Treasury Instruments
Money Market Fund
noon

1:00 P.M.

after 1:00
P.M.
noon

1:00 P.M.

4:00 P.M.
noon

1:00 P.M.

4:00 P.M.

Cash Management Fund**
noon

3:00 P.M.

5:00 P.M.
noon

3:00 P.M.

5:30 P.M.
noon

3:00 P.M.

5:00 P.M.

Municipal Money Market
Fund and Tax-Free Money
Market Fund
noon

after noon
noon

4:00 P.M.
noon

4:00 P.M.

Conflicts of interest restrictions may apply to an
institution's receipt of compensation paid by the Funds on
fiduciary funds that are invested in Class E Shares. See also
"Management of the Funds - Services Organizations."
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, are urged to consult their
legal advisers before investing fiduciary funds in Class E
Shares.

Redemption Procedures

Order
Received
By*

Payment Made

Prime Money Market Fund,
Prime Value Money Market
Fund,
Government Obligations
Money Market Fund,
Treasury Instruments
Money Market Fund II and
Cash Management Fund
3:00 P.M.

after 3:00
P.M.
same business
day

next business
day

100% Treasury Instruments
Money Market Fund
1:00 P.M.

after 1:00
P.M.
same business
day

next business
day

Municipal Money Market
Fund and Tax-Free Money
Market Fund
noon

after noon
same business
day

next business
day

*All times stated are Eastern time.

Exchange Procedures

Valuation of Shares-Net Asset Value

Net Asset
Value
Calculated*

Prime Money Market Fund,
Prime Value Money Market Fund,
Government Obligations Money
Market Fund,
and Treasury Instruments Money
Market Fund II
noon

3:00 P.M.

4:00 P.M.

100% Treasury Instruments
Money Market Fund
noon

1:00 P.M.

4:00 P.M.

Cash Management Fund
noon

3:00 P.M.

5:00 P.M.

Municipal Money Market Fund
and
Tax-Free Money Market Fund
noon

4:00 P.M.

*All times stated are Eastern time.

Currently, one or both of Lehman Brothers and the Federal
Reserve Bank of Boston are closed on the customary national
business holidays of New Year's Day, Martin Luther King, Jr's.
Birthday (observed), Presidents' Day (Washington's Birthday),
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus
Day (observed), Veterans Day, Thanksgiving Day and Christmas
Day, and on the preceding Friday or subsequent Monday when one
of these holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of Fund shares is calculated
separately for each class by adding the value of all securities
and other assets of the Fund, subtracting class specific
liabilities, and dividing the result by the total number of the
Fund's outstanding shares. In computing net asset value, each
Fund uses the amortized cost method of valuation as described in
the Statement of Additional Information under "Additional
Purchase and Redemption Information." A Fund's net asset value
per share for purposes of pricing purchase and redemption orders
is determined independently of the net asset values of the
shares of each other Fund.

Other Matters

DIVIDENDS

Dividends are determined in the same manner and are paid
in the same amount for each Fund share, except that Class E
Shares and certain other classes bear all the expenses
associated with the specific class.

TAXES

Investors will be advised at least annually as to the
federal income tax status of distributions made to them each
year.

MANAGEMENT OF THE FUNDS

Distributor

Investment Adviser - Lehman Brothers Global Asset Management
Inc.

Administrator and Transfer Agent - The Shareholder Services
Group, Inc.

Custodian - Boston Safe Deposit and Trust Company

Service Organizations

Under a Plan of Distribution (the "Plan") adopted pursuant
to Rule 12b-1 under the 1940 Act, Class E Shares bear fees
("Rule 12b-1 fees") payable by the Funds at the aggregate rate
of up to .15% (on an annualized basis) of the average daily net
asset value of such shares to Lehman Brothers for providing
certain services to the Funds and holders of Class E 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 .15% 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 Funds 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 also allows Lehman Brothers to use its own
resources to provide distribution services and shareholder
services. Under the terms of related 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 Class E Shares.

Expenses

Each Fund bears all its own expenses. A Fund's expenses
include taxes, interest, fees and salaries of the Trust's
trustees and officers who are not directors, officers or
employees of the Fund's service contractors, Securities and
Exchange Commission fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory
purposes and for distribution to investors, advisory,
administration and distribution fees, charges of the custodian,
administrator, transfer agent and dividend disbursing agent,
Service Organization fees, certain insurance premiums, outside
auditing and legal expenses, costs of shareholder reports and
shareholder meetings and any extraordinary expenses. Each 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, the Adviser
and Administrator have voluntarily agreed to waive fees to the
extent necessary to maintain an annualized expense ratio at a
level no greater than .33% of average daily net assets with
respect to the Money Market Funds. This voluntary reimbursement
will not be changed unless investors are provided at least 60
days' advance notice. In addition, these service providers have
agreed to reimburse the Funds to the extent required by
applicable state law for certain expenses that are described in
the Statement of Additional Information. Any fees charged by
Service Organizations or other institutional investors to their
customers in connection with investments in Fund shares are not
reflected in a Fund's expenses.

PERFORMANCE AND YIELDS

A Fund's yield figures for a Class of shares represent
past performance, will fluctuate and should not be considered as
representative of future results. The yield of any investment
is generally a function of portfolio quality and maturity, type
of investment and operating expenses. Any fees charged by
Service Organizations or other institutional investors directly
to their customers in connection with investments in Fund shares
are not reflected in a Fund's expenses or yields; and, such
fees, if charged, would reduce the actual return received by
customers on their investments. The methods used to compute a
Fund's yields are described in more detail in the Statement of
Additional Information. Investors may call 1-800-238-2560 to
obtain current yield information.

DESCRIPTION OF SHARES AND MISCELLANEOUS

For information concerning the redemption of Fund shares
and possible restrictions on their transferability, see
"Purchase and Redemption of Shares."

- 13 -

lehman/institut/peas/prospect/95come.doc draft date03/23/95

<PAGE>

PROSPECTUS

NEW YORK MUNICIPAL MONEY MARKET FUND

AN INVESTMENT PORTFOLIO OFFERED BY
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

Lehman Brothers Institutional Funds Group Trust (the "Trust") is an,
open-end, management investment company. The shares described in this Prospectus
represent interests in the New York Municipal Money Market Fund portfolio (the
"Fund"), one of a family of money market portfolios of the Trust.

The Fund's INVESTMENT OBJECTIVE is to provide investors with as high a
level of current income exempt from federal income tax and, to the extent
possible, from New York State and New York City personal income taxes as is
consistent with relative stability of principal. All or a portion of the Fund's
dividends may be a specific preference item for purposes of the federal
individual and corporate alternative minimum taxes.

Fund shares may not be purchased by individuals directly but institutional
investors may purchase shares for accounts maintained by individuals. The Fund
offers three classes of shares. In addition to Class A shares, institutional
investors may purchase on behalf of their customers Class B shares, Class C
shares and Class E shares which accrue daily dividends in the same manner as
Class A shares but bear all fees payable by the Fund to institutional investors
for certain services they provide to beneficial owners of such shares. See
"Management of the Fund - Service Organizations."

AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN ITS
NET ASSET VALUE OF $1.00 PER SHARE.

LEHMAN BROTHERS, INC. ("Lehman Brothers") sponsors the Fund and acts as
Distributor of its shares. LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC. (the
"Adviser") 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 or use Lehman Brothers ExpressNET, an automated order entry
system designed specifically for the Fund ("LEX"); for yield information call 1-
800-238-2560 (Class A shares code: 011; Class B shares code: 211; Class C shares
code: 311; Class E shares code ____); for other information call 1-800-368-5556.

This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund contained in a Statement of Additional Information dated May ____, 1995, 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
<PAGE>

FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

-----------

LEHMAN BROTHERS

May __, 1995

-2-
<PAGE>

BACKGROUND AND EXPENSE INFORMATION

EXPENSE SUMMARY

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS E
SHARES SHARES SHARES SHARES
------- ------- ------- -------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees ____% ____% ____% ____%
Rule 12b-1 fees none .25% .35% .15%
Other Expenses - including
Administration Fees ____% ____% ____% ____%
Total Fund Operating Expenses
(after expense reimbursement)* .18% .43% .53% %
===== ===== ===== =====
<FN>
-------------------------
* The Expense Summary above has been restated to reflect the Adviser's and
Administrator's voluntary fee waiver and expense reimbursement arrangements
in effect for the Fund's fiscal year ending January 31, 1996.
</TABLE>

In order to maintain a competitive expense ratio, the Adviser and
Administrator have voluntarily agreed to waive fees to the extent necessary to
maintain annualized expense ratio at a level no greater than .18% of average
daily net assets. The voluntary reimbursement arrangements described above will
not be changed unless shareholders are provided at least 60 days' advance
notice. The maximum annual contractual fees payable to the Adviser and
Administrator total .20% of average daily net assets. Absent reimbursement of
expenses, Total Fund Operating Expenses of Class A, Class B, Class C and Class E
would be .28%, .53%, .63% and ____%, respectively, of the Fund's average daily
net assets. The foregoing table has not been audited by the Fund's independent
certified public accountants.

-----

EXAMPLE

An investor would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return and (2) redemption at the end of each time period with
respect to the following shares:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Class A shares: $1.54 $5.28
Class B shares: $4.09 $13.29
Class C shares: $5.11 $16.48
Class E shares: $____ $_____

</TABLE>

THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES AND
RATES OF RETURN, WHICH MAY BE GREATER OR LESS THAN THOSE SHOWN.

The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. Certain Service Organizations (as defined below)
also may charge their clients fees in connection with investments in Fund
shares, which fees are not reflected in the table. For more complete
descriptions of the various costs and expenses, see "Management of the Fund" in
this Prospectus and the Statement of Additional Information.

-3-
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

IN GENERAL

The Fund's investment objective is to provide investors with as high a
level of current income exempt from federal income tax and, to the extent
possible, from New York State and New York City personal income taxes as is
consistent with relative stability of principal. All or a portion of the Fund's
dividends may be a specific tax preference item for purposes of the federal
individual and corporate alternative minimum taxes.

In pursuing its investment objective, the Fund, which operates as a
non-diversified investment company, invests substantially all of its assets in
debt obligations issued by or on behalf of the State of New York and other
states, territories and possessions of the United States, the District of
Columbia, and their respective authorities, agencies, instrumentalities and
political subdivisions, and tax-exempt derivative securities such as tender
option bonds, participations, beneficial interests in trusts and partnership
interests (collectively "Municipal Obligations"). Dividends paid by the Fund
that are derived from interest on obligations that are exempt from taxation
under the Constitution or statutes of New York ("New York Municipal
Obligations") are exempt from regular federal income tax and New York State and
New York City personal income taxes. New York Municipal Obligations include
municipal securities issued by the State of New York and its political
sub-divisions, as well as certain other governmental issuers such as the
Commonwealth of Puerto Rico. Dividends derived from interest on Municipal
Obligations other than New York Municipal Obligations are exempt from federal
income tax but may be subject to New York State and New York City personal
income taxes. The Fund expects that, except during temporary defensive periods,
the Fund's assets will be invested primarily in New York Municipal Obligations,
although the amount of the Fund's assets invested in such securities will vary
from time to time.

PRICE AND PORTFOLIO MATURITY. The Fund will not knowingly purchase
securities the interest on which is subject to regular federal income tax. (See,
however, "Taxes" below concerning treatment of exempt-interest dividends paid by
the Fund for purposes of the federal alternative minimum tax applicable to
particular classes of investors.) Except during temporary defensive periods, the
Fund will invest substantially all, but in no event less than 80%, of its total
assets in Municipal Obligations with remaining maturities of thirteen months or
less as determined in accordance with the rules of the Securities and Exchange
Commission (the "SEC"). The Fund maintains a dollar-weighted average portfolio
maturity of 90 days or less. The Fund may hold uninvested cash reserves pending
investment during temporary defensive periods, including when suitable
tax-exempt obligations are unavailable. Uninvested cash reserves will not earn
income.

PORTFOLIO QUALITY AND DIVERSIFICATION. The Fund will purchase only
Municipal Obligations which are "Eligible Securities" (as defined by the SEC)
and which present minimal credit risks as determined by the Adviser pursuant to
guidelines approved by the Trust's Board of Trustees. Eligible Securities
consist of (i) instruments that are rated at the time of purchase in one of the
top two rating categories by at least two unaffiliated nationally recognized
statistical rating organizations ("NRSROs"), (ii) instruments rated in one of
the top two rating categories by one such NRSRO (if only one such organization
rates the instrument), (iii) instruments issued by issuers with short-term debt
having such ratings, and (iv) unrated instruments determined by the Investment
Adviser, pursuant to procedures approved by the Board of Trustees, to be of
comparable quality to such instruments. Currently, there are six NRSROs:
Standard & Poor's Corporation, Moody's Investors Service, Inc., Fitch Investors
Service, Inc., Duff and Phelps, Inc., IBCA Limited and its affiliate IBCA, Inc.
and Thomson Bankwatch. The Appendix to the Statement of Additional Information
includes a description of applicable NRSRO ratings.

-4-
<PAGE>

INVESTMENT LIMITATIONS

There can be no assurance that the Fund will achieve its investment
objective. The Fund's investment objective and the policies described herein may
be changed by the Trust's Board of Trustees without the affirmative vote of the
holders of a majority of the Fund's outstanding shares, except that the Fund's
policy of investing at least 80% of its assets in Municipal Obligations, and the
following investment limitations are fundamental and may not be changed without
such a vote of shareholders. (A complete list of the investment limitations that
cannot be changed without a vote of shareholders is contained in the Statement
of Additional Information under "Investment Objective and Policies.") The Fund
may not:

1. Borrow money except from banks (or, subject to obtaining
exemptive relief from the SEC, from other funds advised by Lehman Brothers
or its affiliates) for temporary purposes and then in amounts not exceeding
10% of the value of the Fund's assets; or mortgage, pledge or hypothecate
its assets except in connection with any such borrowing and in amounts not
in excess of the lesser of the dollar amounts borrowed or 10% of the value
of the Fund's total assets at the time of such borrowing. Additional
investments will not be made when borrowings exceed 5% of the Fund's
assets.

2. Purchase any securities which would cause 25% or more of the
value of its total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the
same industry; provided that this limitation shall not apply to Municipal
Obligations or governmental guarantees of Municipal Obligations; and
provided, further, that for the purpose of this limitation only, industrial
development bonds that are considered to be issued by non-governmental
users (see the third investment limitation below) shall not be deemed to be
Municipal Obligations; and provided, further, that there is no limitation
with respect to investments in U.S. Government securities.

3. Purchase the securities of any issuer if as a result more than 5%
of the value of the Fund's total assets would be invested in the securities
of such issuer, except that (a) up to 50% of the value of the Fund's total
assets may be invested without regard to this 5% limitation, provided that
no more than 25% of the value of the Fund's total assets are invested in
the securities of any one issuer and (b) this 5% limitation does not apply
to U.S. Government securities. For purposes of this limitation, a security
is considered to be issued by the governmental entity (or entities) whose
assets and revenues back the security, or, with respect to a private
activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain
circumstances, the guarantor of a guaranteed security may also be
considered to be an issuer in connection with such guarantee, except that a
guarantee of a security shall not be deemed to be a security issued by the
guarantor when the value of all securities issued and guaranteed by the
guarantor and owned by the Fund does not exceed 10% of the value of the
Fund's total assets.

Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax (and, with respect to New
York Municipal Obligations, to the exemption of interest thereon from New York
State and New York City personal income taxes) are rendered by bond counsel to
the respective issuers at the time of issuance, and opinions relating to the
validity of and the tax-exempt status of payments received by the Fund from
tax-exempt derivatives are rendered by counsel to the respective sponsors of
such derivatives. The Fund and its Adviser will rely on such opinions and will

-5-
<PAGE>

not review independently the underlying proceedings relating to the issuance of
Municipal Obligations, the creation of any tax-exempt derivatives or the bases
for such opinions.

The Fund may, in the future, seek to its achieve investment objective by
investing all of its assets in a no-load, open-end management investment company
having the same investment objective and policies and substantially the same
investment restrictions as those applicable to the Fund. In such event, the
Fund's investment advisory agreement would be terminated. Such investment would
be made only if the Trust's Board of Trustees believes that the aggregate per
share expenses of each class of the Fund and such other investment company will
be less than or approximately equal to the expenses which each class of the Fund
would incur if the Fund were to continue to retain the services of an investment
adviser for the Fund and the assets of the Fund were to continue to be invested
directly in portfolio securities.

TYPES OF MUNICIPAL OBLIGATIONS

The two principal classifications of Municipal Obligations that may be held
by the Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Revenue securities may include private activity bonds.
Such bonds may be issued by or on behalf of public authorities to finance
various privately operated facilities and are not payable from the unrestricted
revenues of the issuer. As a result, the credit quality of private activity
bonds is frequently related directly to the credit standing of private
corporations or other entities.

The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain tax-exempt obligations. A
new definition of private activity bonds was applied to many types of bonds,
including those which were industrial development bonds under prior law.
Interest on private activity bonds is tax-exempt only if the bonds fall within
certain defined categories of qualified private activity bonds and meet the
requirements specified in those respective categories. The Act generally did not
change the tax treatment of bonds issued to finance governmental operations. The
changes generally apply to bonds issued after August 15, 1986, with certain
transitional rule exemptions. As used in this Prospectus, the term "private
activity bonds" also includes industrial development revenue bonds issued
pursuant to the Internal Revenue Code of 1986, as amended.

The Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality that
created the issuer.

OTHER INVESTMENT PRACTICES

Municipal Obligations purchased by the Fund may include variable rate
demand notes. Such notes may not be rated by credit rating agencies, but unrated
notes purchased by the Fund will be determined by the Adviser to be of
comparable quality at the time of purchase to rated instruments purchasable by
the Fund. Where necessary to ensure that a note is an Eligible Security, the
Fund will require that the issuer's obligation to pay the principal of the note
be backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend. While there may be no active secondary market with respect
to a particular variable rate demand note purchased by the Fund, the Fund may,
upon the notice specified in the note, demand payment of the principal of the
note during specified periods not exceeding thirteen months,

-6-
<PAGE>

depending upon the instrument involved, and may resell the note at any time to a
third party. The absence of such an active secondary market, however, could make
it difficult for the Fund to dispose of a variable rate demand note if the
issuer were to default on its payment obligation or during periods that the Fund
is not entitled to exercise its demand rights, and the Fund could, for this or
other reasons, suffer a loss to the extent of the default. While, in general,
the Fund will invest only in securities that mature within thirteen months of
purchase, the Fund may invest in variable rate demand notes which have nominal
maturities in excess of thirteen months, if such instruments carry demand
features that comply with conditions established by the SEC.

The Fund may also purchase Municipal Obligations on a "when-issued" basis.
When-issued securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield. The Fund generally will not pay for
such securities or start earning interest on them until they are received.
Securities purchased on a when-issued basis are recorded as an asset and are
subject to changes in value based upon changes in the general level of interest
rates. The Fund expects that commitments to purchase when-issued securities will
not exceed 25% of the value of its total assets absent unusual market
conditions. The Fund does not intend to purchase when-issued securities for
speculative purposes but only in furtherance of its investment objective.

In addition, the Fund may acquire "stand-by commitments" with respect to
Municipal Obligations held in its portfolio. Under a stand-by commitment, a
dealer agrees to purchase at the Fund's option specified Municipal Obligations
at a specified price. The Fund will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.

The Fund may purchase tender option bonds. A tender option bond is a
municipal obligation (generally held pursuant to a custodial arrangement) having
a relatively long maturity and bearing interest at a fixed rate substantially
higher than prevailing short-term tax-exempt rates, that has been coupled with
the agreement of a third party, such as a bank, broker-dealer or other financial
institution, pursuant to which such institution grants the security holders the
option, at periodic intervals, to tender their securities to the institution and
receive the face value thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the difference between the
municipal obligation's fixed coupon rate and the rate, as determined by a
remarketing or similar agent at or near the commencement of such period, that
would cause the securities, coupled with the tender option, to trade at or near
par on the date of such determination. Thus, after payment of this fee, the
security holder effectively holds a demand obligation that bears interest at the
prevailing short-term tax exempt rate. The Adviser will consider on an ongoing
basis the creditworthiness of the issuer of the underlying municipal obligation,
of any custodian and of the third party provider of the tender option. In
certain instances and for certain tender option bonds, the option may be
terminable in the event of a default in payment of principal or interest on the
underlying municipal obligations and for other reasons.

The Fund may acquire custodial receipts or certificates underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal payments or both, on certain municipal obligations. The underwriter of
these certificates or receipts typically purchases municipal obligations and
deposits the obligations in an irrevocable trust or custodial account with a
custodian bank, which then issues receipts or certificates that evidence
ownership of the periodic unmatured coupon payments and the final principal
payment on the obligations. Although under the terms of a custodial receipt, the
Fund would be typically authorized to assert its rights directly against the
issuer of the underlying obligation, the Fund could be required to assert
through the custodian bank those rights as may exist against the underlying
issuer. Thus, in the event the underlying issuer fails to pay principal and/or
interest when due, the Fund may be subject to delays, expenses and risks that
are greater than those that would have been involved if

-7-
<PAGE>

the Fund had purchased a direct obligation of the issuer. In addition, in the
event that the trust or custodial account in which the underlying security has
been deposited is determined to be an association taxable as a corporation
instead of a non-taxable entity, the yield on the underlying security would be
reduced in recognition of any taxes paid.

The Fund may purchase from financial institutions tax-exempt participation
interests in Municipal Obligations. A participation interest gives the Fund an
undivided interest in the Municipal Obligation in the proportion that the Fund's
participation interest bears to the total amount of the Municipal Obligation.
These instruments may have floating or variable rates of interest. If the
participation interest is unrated, it will be backed by an irrevocable letter of
credit or guarantee of a bank that the Trust's Board of Trustees has determined
meets certain quality standards or the payment obligation otherwise will be
collateralized by obligations of the U.S. Government and its agencies and
instrumentalities. The Fund will have the right, with respect to certain
participation interests, to demand payment, on a specified number of days'
notice, for all or any part of the Fund's interest in the Municipal Obligation,
plus accrued interest. The Fund will invest no more than 5% of its total assets
in participation interests.

The Fund will not knowingly invest more than 10% of the value of its total
net assets in illiquid securities, including time deposits 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 10% limitation on investment in illiquid
securities.

RISK FACTORS

The Fund intends to follow the diversification standards set forth in the
Investment Company Act of 1940, as amended (the "1940 Act"), except to the
extent, in the judgment of the Adviser, that non-diversification is appropriate
in order to maximize the percentage of the Fund's assets that are New York
Municipal Obligations. The investment return on a non-diversified portfolio
typically is dependent upon the performance of a smaller number of issuers
relative to the number of issuers held in a diversified portfolio. In the event
of changes in the financial condition of or in the market's assessment of
certain issuers, the Fund's maintenance of large positions in the obligations of
a small number of issuers may affect the value of the Fund's portfolio to a
greater extent than that of a diversified portfolio.

Although the Fund does not presently intend to do so on a regular basis, it
may invest more than 25% of its assets in Municipal Obligations the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Fund's Investment Adviser. To the extent
that the Fund's assets are concentrated in Municipal Obligations payable from
revenues on similar projects, are issued by issuers located in New York or are
private activity bonds, the Fund will be subject

-8-
<PAGE>

to the peculiar risks presented by such state, projects and bonds to a greater
extent than it would be if the Fund's assets were not so concentrated.

Because the Fund will invest primarily in obligations issued by the State
of New York and its cities, municipalities and other public authorities, it is
more susceptible to factors adversely affecting issuers of such obligations than
a comparable municipal bond fund that is not so concentrated. New York State,
New York City and other debt-issuing entities located in New York State have, at
various times in the past, encountered financial difficulties. A continuation
or recurrence of the financial difficulties previously experienced by the
issuers of New York Municipal Obligations could result in defaults or declines
in the market values of those issuers' existing obligations and, possibly, in
the obligations of other issuers of New York Municipal Obligations. If either
New York State or any of its local governmental entities is unable to meet its
financial obligations, the income derived by the Fund and its ability to
preserve capital and liquidity could be adversely affected.

Other considerations affecting the Fund's investments in New York Municipal
Obligations are summarized in the Statement of Additional Information.

The value of the Fund's portfolio securities can be expected to vary
inversely with changes in prevailing interest rates.

PURCHASE AND REDEMPTION OF SHARES

PURCHASE PROCEDURES

Shares of the Fund are sold at the net asset value per share of the Fund
next determined after receipt of a purchase order by Lehman Brothers, the
Distributor of the Fund's shares. Purchase orders for shares are accepted by the
Fund only on a day on which both Lehman Brothers and the Federal Reserve Bank of
Boston are open for business and must be transmitted to Lehman Brothers, by
telephone at 1-800-851-3134 or through LEX. Orders received prior to noon,
Eastern time, for which payment has been received by Boston Safe Deposit and
Trust Company ("Boston Safe"), the Fund's Custodian, will be executed at noon.
Orders received prior to noon for which payment is received between noon and
4:00 P.M., Eastern time, will be executed at 4:00 P.M. Orders received after
noon, and orders for which payment has not been received by 4:00 P.M., Eastern
time, will not be accepted and notice thereof will be given to the institution
placing the order. Payment for Fund shares may be made only in federal funds
immediately available to Boston Safe. (Payment for orders which are not received
or accepted by Lehman Brothers will be returned after prompt inquiry to the
sending institution.) The Fund may in its discretion reject any order for
shares.

The minimum aggregate initial investment by an institution in the
investment portfolios that comprise the Trust is $1 million (with not less than
$25,000 invested in any one investment portfolio offered by the Trust); however,
broker-dealers and other institutional investors may set a higher minimum for
their customers. To reach the minimum Trust-wide initial investment, purchases
of shares may be aggregated over a period of six months. There is no minimum
subsequent investment.

Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund on fiduciary funds that are invested in Class B,
Class C or Class E 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 SEC, the

-9-
<PAGE>

Department of Labor or state securities commissions, should consult legal
counsel before investing in Class B or Class C shares.

SUBACCOUNTING SERVICES. Institutions are encouraged to open single master
accounts. However, certain institutions may wish to use the Transfer Agent's
subaccounting system to minimize their internal recordkeeping requirements. The
Transfer Agent charges a fee based on the level of subaccounting services
rendered. Institutions holding Fund shares in a fiduciary, agency, custodial or
similar capacity may charge or pass through subaccounting fees as part of or in
addition to normal trust or agency account fees. They may also charge fees for
other services provided which may be related to the ownership of Fund shares.
This Prospectus should, therefore, be read together with any agreement between
the customer and the institution with regard to the services provided, the fees
charged for those services and any restrictions and limitations imposed.

REDEMPTION PROCEDURES

Redemption orders must be transmitted to Lehman Brothers by telephone at
1-800-851-3134 or through LEX. Payment for redeemed shares for which a
redemption order is received by Lehman Brothers prior to noon, Eastern time, on
a day that both Lehman Brothers and the Federal Reserve Bank of Boston are open
for business is normally made in federal funds wired to the redeeming
shareholder on the same business day. Payment for redeemed shares for which a
redemption order is received by Lehman Brothers after noon, Eastern time, on
such a business day is normally made in federal funds wired to the redeeming
shareholder on the next business day following redemption.

Shares are redeemed at the net asset value per share next determined after
Lehman Brothers' receipt of the redemption order. While the Fund intends to use
its best efforts to maintain its net asset value per share at $1.00, the
proceeds paid to an investor upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. To
allow the Adviser to manage the Fund effectively, investors are strongly urged
to initiate all investments or redemptions of Fund shares as early in the day as
possible and to notify Lehman Brothers at least one day in advance of
transactions in excess of $5 million.

The Fund reserves the right to wire redemption proceeds within seven days
after receiving the redemption order if, in the judgment of the Adviser, an
earlier payment could adversely affect the Fund. The Fund shall have the right
to redeem involuntarily shares in any account at their net asset value if the
value of the account is less than $10,000 after 60 days' prior written notice to
the investor. Any such redemption shall be effected at the net asset value per
share next determined after the redemption order is entered. If during the
60-day period the investor increases the value of its account to $10,000 or
more, no such redemption shall take place. In addition, the Fund may redeem
shares involuntarily or suspend the right of redemption as permitted under the
1940 Act, or under certain special circumstances described in the Statement of
Additional Information under "Additional Purchase and Redemption Information."

VALUATION OF SHARES - NET ASSET VALUE

The Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined by the Fund's Administrator Custodian as of noon
and 4:00 P.M., Eastern time, on each weekday, with the exception of those
holidays on which either Lehman Brothers or the Federal Reserve Bank of Boston
is closed. Currently, one or both of these institutions are closed on New Year's
Day, Martin Luther King, Jr.'s Birthday (observed), Presidents' Day
(Washington's Birthday), Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day (observed), Veterans Day, Thanksgiving Day and

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<PAGE>

Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of the Fund is calculated by adding the value of all securities and
other assets belonging to the Fund, subtracting liabilities and dividing the
result by the number of the Fund's outstanding shares. Portfolio securities are
valued on the basis of amortized cost. Under this method, the Fund values a
portfolio security at cost on the date of purchase and thereafter assumes a
constant amortization of any discount or premium until maturity of the security.
As a result, the value of the security for purposes of determining net asset
value normally does not change in response to fluctuating interest rates. While
the amortized cost method seems to provide certainty in portfolio valuation, it
may result in periods during which values, as determined by amortized cost, are
higher or lower than the amount the Fund would receive if it sold the
securities. The Fund's net asset value for purposes of pricing purchase and
redemption orders is determined independently of the net asset values of the
shares of the Trust's other investment portfolios.

OTHER MATTERS

Fund shares are sold and redeemed without charge by the Fund. Institutional
investors purchasing or holding Fund shares for their customers' accounts may
charge customers fees for cash management and other services provided in
connection with their accounts. A customer should, therefore, consider the terms
of its account with an institution before purchasing Fund shares. An institution
purchasing or redeeming shares on behalf of its customers is responsible for
transmitting orders to Lehman Brothers in accordance with its customer
agreements.

DIVIDENDS

Investors of the Fund are entitled to dividends and distributions arising
only from the net investment income and capital gains, if any, earned on
investments held in the Fund. The Fund's net investment income is declared daily
as a dividend to shareholders of record at the close of business on the day of
declaration. Shares begin accruing dividends on the day the purchase order for
the shares is executed and continue to accrue dividends through, and including,
the day before the redemption order for the shares is executed. Dividends are
paid monthly by wire transfer within five business days after the end of the
month or within five business days of the redemption of all of an investor's
shares of a particular class. The Fund does not expect to realize net long-term
capital gains.

Dividends are determined in the same manner and are paid in the same amount
for each Fund share, except that Class B, Class C and Class E shares bear all
the expense of fees paid to Service Organizations. As a result, at any given
time, the net yield on Class B, Class C and Class E shares will be .25%, .35%
and .15%, respectively, lower than the net yield on Class A shares.

Institutional investors may elect to have their dividends reinvested in
additional full and fractional shares of the same class at the net asset value
of such shares on the payment date. Reinvested dividends receive the same tax
treatment as dividends paid in cash. Such election, or any revocation thereof,
must be made in writing to as the Fund's Distribution 260 Franklin Street,
Boston, Massachusetts 02110-9624 and will become effective with respect to
dividends paid after its receipt by the Distributor, with respect to dividends
paid.

TSSG, as Transfer Agent, will send each Fund investor or its authorized
representative, if any, an annual statement designating the amount, of any
dividends and capital gains distributions made during each year and their
federal and New York tax qualification.

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<PAGE>

TAXES

IN GENERAL

The Fund intends to qualify each year as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). A regulated
investment company is exempt from federal income taxes on amounts distributed to
its investors. Qualification as a regulated investment company under the Code
for a taxable year requires, among other things, that the Fund distribute to its
investors at least the sum of 90% of its exempt-interest income net of certain
deductions and 90% of its investment company taxable income for such year.
Dividends derived from exempt-interest income (known as "exempt-interest
dividends") may be treated by the Fund's shareholders as items of interest
excludable from their gross income under Section 103(a) of the Code, unless
under the circumstances applicable to the particular shareholder the exclusion
would be disallowed. (See the Statement of Additional Information under
"Additional Information Concerning Taxes.")

The Fund may hold without limit certain private activity bonds issued after
August 7, 1986. The portion of dividends attributable to interest on such bonds
must be included in a shareholder's federal alternative minimum taxable income,
as an item of tax preference, for the purpose of determining liability (if any)
for the 24% alternative minimum tax for individuals and the 20% alternative
minimum tax and the environmental tax applicable to corporations. Corporate
shareholders must also take all exempt-interest dividends into account in
determining certain adjustments for federal alternative minimum and
environmental tax purposes. The environmental tax applicable to corporations is
imposed at a rate of .12% on the excess of the corporation's modified federal
alternative minimum taxable income over $2,000,000. Investors receiving Social
Security benefits or Railroad Retirement Act benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.

Dividends declared in October, November or December of any year payable to
investors of record on a specified date in such months will be deemed to have
been received by the shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during January of the
following year.

Investors will be advised at least annually as to the federal income tax,
as well as the New York State and New York City personal income tax, status and
consequences of dividends and distributions made each year.

NEW YORK STATE AND LOCAL TAX MATTERS

Exempt interest dividends paid to shareholders of the Fund will not be
subject to New York State and New York City personal income taxes to the extent
they represent interest income directly attributable to federally tax exempt
obligations of the State of New York and its political subdivisions and
instrumentalities (as well as certain other federally tax exempt obligations the
interest on which is exempt from New York State and New York City personal
income taxes). The Fund intends that substantially all of the dividends it
designates as exempt-interest dividends will also be exempt from New York State
and New York City personal income taxes. Exempt-interest dividends paid by the
Fund, however, may be taxable to shareholders who are subject to taxation
outside New York State and New York City.

Corporate shareholders subject to New York City franchise tax or New York
City general corporation tax will be required to include all dividends received
from the Fund (including exempt-interest

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<PAGE>

dividends) as net income subject to such taxes. Furthermore, for purposes of
calculating a corporate shareholder's liability for such taxes under the
alternative tax base measured by business and investment capital, such
shareholder's shares of the Fund will be included in computing such
shareholder's investment capital.

Shareholders will not be subject to the New York City unincorporated
business tax solely by reason of their ownership of shares in the Fund. If a
shareholder is subject to the New York City unincorporated business tax, income
and gains derived from the Fund will be subject to such tax, except for exempt-
interest dividend income that is directly related to interest on New York
municipal obligations. Shares of the Fund will be exempt from local property
taxes in New York State and New York City.

The foregoing is only a brief summary of some of the important tax
considerations generally affecting the Fund and its investors. No attempt is
made to present a detailed explanation of the federal, state or local income tax
treatment of the Fund or its investors, and this discussion is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisors with specific reference to their own tax
situations.

MANAGEMENT OF THE FUND

The business and affairs of the Fund are managed under the direction of the
Trust's Board of Trustees. The Trustees approve all significant agreements
between the Trust and the persons or companies that furnish services to the
Fund, including agreements with its Distributor, Adviser, Administrator,
Custodian and Transfer Agent. The day-to-day operations of the Fund are
delegated to the Adviser and Administrator. The Statement of Additional
Information relating to the Fund contains general background information
regarding each Trustee and executive officer of the Trust.

DISTRIBUTOR

Lehman Brothers, located at 3 World Financial Center, New York, New York
10285, is the Distributor of the Fund's shares. Lehman Brothers is a wholly-
owned subsidiary of Lehman Brothers Holdings Inc. ("Holdings"). As of December
31, 1994, FMR Corp. beneficially owned approximately 12.3%, Nippon Life
Insurance Company beneficially owned approximately 8.7% and Heine Securities
Corporation beneficially owned approximately 5.1% of the outstanding voting
securities of Holdings. Lehman Brothers, a leading full service investment
firm, meets the diverse financial needs of individuals, institutions and
governments around the world. Lehman Brothers has entered into a Distribution
Agreement with the Trust pursuant to which it has the responsibility for
distributing shares of the Fund.

INVESTMENT ADVISER - LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.

Lehman Brothers Global Asset Management Inc. ("LBGAM" or the "Adviser"),
located at 3 World Financial Center, New York, New York 10285, serves as the
Fund's Investment Adviser. LBGAM is a wholly owned subsidiary of Holdings.
LBGAM, together with other Lehman Brother investment advisory affiliates, serve
as Investment Adviser to investment companies and private accounts and has
assets under management in excess of $____ billion as April 30, 1995.

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

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<PAGE>

services for the Fund. For its services LBGAM is entitled to receive a monthly
fee from the Fund at the annual rate of .10% of the value of the Fund's average
daily net assets.

ADMINISTRATOR AND TRANSFER AGENT - THE SHAREHOLDER SERVICES GROUP, INC.

The Shareholder Services Group, Inc. ("TSSG"), located at One Exchange
Place, 53 State Street, Boston, Massachusetts 02109, serves as the Fund's
Administrator and Transfer Agent. TSSG is a wholly owned subsidiary of First
Data Corporation. As Administrator, TSSG calculates the net asset value of the
Fund's shares and generally assists in all aspects of the Fund's administration
and operation. As compensation for TSSG's services as Administrator, TSSG is
entitled to receive from the Fund a monthly fee at the annual rate of .10% of
the value of the Fund's average daily net assets. TSSG is also entitled to
receive a fee from the Fund for its services as Transfer Agent. TSSG pays Boston
Safe, the Fund's Custodian, a portion of its monthly administration fee for
custody services rendered to the Fund.

On May 6, 1994, TSSG acquired the third party mutual fund administration
business of The Boston Company Advisors, Inc., an indirect wholly-owned
subsidiary of Mellon Bank Corporation ("Mellon"). In connection with this
transaction, Mellon assigned to TSSG its agreement with Lehman Brothers that
Lehman Brothers and its affiliates, consistent with their fiduciary duties and
assuming certain service quality standards are met, would recommend TSSG as the
provider of administration services to the Fund. This duty to recommend expires
on May 21, 2000.

CUSTODIAN - BOSTON SAFE DEPOSIT AND TRUST COMPANY

Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly owned
subsidiary of Mellon, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's Custodian. Under the terms of the Stock Purchase Agreement
dated September 14, 1992 between Mellon and Lehman Brothers (then named Shearson
Lehman Brothers Inc.) Lehman Brothers agreed to recommend Boston Safe as
custodian of mutual funds affiliated with Lehman Brothers until May 21, 2000 to
the extent consistent with its fiduciary duties and other applicable law.

SERVICE ORGANIZATIONS

Financial institutions, such as banks, savings and loan associations and
other such institutions ("Service Organizations") and/or institutional customers
of Service Organizations may purchase Class B, Class C or Class E shares. These
shares are identical in all respects to Class A shares except that they bear the
fees described below and enjoy certain exclusive voting rights on matters
relating to these fees. The Fund will enter into an agreement with each Service
Organization whose customers ("Customers") are the beneficial owners of Class B,
Class C or Class E shares that requires the Service Organization to provide
certain services to Customers in consideration of the Fund's payment of service
fees at the annual rate of .25%, .35% or .15%, respectively of the average daily
net asset value of the respective Class beneficially owned by Customers. Such
services, which are described more fully in the Statement of Additional
Information under "Management of the Fund - Service Organizations," may include
aggregating and processing purchase and redemption requests from Customers and
placing net purchase and redemption orders with Lehman Brothers; processing
dividend payments from the Fund on behalf of Customers; providing information
periodically to Customers showing their positions in shares; arranging for bank
wires; responding to Customer inquiries relating to the services provided by the
Service Organization and handling correspondence; acting as shareholder of
record and nominee; and providing reasonable assistance in connection with the
distribution of shares to Customers. Services provided with respect to Class B
shares will generally be more limited than those provided with respect to Class
C shares. Services provided with

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<PAGE>

respect to Class E shares will generally be more limited than those provided
with respect to Class B or Class C shares. Under the terms of the agreements,
Service Organizations are required to provide to their Customers a schedule of
any fees that they may charge such Customers relating to the investment of such
Customers' assets in Class B, Class C or Class E shares. Class A shares are sold
to financial institutions that have entered into servicing agreements with the
Fund in connection with their investments. A salesperson and any other person
entitled to receive compensation for selling or servicing shares of the Fund may
receive different compensation for selling or servicing one Class of shares over
another Class.

EXPENSES

The Fund bears all of its own expense. The Fund's expenses include taxes,
interest, fees and salaries of the Trust's trustees and officers who are not
directors, officers or employees of the Fund's service contractors, SEC fees,
state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to investors, advisory
and administration fees, charges of the Administrator, Custodian, Transfer Agent
and dividend disbursing agent, Service Organization fees, certain insurance
premiums, outside auditing and legal expenses, costs of shareholder reports and
shareholder meetings and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions (if any) in connection with the purchase and sale
of portfolio securities. In order to maintain a competitive expense ratio during
1995, LBGAM and TSSG have agreed voluntarily to waive fees to the extent
necessary to maintain an annualized expense ratio at a level no greater than
.18% of average daily net assets. This voluntary reimbursement will not be
changed unless shareholders are provided at least 60 days' advance notice. In
addition, these service providers have agreed to reimburse the Fund to the
extent required by applicable state law for certain expenses that are described
in the Statement of Additional Information relating to the Fund. Any fees
charged by Service Organizations or other institutional investors to their
customers in connection with investments in Fund shares are not reflected in the
Fund's expenses.

YIELDS

From time to time the "yields," "effective yields" and "tax-equivalent
yields" of its Class A, Class B, Class C and Class E shares may be quoted in
advertisements or in reports to investors. Yield quotations are computed
separately for each Class of shares. The "yield" quoted in advertisements for a
particular class of shares refers to the income generated by an investment in
such shares over a specified period (such as a seven-day period) identified in
the advertisement. This income is then "annualized ", that is, the amount of
income generated by the investment during the week is assumed to be generated
each week over a 52-week or one-year period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in a class of Fund shares is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" demonstrates the level of taxable yield necessary to
produce an after-tax yield equivalent to the Fund's tax-free yield. It is
calculated by increasing the Fund's yield (calculated as above) by the amount
necessary to reflect the payment of federal and New York income taxes at a
stated rate. The "tax-equivalent yield" will always be higher than the "yield."

The Fund's yields may be compared to those of other mutual funds with
similar objectives, to bond or other relevant indices, or to rankings prepared
by independent services or other financial or industry publications that monitor
the performance of mutual funds, or to the average yields reported by the BANK
RATE MONITOR from money market deposit accounts offered by the 50 leading banks
and thrift institutions in the top five standard metropolitan statistical areas.
For example, such data are reported in national

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<PAGE>

financial publications such as IBC/DONOGHUE'S MONEY FUND REPORT[REGISTERED
TRADEMARK], IBBOTSON ASSOCIATES OF CHICAGO, THE WALL STREET JOURNAL and THE NEW
YORK TIMES, reports prepared by Lipper Analytical Services, Inc. and
publications of a local or regional nature.

THE FUND'S YIELD FIGURES FOR A CLASS OF SHARES REPRESENT PAST PERFORMANCE,
WILL FLUCTUATE AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE RESULTS.
The yield of any investment is generally a function of portfolio quality and
maturity, type of investment and operating expenses. Since holders of Class B,
Class C or Class E shares bear the service fees for support services provided by
Service Organizations the net yield on such shares can be expected at any given
time to be lower than the net yield on Class A shares. Any fees charged by
Service Organizations or other institutional investors directly to their
customers in connection with investments in Fund shares are not reflected in the
Fund's expenses or yields. The methods used to compute the Fund's yields are
described in more detail in the Statement of Additional Information. Investors
may call 1-800-238-2560 (Class A shares code: 011; Class B shares code: 211;
Class C shares code: 311 Class E shares code:______) to obtain current yield
information.

DESCRIPTION OF SHARES AND MISCELLANEOUS

The Trust was organized as a Massachusetts business trust on November 25,
1992. The Trust's Declaration of Trust authorizes the Board of Trustees to
issue an unlimited number of full and fractional shares of beneficial interest
in the Trust and to classify or reclassify any unissued shares into one or more
classes of shares. The Trust is an open-end management investment company which
has authorized the issuance of multiple classes of shares for its family of
investment portfolios. The issuance of separate classes of shares is intended
to address the different service needs of different types of investors. Each
share represents interests in each fund in proportion to each share's net asset
value, except that shares of certain classes bear fees and expenses for certain
shareholder services or distribution and support services provided to that class
and certain other class related expenses.

THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER
PORTFOLIOS MAY OBTAIN SEPARATE PROSPECTUSES DESCRIBING THEM BY CONTACTING LEHMAN
BROTHERS AT 1-800-368-5556.

The Trust does not intend to hold annual meetings of shareholders except as
required by the 1940 Act or other applicable law. The Trust will call a meeting
of shareholders for the purpose of voting upon the question of removal of a
member of the Board of Trustees upon written request of shareholders owning at
least 10% of the outstanding shares of the Trust entitled to vote.

Each Fund share represents an equal proportionate interest in the assets
belonging to the Fund. Each share, which has a par value of $.001, has no
preemptive or conversion rights. When issued for payment as described in this
Prospectus, shares will be fully paid and non-assessable.

Holders of the Fund's shares will vote in the aggregate and not by class on
all matters, except where otherwise required by law and except that only
Class B, Class C or Class E shares, as the case may be, will be entitled to vote
on matters submitted to a vote of shareholders pertaining to the Fund's
arrangements with Service Organizations with respect to the relevant Class.
Further, shareholders of all of the Trust's portfolios will vote in the
aggregate and not by portfolio except as otherwise required by law or

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<PAGE>

when the Board of Trustees determines that the matter to be voted upon affects
only the interests of the shareholders of a particular portfolio. (See the
Statement of Additional Information under "Additional Description Concerning
Fund Shares" for examples where the 1940 Act requires voting by portfolio.)
Shareholders of the Trust are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative, and, accordingly, the holders of more
than 50% of the aggregate shares of the Trust may elect all of the trustees.

For information concerning the redemption of Fund shares and possible
restrictions on their transferability, see "Purchase and Redemption of Shares."

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<PAGE>

No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or in the Fund's Statement of
Additional Information incorporated herein by reference, in connection with the
offering made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Trust
or its Distributor. This Prospectus does not constitute an offering by the Trust
or by the Distributor in any jurisdiction in which such offering may not
lawfully be made.

---------

TABLE OF CONTENTS

PAGE
Background and Expense Information..................................... 3
Investment Objective and Policies...................................... 4
Purchase and Redemption of Shares...................................... 9
Dividends.............................................................. 11
Taxes.................................................................. 12
Management of the Fund................................................. 13
Yields................................................................. 15
Description of Shares and Miscellaneous................................ 16

NEW YORK MUNICIPAL
MONEY MARKET FUND

----------

PROSPECTUS

May __, 1995

----------

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.

-18-

n federal funds
immediately available to Boston Safe. (Payment for orders which are not received
or accepted by Lehman Brothers will be returned after prompt inquiry to the
sending institution.) The Fund may in its discretion reject any order for
shares.

-9-
<PAGE>

Department of Labor or state securities commissions, should consult legal
counsel before investing in Class B or Class C shares.

REDEMPTION PROCEDURES

VALUATION OF SHARES - NET ASSET VALUE

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<PAGE>

OTHER MATTERS

DIVIDENDS

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<PAGE>

TAXES

IN GENERAL

NEW YORK STATE AND LOCAL TAX MATTERS

Corporate shareholders subject to New York City franchise tax or New York
City general corporation tax will be required to include all dividends received
from the Fund (including exempt-interest

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<PAGE>

MANAGEMENT OF THE FUND

DISTRIBUTOR

INVESTMENT ADVISER - LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.

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<PAGE>

services for the Fund. For its services LBGAM is entitled to receive a monthly
fee from the Fund at the annual rate of .10% of the value of the Fund's average
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.

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.

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<PAGE>

acquisition ("repurchase agreements"). The Fund will not invest more than 15%
of the value of its assets in repurchase agreements with terms which exceed
seven days. The seller under a repurchase agreement will be required to
maintain the value of the securities subject to the agreement at not less than
the repurchase price (including accrued interest). Default by or bankruptcy of
the seller would, however, expose the Fund to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations.

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. The Fund may
engage in reverse repurchase agreements provided that the amount of reverse
repurchase agreements and any other borrowings does not exceed one-third of the
value of the Fund's total assets (including the amount borrowed) less
liabilities (other than borrowings).

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. 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.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To assist in reducing
fluctuations in net asset value, the Fund may purchase and sell futures
contracts on U.S. Government securities, Mortgage Securities and Eurodollar
Securities, or purchase call and put options on such futures contracts. The
Fund will engage in futures and related options transactions only for bona die
hedging purposes. Although the use of hedging strategies is intended to reduce
the Fund's exposure to interest rate volatility, it may cause fluctuations in
net asset value. Unanticipated changes in interest rates or securities prices
may result in a poorer overall performance for the Fund than if it had not
entered in any futures contracts or options transactions. The risks associated
with the use of futures contract and options on futures contacts include (1) the
imperfect correlation between the change in market value of the securities held
by the Fund and the prices of the futures and options, and (2) the possible
absence of a liquid secondary market for a futures contract or option and the
resulting ability to close a futures position prior to its maturity date. See

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<PAGE>

"Investment Objective and Policies - Additional Information on Investment
Practices - Futures Contracts and Options on Future Contracts" in the Statement
of Additional Information.

SHORT-SALES The Fund may from time to time make short sales of securities which
are acceptable investments of the Fund and are listed on a national securities
exchange. A short sale is a transaction in which the Fund sells a security it
does not own in anticipation that the market price of that security will
decline. When the Fund makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
in order to satisfy its obligation to deliver the security upon conclusion of
the sale. 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. If the price of the
security sold short increases between the time of the short sale and the time
the Fund replaces the borrowed security, the Fund will incur a loss; conversely,
if the price declines, the Fund will realize a capital gain. However, 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, 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, the 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 expects to
make short sales as a form of hedging to offset potential declines in securities
positions it holds. The Fund may also make short sales "against the box". In a
short sale "against the box," the Fund, at the time of the sale, owns or has the
immediate and unconditional right to acquire at no additional cost the identical
security sold. See the Statement of Additional Information for additional
information on short sales.

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.

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<PAGE>

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 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.

BORROWING. The Fund may borrow only from banks or by entering into reverse
repurchase agreements, in aggregate amounts not to exceed one-third of its total
assets (including the amount borrowed) less its liabilities (excluding the
amount borrowed), and only for temporary or emergency purposes. Bank borrowings
may be from U.S. or foreign banks and may be secured or unsecured.

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 from banks for
temporary or emergency purposes (not for leveraging or investment) and (ii)
engage in reverse repurchase agreements or

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<PAGE>

dollar roll transactions; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets (including the amount
borrowed) less liabilities (other than borrowings).

PURCHASE OF SHARES

Purchases of Retail Shares must be made through a brokerage account maintained
through Lehman Brothers or a broker or dealer (each an "Introducing Broker")
that (i) clears securities transactions through Lehman Brothers on a fully
disclosed basis or (ii) has entered into an agreement with Lehman Brothers with
respect to the sale of Fund shares. The Fund's shares are offered with no
front-end sales change imposed at the time of purchase. The Fund reserves the
right to reject any purchase order and to suspend the offering of shares for a
period of time.

-10-
<PAGE>

4:00 p.m., Eastern time, on any day the Fund's net asset value is calculated are
priced according to the net asset value determined on that day. Purchase orders
received after 4:00 p.m., Eastern time, are priced as of the time the net asset
value next determined. Payment is generally due to Lehman Brothers or an
Introducing Broker by 3:00 p.m., Eastern time, on the next business day
following the order.

SYSTEMATIC INVESTMENT PLAN

The Fund offers shareholders a Systematic Investment Plan under which
shareholders may authorize Lehman Brothers or an Introducing Broker to place a
purchase order each month or quarter for shares of the Fund in an amount not
less than $100. The purchase price is paid automatically from cash held in the
shareholder's Lehman Brothers brokerage account or through the automatic
redemption of the shareholder's shares of a Lehman Brothers money market fund.
For further information regarding the Systematic Investment Plan, shareholders
should contact their Lehman Brothers Investment Representative.

MINIMUM INVESTMENTS

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 $2,000 and $1,000, respectively, (b)
retirement plans qualified under Section 403(b)(7) of the Code ("Qualified
Retirement Plan"), for which the minimum and subsequent investment is $500 and
(c) the Fund's Systematic Investment Plan, for which the minimum and subsequent
investment is $100. For employees of Lehman Brothers and its affiliates, the
minimum initial investment is $1,000 and the minimum subsequent investment is
$500. The Fund reserves the right at any time to vary the initial and
subsequent investment minimums.

REDEMPTION OF SHARES

Holders of Retail Shares 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 4:00 p.m., Eastern time, are priced at
the net asset value per share determined on that day. Redemption requests
received after 4:00 p.m., Eastern time, are priced at the net asset value as
next determined. The Fund normally transmits redemption proceeds for credit to
the shareholder's account at Lehman Brothers or the Introducing Broker at no
charge on the business day following the effectiveness of the 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

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<PAGE>

with the proceeds of a redemption of those shares only after the purchase check
has been collected, which may take up to 15 days or more. A shareholder who
anticipates the need for more immediate access to his or her investment should
purchase shares with federal funds by bank wire or with a certified or cashier's
check.

A Fund account that is reduced by a shareholder to a value of $1,000 or less
($500 for IRAs and Self-Employed Retirement Plans) may be subject to redemption
by that Fund, but only after the shareholder has been given at least 60 days in
which to increase the account balance to more than $1,000 ($500 for IRAs and
Self-Employed Retirement Plans). In addition, the Fund may redeem shares
involuntarily or suspend the right of redemption as permitted under the 1940
Act, as described in the Statement of Additional Information under "Additional
Purchase and Redemption Information."

Fund shares may be redeemed in one of the following ways:

REDEMPTION THROUGH LEHMAN BROTHERS OR AN INTRODUCING BROKER

Redemption requests may be made through Lehman Brothers or an Introducing
Broker.

REDEMPTION BY MAIL

Shares held by Lehman Brothers as custodian must be redeemed by submitting a
written request to a Lehman Brothers Investment Representative. All other
shares may be redeemed by submitting a written request for redemption to the
Fund's Transfer Agent:

Lehman Brothers Floating Rate U.S. Government Fund
c/o The Shareholder Services Group, Inc.
P.O. Box 9184
Boston, Massachusetts 02209-9184

A written redemption request to the Fund's Transfer Agent or a Lehman Brothers
Investment Representative must (a) state the number of shares to be redeemed,
(b) identify the shareholder's account number, and (c) 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.

EXCHANGE PRIVILEGE

Shares of the Fund may be exchanged

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<PAGE>

for shares of a comparable class of other funds in the Lehman Brothers Group of
Funds, to the extent shares are offered for sale in the shareholder's state of
residence.

TAX EFFECT. 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. Therefore, an exchanging shareholder may realize a
taxable gain or loss in connection with an exchange.

ADDITIONAL INFORMATION REGARDING THE EXCHANGE PRIVILEGE. Shareholders
exercising the exchange privilege with any of the other funds in the Lehman
Brothers Group of Funds should review the prospectus of that fund carefully
prior to making an exchange. Lehman Brothers reserves the right to reject any
exchange request. The exchange privilege may be modified or terminated at any
time after notice to shareholders. For further information regarding the
exchange privilege or to obtain the current prospectuses for members of the
Lehman Brothers Group of Funds, investors should contact their Lehman Brothers
Investment Representative.

VALUATION OF SHARES

The net asset value per share is calculated on each weekday, with the exception
of those holidays on which either Lehman Brothers or the Federal Reserve Bank of
Boston is closed. Currently, one or both of these institutions are closed on the
customary national business holidays of New Year's Day, Martin Luther King, Jr.
Birthday (observed), Presidents' Day, Good Friday, Memorial Day Independence Day
(observed), Labor Day, Columbus Day, (observed) Veterans Day, Thanksgiving Day
and Christmas Day.

The net asset value per share of Fund shares is determined as of 4:00 p.m.,
Eastern time, and is computed separately for each class by adding the value of
all securities and other assets of the Fund, subtracting class-specific
liabilities, and dividing the result by the total number of the Fund's
outstanding shares. Generally, the Fund's investments are valued at market
value or, in the absence of a market value with respect to any securities, at
fair value using methods determined in good faith by the Adviser under the
supervision of the Trustees and may include yield equivalents or a pricing
matrix. Further information regarding the Fund's valuation policies is
contained in the Statement of Additional Information.

MANAGEMENT OF THE FUND

The business and affairs of the Fund are managed under the direction of the
Trust's Board of Trustees. The Trustees approve all significant agreements
between the Trust and the persons or companies that furnish services to the
Fund, including agreements with its Distributor, Adviser, Administrator and
Transfer Agent, and Custodian. The day-to-day operations of the Fund are
delegated to the Fund's Adviser and Administrator. The Statement of Additional
Information relating to the Fund contains general background information
regarding each Trustee and executive officer of the Trust.

-13-
<PAGE>

INVESTMENT ADVISER - LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.

Lehman Brothers Global Asset Management Inc. ("LBGAM" or the "Adviser") serves
as the Fund's Investment Adviser. LBGAM, together with other Lehman Brothers
investment advisory affiliates, had in excess of $____ billion in assets under
management as of April 30, 1995. Subject to the supervision and direction of
the Trust's Board of Trustees, LBGAM manages the portfolio of the Fund in
accordance with the Fund's 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 Funds. As compensation for the services of LBGAM as
Adviser to the Fund, LBGAM is entitled to receive 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, is the portfolio manager of
Floating Rate U.S. Government Fund and Short Duration U.S. Government Fund. Mr.
Hartman is also Co- Chairman of the Board and Trustee of the Trust. Mr. Hartman
joined LBGAM's Mortgage Department in 1987 and was Senior Vice President of
Mortgage Finance, responsible for RTC, FNMA and the Scudder FNMA MBS Fund. Mr.
Hartman is the portfolio manager primarily responsible for managing the day-to-
day operations of the Funds, including making investment selections. Mr.
Hartman will be assisted by Andrew J. Stenwall, a Senior Vice President of
LBGAM, and Timothy Neumann, a Vice President of LBGAM.

LBGAM is located at Three World Financial Center, New York, New York 10285.
LBGAM is a wholly-owned subsidiary of Lehman Brothers Holdings, Inc.
("Holdings"). As of December 31, 1994, FMR Corp. beneficially owned
approximately 12.3%, Nippon Life Insurance Company beneficially owned
approximately 8.7% and Heine Securities Corporation beneficially owned
approximately 5.1% of the outstanding voting securities of Holdings.

ADMINISTRATOR AND TRANSFER AGENT - THE SHAREHOLDER SERVICES GROUP, INC.

The Shareholder Services Group, Inc. ("TSSG"), located at One Exchange Place, 53
State Street, Boston, Massachusetts 02109, serves as the Fund's Administrator
and Transfer Agent. TSSG is a wholly owned subsidiary of First Data
Corporation. As Administrator, TSSG calculates the net asset value of the
Fund's shares and generally assists in all aspects of the Fund's administration
and operation. As compensation for its services as Administrator, TSSG is
entitled to a monthly fee at the annual rate of .10% of the value of the Fund's
average daily net assets. TSSG is also entitled to receive a fee from the Fund
for its services as Transfer Agent. TSSG pays Boston Safe, the Fund's
custodian, a portion of its monthly administration fee for custody services
rendered to the Fund.

On May 6, 1994, TSSG acquired the third party mutual fund administration
business of The Boston Company Advisors, Inc., an indirect wholly-owned
subsidiary of Mellon Bank Corporation ("Mellon"). In connection with this
transaction, Mellon assigned to TSSG its agreement with Lehman Brothers such
that Lehman Brothers and its affiliates, consistent with any fiduciary duties
and assuming certain service quality standards are met, would recommend TSSG as
the provider of administration services to the Fund. This duty to recommend
expires on May 21, 2000.

DISTRIBUTOR

Lehman Brothers, located at Three World Financial Center, New York, New York
10285, is the Distributor of the Fund. Lehman Brothers, a leading full service
investment firm serving U.S. and foreign

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<PAGE>

securities and commodities markets, meets the diverse financial needs of
individuals, institutions and governments around the world.

The Trust has adopted a plan of distribution with respect to the Retail Shares
of the Fund (the "Plan of Distribution") pursuant to Rule 12b-1 under the 1940
Act. Under the Plan of Distribution, the Fund has agreed with respect to such
class to pay Lehman Brothers monthly for advertising, marketing and distributing
its shares at an annual rate of up to 0.50% of its average daily net assets.
From time to time, Lehman Brothers may waive receipt of fees under the Plan of
Distribution for the Fund while retaining the ability to be paid under such Plan
thereafter. Lehman Brothers voluntarily has agreed to waive a portion of Rule
12b-1 fees so that such fees will equal 0.25% of the Fund's average daily net
assets attributable to the Retail Shares. This voluntary waiver is expected to
continue for at least one year from the date of this Prospectus. Under the Plan
of Distribution, Lehman Brothers may retain all or a portion of the payments
made to it pursuant to the Plan and may make payments to its Investment
Representatives or Introducing Brokers that engage in the sale of Fund shares.
The Plan of Distribution also provides that Lehman Brothers may make payments to
assist in the distribution of the Retail 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. The fees payable to Lehman Brothers under the Plan of
Distribution for advertising, marketing and distributing Retail Shares of the
Fund and payments by Lehman Brothers to its Investment Representatives or
Introducing Brokers are payable without regard to actual expenses incurred.
Lehman Brothers Investment Representatives and any other person entitled to
receive compensation for selling Retail Shares of the Fund may receive different
levels of compensation for selling one particular class of shares over another
in the Fund.

CUSTODIAN - BOSTON SAFE DEPOSIT AND TRUST COMPANY

Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly owned subsidiary
of Mellon Bank Corporation, located at One Boston Place, Boston, Massachusetts
02108, serves as the Fund's Custodian. Under the terms of the Stock Purchase
Agreement dated September 14, 1992 between Mellon and Lehman Brothers (then
named Shearson Lehman Brothers Inc.), Lehman Brothers agreed to recommend Boston
Safe as custodian of mutual funds affiliated with Lehman Brothers until May 21,
2000 to the extent consistent with its fiduciary duties and other applicable
law.

BANKING LAWS

Banking laws and regulations currently 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 generally from providing
services to their customers who invest in such a company. Some Introducing
Brokers 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-related Introducing Brokers, the Fund might be
required to alter or discontinue its arrangements with such Introducing Brokers
and change its method of operations with respect to certain other classes of its
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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<PAGE>

EXPENSES

The Fund bears all its own expenses. The Fund's expenses include taxes,
interest, fees and salaries of the Trust's Trustees and Officers who are not
directors, officers or employees of the Fund's service contractors, Securities
and Exchange Commission fees, state securities qualification fees, costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to investors, advisory, administration and distribution fees, charges of the
Custodian, Administrator, Transfer Agent and dividend disbursing agent, certain
insurance premiums, outside auditing and legal expenses, costs of investor
reports and shareholder meetings and any extraordinary expenses. The Fund also
pays for brokerage fees and commissions (if any) in connection with the purchase
and sale of portfolio securities. In order to maintain a competitive expense
ratio, the Adviser and Administrator have voluntarily agreed to waive fees to
the extent necessary to maintain an annualized expense ratio at a lever no
greater than .65% with respect to the Retail Shares. This voluntary
reimbursement will not be changed unless investors are provided at least 60
days' advance notice. In addition, these service providers have agreed to
reimburse the Fund to the extent required by applicable state law for certain
expenses that are described in the Statement of Additional Information.

DIVIDENDS

Investors of the Fund are entitled to dividends and distributions arising only
from the net investment income and capital gains, if any, earned on investments
held by the Fund. The Fund's net investment income is declared daily as a
dividend to shares held of record at the close of business on the day of
declaration and paid monthly. Shares begin accruing dividends on the next
business day following receipt of the purchase order and continue to accrue
dividends up to and including the day that such shares are redeemed. Unless a
shareholder instructs the Fund to pay dividends or capital gains distributions
in cash and credit them to the shareholder's account at Lehman Brothers,
dividends and distributions from the Fund will be reinvested automatically in
additional shares of the Fund at net asset value. Net capital gains
distributions, if any, will be made annually.

TAXES

Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that the Fund distribute to its investors at
least 90% of its exempt-interest income net of certain deductions and 90% of its
investment company taxable income for such year. 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 investors
who are not currently exempt from federal income taxes, whether such income is
received in cash or reinvested in

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<PAGE>

additional shares.

Dividends derived from exempt-interest income may be treated by the Fund's
investors as items of interest excludable from their gross income under Section
103(a) of the Code, unless under the circumstances applicable to the particular
investor the exclusion would be disallowed.

To the extent, if any, dividends paid to investors are derived from taxable
income or from long-term or short-term capital gains, such dividends will not be
exempt from federal income tax, whether such dividends are paid in the form of
cash or additional shares, and may also be subject to state and local taxes.

The Fund may engage in hedging involving futures contracts, options on futures
contracts and short sales. See "Investment Objective and Policies." Such
transactions will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (that
is, may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer recognition of certain of the Fund's
losses. These rules could therefore affect the character, amount and timing of
distributions to shareholders. In addition, these provisions (1) will require
the Fund to "mark-to-market" certain types of positions in its portfolio (that
is, treat them as if they were closed out) and (2) may cause the Fund to
recognize income without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the distribution requirements for
avoiding income and excise taxes. The extent to which the Fund may be able to
use such hedging techniques and continue to qualify as a regulated investment
company may be limited by the 30% limitation discussed above. The Fund intends
to monitor its transactions, will make the appropriate tax elections and will
make the appropriate entries in its books and records when it acquires any
futures contract, option or hedged investment in order to mitigate the effect of
these rules and prevent disqualification of the Fund as a regulated investment
company.

In addition to federal taxes, an investor may be subject to state, local or
foreign taxes on payments received from the Fund. A state tax exemption may be
available in some states to the extent distributions of the Fund are derived
from interest on certain U.S. Government securities or on securities issued by
public authorities in the state. The Fund will provide investors annually with
information about federal income tax consequences of distributions made each
year. Investors should be aware of the application of their state and local tax
laws to investments in the Fund.

Dividends declared in October, November or December of any year payable to
investors of record on a specified date in such months will be deemed to have
been received by the investors and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.

-17-
<PAGE>

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<PAGE>

Investors 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 investors. No
attempt is made to present a detailed explanation of the federal, state or local
income tax treatment of the Fund or its investors, and this discussion is not
intended as a substitute for careful tax planning. Accordingly, potential
investors in the Fund should consult their tax advisers with specific reference
to their own tax situation. See the Statement of Additional Information for a
further discussion of tax consequences of investing in shares of the Fund.

THE FUND'S PERFORMANCE

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<PAGE>

distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage. The "yield" quoted in
advertisements for a particular class of shares refers to the income generated
by an investment in such shares over a specified period (such as a 30-day
period) identified in the advertisement. This income is then "annualized;" that
is, the amount of income generated by the investment during that period is
assumed to be generated each such period over a 52-week or one-year period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
particular class is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment.

Distribution rates may also be quoted for the Fund. Quotations of distribution
rates are calculated by annualizing the most recent distribution of net
investment income for a monthly, quarterly or other relevant period and dividing
this amount by the ending net asset value for the period for which the
distribution rates are being calculated.

The Fund's performance may be compared to that of other mutual funds with
similar objectives, to bond or other relevant indices, or to rankings prepared
by independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, such data are reported in national
financial publications such as MORNINGSTAR, INC., BARRON'S, IBC/DONOGHUE'S INC.
BOND FUND REPORT, USA TODAY, THE WALL STREET JOURNAL and THE NEW YORK TIMES,
BUSINESS WEEK, FORBES, FORTUNE, INSTITUTIONAL INVESTOR, INVESTORS DAILY, MONEY,
reports prepared by Lipper Analytical Services, Inc. and publications of a local
or regional nature. The Fund's Lipper ranking in the "U.S. Mortgage Fund" or
"ARM Fund" category may also be quoted from time to time in advertising and
sales literature.

THE FUND'S TOTAL RETURN AND YIELD FIGURES FOR A CLASS OF SHARES REPRESENT PAST
PERFORMANCE, WILL FLUCTUATE AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF
FUTURE RESULTS. The performance of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. Since
the shares of other classes bear all service fees for distribution or
shareholder services and, in certain classes, class related expenses, the total
return and net yield of such shares can be expected at any given time to be
lower than the total return and net yield of the Fund's other classes of shares.
The methods used to compute the Fund's total return and yields are described in
more detail in the Statement of Additional Information. Current performance
information may be obtained through a Lehman Brothers Investment Representative
or by calling 1-800-861-4171.

ADDITIONAL INFORMATION

The Trust is a Massachusetts business trust established on November 25, 1992.
The Trust's Declaration of Trust authorizes the Board of Trustees to issue an
unlimited number of full and fractional shares of beneficial interest in the
Trust and to classify or reclassify any unissued shares into one or more
additional classes of shares. The Trust is an open-end management investment
company which has authorized the issuance of multiple classes of shares for its
family of investment portfolios. The issuance of separate classes of shares is
intended to address the different service needs of different types of investors.
Each share represents interests in each Fund in proportion to each share's net
asset value, except that shares of certain classes bear fees and expenses for
certain shareholder services or distribution and support services provided to
that class and certain other class related expenses. As indicated, the shares
described in this Prospectus represent Retail Shares.

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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 investors owning at
least 10% of the outstanding shares of the Trust entitled to vote. Investors of
the Trust are entitled to one vote for each full share held (irrespective of
class or portfolio) and fractional votes for fractional shares held.

Holders of the Fund's shares will vote in the aggregate and not by class on all
matters, except where otherwise required by law and except when the Board of
Trustees determines that the matter to be voted upon affects only the
shareholders of a particular class. Further, shareholders of the Funds will
vote in the aggregate and not by portfolio except as otherwise required by law
or when the Board of Trustees determines that the matter to be voted upon
affects only the interests of the shareholders of a particular portfolio. (See
the Statement of Additional Information under "Additional Description Concerning
Fund Shares" for examples where the 1940 Act requires voting by portfolio.)
Shareholders of the Trust are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative; and, accordingly, the holders of more
than 50% of the aggregate shares of the Trust may elect all of the trustees.

-21-
<PAGE>

-22-

ons as those applicable to the Fund. In such event, the
Fund's investment advisory agreement would be terminated. Such investment would
be made only if the Trust's Board of Trustees believes that the aggregate per
share expenses of each class of the Fund and such other investment company will
be less than or approximately equal to the expenses which each class of the Fund
would incur if the Fund were to continue to retain the services of an investment
adviser for the Fund and the assets of the Fund us describes
the SHORT DURATION U.S. GOVERNMENT FUND (the "Fund"),
a diversified portfolio of the Lehman Brothers Institutional Funds Group Trust
(the "Trust"), an open-end, management investment company. This Prospectus
describes one class of shares, Retail Shares, offered by the Fund to individual
investors.

LEHMAN BROTHERS INC. ("Lehman Brothers" or the "Distributor") sponsors the Fund
and acts as distributor of its shares. LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT
INC. (the "Adviser") serves as the Fund's Investment Adviser.

The address of the Fund is One Exchange Place, Boston, Massachusetts 02109.
Performance and other information regarding the Fund may be obtained through a
Lehman Brothers Investment Representative or by calling 1-800-861-4171.

This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information dated May ___, 1995 as
amended or supplemented from time to time, has been filed with the Securities
and Exchange Commission and is available to investors without charge by calling
The Shareholder Services Group, Inc. ("TSSG"), the Fund's Transfer Agent, 1-800-
861-4171. The Statement of Additional Information is incorporated in its
entirety by reference into this Prospectus.

SHARES OF THE FUND INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL. THE FUND IS NOT A MONEY MARKET FUND AND ITS NET ASSET VALUE WILL
FLUCTUATE. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT GUARANTEED BY ANY
GOVERNMENTAL AGENCY.

-------------

-1-
<PAGE>

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

**1 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.

-------------

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<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Background and Expense Information 4
Investment Objective and Policies 6
Purchase, Redemption and Exchange of Shares 14
Valuation of Shares Net Asset Value 20
Management of the Fund 20
Dividends 23
Taxes 23
Performance Information 25
Description of Shares 26
</TABLE>

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 DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.

-3-
<PAGE>

BENEFITS TO INVESTORS

The Fund offers investors several important benefits:

- A professionally managed portfolio of short duration adjustable rate,
floating rate and fixed rate U.S. government and agency securities.

- Investment liquidity through convenient purchase and redemption
procedures.

- A convenient way to invest without the administrative burdens normally
associated with the direct ownership of securities.

- Automatic dividend reinvestment feature, plus exchange privilege with
the shares of certain other funds in the Lehman Brothers Group of
Funds.

BACKGROUND AND EXPENSE INFORMATION

The Fund currently offers three separate classes of shares, one of which, Retail
Shares, is offered by this Prospectus. Each class represents an equal, PRO RATA
interest in the Fund. Retail Shares are available to all retail investors. The
Fund's other classes of shares have different sales charges and expenses than
Retail Shares which would affect the performance of those classes of shares.
Investors may obtain information concerning the Fund's other classes of shares
by contacting Lehman Brothers at 800-861-4171.

The following Expense Summary lists the costs and expenses that a shareholder
can expect to incur as an investor in Retail Shares of the Fund based upon
estimated expenses and average net assets for the current fiscal year.

EXPENSE SUMMARY

SHAREHOLDER TRANSACTION EXPENSES

Maximum sales charge imposed on purchases
(as a percentage of offering price)....................... 4.75%
Maximum CDSC (as a percentage of redemption proceeds)....... *

ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<S> <C>
ADVISORY FEES (AFTER WAIVERS).................................. .12%
</TABLE>

-4-
<PAGE>

<TABLE>
<S> <C>
RULE 12B-1 FEES (AFTER WAIVERS)**............................... .25%

OTHER EXPENSES-INCLUDING ADMINISTRATION FEES
(ESTIMATED, AFTER WAIVERS)...................................... .43%

TOTAL FUND OPERATING EXPENSES (ESTIMATED AFTER
WAIVERS OR EXPENSE REIMBURSEMENTS)**............................ .80%
----
----
<FN>
* A contingent deferred sales charge ("CDSC") of .75% is imposed for the first
year after purchase for investors who make purchases of $1 million or more; such
purchases are not subject to a sales charge at the time of purchase.

** The Investment Adviser has voluntarily agreed to waive a portion of its
advisory and Rule 12b-1 fees or reimburse the Fund [through December 31, 1995.]
The voluntary waiver or reimbursement will not be changed unless shareholders
are provided at least 60 days' advance notice. In addition, the Administrator
may voluntarily waive a portion of its fees. Absent waivers or reimbursement of
expenses, Advisory Fees would be .30%, Rule 12b-1 fees would be .50%, Other
Expenses would be .43% and the Total Fund Operating Expenses would be .98% with
respect to Retail Shares of the Fund's average daily net assets.
</TABLE>

The sales charge set forth in the table above is the maximum charge imposed on
purchases or redemptions of Retail Shares and investors may pay actual charges
of less than 4.75%, depending on the amount purchased.

EXAMPLE

The following example demonstrates the projected dollar amount of total
cumulative expenses on a $1,000 investment, assuming (1) a 5% annual return; (2)
deduction at the time of purchase of the maximum 4.75% sales charge and
(3) redemption at the end of each time period with respect to Retail Shares.
The example assumes payment by the Fund of operating expenses at the levels set
forth in the table above.

<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
RETAIL SHARES................... $8 $26 $____ $____
</TABLE>

THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES AND
RATE OF RETURN, WHICH MAY BE GREATER OR LESS THAN THOSE SHOWN. The foregoing
table has not been audited by the Fund's independent auditors.

-5-
<PAGE>

Long-term holders of mutual fund shares which bear Rule 12b-1 fees, such as the
Retail Shares, may pay more than the economic equivalent of the maximum
front-end sales charge permitted by rules of the National Association of
Securities Dealers, Inc.

FINANCIAL HIGHLIGHTS

Financial information is not provided in connection with the Retail Shares of
the Fund because they were not offered during the Trust's fiscal year ended
January 31, 1995. Financial information in connection with other classes of
shares of the Fund is included in their Prospectuses and the Trust's Annual
Report dated January 31, 1995, which are available upon request.

Ernst & Young is independent auditor to the Trust for its fiscal year beginning
February 1, 1995.

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. 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 is not a money market fund and its net asset value will
fluctuate. In most circumstances, the Fund's net asset value fluctuation is
expected to be similar to the price fluctuation of a one-year U.S. Treasury
bill. See "Duration" below.

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 Standard & Poor's
Corporation or P-1 by Moody's Investor Service, Inc.

DURATION

In most circumstances, 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

-6-
<PAGE>

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 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.

-7-
<PAGE>

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.

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

-8-
<PAGE>

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 Adviser will seek to manage these
risks (and potential benefits) by investing in a variety of such securities and
by using certain hedging techniques.

INVESTMENT LIMITATIONS

The Fund may not:

- Borrow money, except that the Fund may (i) borrow money from banks for
temporary or emergency purposes (not for leveraging or investment) and
(ii) engage in reverse repurchase agreements or dollar roll
transactions; provided that (i) and (ii) in combination do not exceed
one-third of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings).

- 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.

-9-
<PAGE>

OTHER INVESTMENTS AND INVESTMENT 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. The Fund may agree to purchase securities from financial
institutions subject to the seller's agreement to repurchase them at an agreed
upon time and price within one year from the date of acquisition ("repurchase
agreements"). The Fund will not invest more than 15% of the value of its assets
in repurchase agreements with terms which exceed seven days. The seller under a
repurchase agreement will be required to maintain the value of the securities
subject to the agreement at not less than the repurchase price (including
accrued interest). Default by or bankruptcy of the seller

-10-
<PAGE>

would, however, expose the Fund to possible loss because of adverse market
action or delay in connection with the disposition of the underlying
obligations.

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. The Fund may
engage in reverse repurchase agreements provided that the amount of the reverse
repurchase agreements and any other borrowings does not exceed one-third of the
value of the Fund's total assets (including the amount borrowed) less
liabilities (other than borrowings).

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To assist in reducing
fluctuations in net asset value, the Fund may purchase and sell futures
contracts on U.S. Government Securities, Mortgage Securities and Eurodollar
Securities, or purchase call and put options on such futures contracts. The
Fund will engage in futures and related options transactions only for bona fide
hedging purposes. Although the use of hedging strategies is intended to reduce
the Fund's exposure to interest rate volatility, it may cause fluctuations in
net asset value. Unanticipated changes in interest rates or securities prices
may result in a poorer overall performance for the Fund than if it had not
entered into any futures contracts or options transactions. The risks
associated with the use of futures contracts and options on futures contracts
include (1) the imperfect correlation between the change in market value of the
securities held by the Fund and the prices of the futures and options, and (2)
the possible absence of a liquid secondary market for a futures contract or
option and the resulting inability to close a futures position prior to its
maturity date. See "Investment Objective and Policies - Additional Information
on Investment Practices - Futures Contracts and Options on Futures Contracts" in
the Statement of Additional Information.

SHORT SALES. The Fund may from time to time make short sales of securities
which are acceptable investments of the Fund and are listed on a national
securities exchange. A short sale is a transaction in which the Fund sells a
security it does not own in anticipation that the market price of that security
will decline. When the Fund makes a short sale, it must borrow the security
sold short and deliver it to the broker-dealer through which it made the short
sale in order to satisfy its obligation to deliver the security upon conclusion
of the sale. In borrowing the securities to be delivered to the buyer, the Fund
becomes

-11-
<PAGE>

obligated to replace the securities borrowed at their market price at the time
of replacement, whatever that price may be. If the price of the security sold
short increases between the time of the short sale and the time the Fund
replaces the borrowed security, the Fund will incur a loss; conversely, if the
price declines, the Fund will realize a capital gain. However, 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, 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, the 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 expects to
make short sales as a form of hedging to offset potential declines in securities
positions it holds. The Fund may also make short sales "against the box". In a
short sale "against the box," the Fund, at the time of the sale, owns or has the
immediate and unconditional right to acquire at no additional cost the identical
security sold. See the Statement of Additional Information for additional
information on short sales.

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.

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.

-12-

<PAGE>

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 Standard & Poor's 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 Adviser believes its 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.

PURCHASE OF SHARES

Purchases of Retail Shares must be made through a brokerage account maintained
through Lehman Brothers or a broker or dealer (each an "Introducing Broker")
that (i) clears securities transactions through Lehman Brothers on a fully
disclosed basis or (ii) has entered into an agreement with Lehman Brothers with
respect to the sale of Fund shares. The Fund reserves the right to reject any
purchase order and to suspend the offering of shares for a period of time.

The Fund engages in a continuing offering of its shares. Purchases are effected
at the public offering price next determined after a purchase order is received
by Lehman Brothers or an Introducing Broker. 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. Purchase orders received by Lehman Brothers or
an Introducing Broker by 4:00 p.m., Eastern time, on any day the Fund's net
asset value is calculated are priced according to the net asset value determined
on that day. Purchase orders received after 4:00 p.m., Eastern time, are priced
as of the time of the net asset value next determined. Payment is generally due
to Lehman Brothers or an Introducing Broker by 3:00 p.m., Eastern time, on the
next business day following the order.

SYSTEMATIC INVESTMENT PLAN

The Fund offers investors in Retail Shares a Systematic Investment Plan under
which they may authorize Lehman Brothers or an Introducing Broker to place
additional purchase orders each month or quarter for Retail Shares in an amount
not less than $100. The purchase price is paid automatically from cash held in
the shareholder's Lehman Brothers brokerage account or through the automatic
redemption of the shareholder's shares of a Lehman Brothers money market fund.
For further information regarding the Systematic Investment Plan, shareholders
should contact their Lehman Brothers Investment Representative.

MINIMUM INVESTMENTS

The minimum initial investment in Retail Shares is $5,000 and the minimum
subsequent investment is $1,000, except for purchases through (a) IRAs and Self-
Employed Retirement Plans, for which the minimum initial and subsequent
investments are $2,000 and $1,000, respectively, (b) retirement plans qualified
under Section 403(b)(7) or Section 401(a) of the Code ("Qualified Retirement
Plan"), for which

-13-
<PAGE>

the minimum and subsequent investment is $500 and (c) the Fund's Systematic
Investment Plan, for which the minimum and subsequent investment is $100. For
employees of Lehman Brothers and its affiliates, the minimum initial investment
is $1,000 and the minimum subsequent investment is $500. The Fund reserves the
right at any time to vary the initial and subsequent investment minimums.
Introducing Brokers may impose higher minimum investment requirements than the
foregoing requirements.

OFFERING PRICE

The public offering price for Retail Shares is the per share net asset value of
that Class plus a sales charge, which is imposed in accordance with the
following schedule:

<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS %
AMOUNT OF INVESTMENT OF OFFERING PRICE OF NET ASSET VALUE
-------------------- ----------------- ------------------
<S> <C> <C>
Less than $100,000 4.75% 4.99%
$100,000 but under $250,000 3.50% 3.63%
$250,000 but under $500,000 2.50% 2.56%
$500,000 but under $1,000,000 2.00% 2.04%
$1,000,000 or more* .00% .00%
<FN>
* No sales charge is imposed on purchases of $1 million or more; however, a
contingent deferred sales charge ("CDSC") of .75% is imposed for the first
year after purchase. The CDSC on Retail Shares is payable to Lehman Brothers
which compensates Lehman Brothers Investment Representatives upon the sale of
these shares. The CDSC may be waived in certain circumstances.
</TABLE>

14
<PAGE>

REDUCED SALES CHARGES

Reduced sales charges are available to investors who are eligible to combine
their purchases of Retail Shares to receive volume discounts. Investors eligible
to receive volume discounts include individuals and their immediate families,
tax-qualified employee benefit plans and trustees or other professional
fiduciaries (including a bank, or an investment adviser registered with the SEC
under the 1940 Act) purchasing shares for one or more trust estates or fiduciary
accounts even though more than one beneficiary is involved. Reduced sales
charges on Retail Shares are also available under a combined right of
accumulation, under which an investor may combine the value of Retail Shares
already held in the Fund and certain other funds in the Lehman Brothers Group of
Funds, along with the value of the Fund's Retail Shares being purchased, to
qualify for a reduced sales charge. For example, if an investor owns Retail
Shares of the Fund and Class A Shares of certain other funds in the Lehman
Brothers Group of Funds that have an aggregate value of $74,000, and makes an
additional investment in Retail Shares of the Fund of $27,000, the sales charge
applicable to the additional investment would be 4%, rather than the 4.75%
normally charged on a $27,000 purchase. Investors interested in further
information regarding reduced sales charges should contact their Lehman Brothers
Investment Representatives.

Retail Shares may be offered without any applicable sales charges to: (a)
employees of Lehman Brothers and its affiliates or an Introducing Broker,
including employee benefit plans for such employees and their immediate families
when orders on their behalf are placed by such employees; (b) accounts managed
by Lehman Brothers or its registered investment advisory affiliates; (c)
directors, trustees or general partners of any investment company for which
Lehman Brothers serves as distributor; (d) any other investment company in
connection with the combination of such company with the Fund by merger,
acquisition of assets or otherwise; (e) shareholders who have redeemed Retail
Shares in the Fund (or shares of another fund in the Lehman Brothers Group of
Funds that is sold with a maximum 4.75% sales charge) and who wish to reinvest
their redemption proceeds in the Fund, provided the reinvestment is made within
30 days of the redemption; and (f) any client of a newly-employed Lehman
Brothers Investment Representative (for a period up to 90 days from the
commencement of the Investment Representative's employment with Lehman
Brothers), on the condition that the purchase is made with the proceeds of the
redemption of shares of a mutual fund which (i) was sponsored by the Investment
Representative's prior employer, (ii) was sold to a client by the Investment
Representative, and (iii) when purchased, such shares were sold with a sales
charge or, are subject to a change upon redemption.

LEHMAN BROTHERS 401(K) PROGRAM

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<PAGE>

Investors may be eligible to participate in the 401(k) Program, which is
generally designed to assist employers or plan sponsors in the creation and
operation of retirement plans under Section 401(a) of the Code. To the extent
applicable, the same terms and conditions are offered to all Participating Plans
in the 401(k) Program, which include both 401(k) plans and other types of
participant directed, tax-qualified employee benefit plans.

The Fund offers Retail Shares to Participating Plans. Retail Shares are
available to all Participating Plans and are the only investment alternative for
Participating Plans that are eligible to purchase Retail Shares at net asset
value without a sales charge. Shares acquired through the 401(k) Program are
subject to the same service and/or distribution fees as, but different sales
charge schedules than, the Retail Shares acquired by other investors.

Once a Participating Plan has made an initial investment in the Fund, all of its
subsequent investments in the Fund must be in the same Class of shares, except
as otherwise described below.

The sales charges for Retail Shares acquired by Participating Plans are as
follows:

<TABLE>
<CAPTION>
AMOUNT OF INVESTMENT SALES CHARGE AS % OF SALES CHARGE
VALUE OFFERING PRICE OF NET ASSET
-------------------- -------------------- ------------
<S> <C> <C>
Less than $100,000 4.75% 4.99%
$100,000 but under $250,000 3.50% 3.63%
$250,000 but under $500,000 2.50% 2.56%
$500,000 but under $750,000 2.00% 2.04%
$750,000 .00% .00%
</TABLE>

A Participating Plan will have a combined right of accumulation, under which, to
qualify for a reduced sales charge, it may combine the value of Retail Shares
being purchased with the value of Class A shares already held in the Fund and in
any of the funds eligible for exchanges as indicated below under "Exchange
Privilege" that are sold with a sales charge.

Retail Shares of the Fund may be offered without any sales charge to any
Participating Plan that: (a) purchases $750,000 or more of shares of certain
funds in the Lehman Brothers Group of Funds under the combined right of
accumulation described above; (b) has 250 or more employees eligible to
participate in the Participating Plan at the time of initial investment in the
Fund; or (c) currently holds Retail Shares in the Fund that were received as a
result of an exchange of Class B Shares of certain funds in the Lehman Brothers
Group of Funds. Class A Shares acquired through the 401(k) Program will not be
subject to a CDSC.

Participating Plans wishing to acquire shares of the Fund through the 401(k)
Program must purchase shares from the Fund's transfer agent. For further
information regarding the 401(k) Program, investors should contact their Lehman
Brothers Investment Representatives.

REDEMPTION OF SHARES

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<PAGE>

Shareholders may redeem their shares on any day the Fund calculates its net
asset value. See "Valuation of Shares." Redemption requests received in proper
form prior to 4:00 p.m., Eastern time, are priced at the net asset value per
share determined on that day. Redemption requests received after 4:00 p.m.,
Eastern time, are priced at the net asset value as next determined. The 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. If
a shareholder holds shares in more than one Class, any request for redemption
must specify the Class being redeemed. In the event of a failure to specify
which Class, or if the investor owns fewer shares of the Class than specified,
the redemption request will be delayed until the Fund's transfer agent receives
further instructions from Lehman Brothers, or if the shareholder's account is
not with Lehman Brothers, from the shareholder directly.

The Fund normally transmits redemption proceeds for credit to the shareholder's
account at Lehman Brothers or the Introducing Broker at no charge (other than
any applicable CDSC) on the business day following the effectiveness of the
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, Self-Employed Retirement Plans and Qualified Retirement Plans)
may be subject to redemption by the Fund, but only after the shareholder has
been given at least 30 days in which to increase the account balance to more
than $1,000 ($500 for IRAs, Self-Employed Retirement Plans and Qualified
Retirement Plans). In addition, the Fund may redeem shares involuntarily or
suspend the right of redemption as permitted under the 1940 Act, or under
certain special circumstances described in the Statement of Additional
Information under "Additional Purchase and Redemption Information."

Fund shares may be redeemed in one of the following ways:

REDEMPTION THROUGH LEHMAN BROTHERS OR AN INTRODUCING BROKER

Redemption requests may be made through Lehman Brothers or an Introducing
Broker.

REDEMPTION BY MAIL

Shares held by Lehman Brothers as custodian must be redeemed by submitting a
written request to a Lehman Brothers Investment Representative. All other shares
may be redeemed by submitting a written request for redemption to the Fund's
transfer agent:

Lehman Short Duration U.S. Government Portfolio
Retail Class
c/o The Shareholder Services Group, Inc.
P.O. Box 9184
Boston, Massachusetts 02009-9184

A written redemption request to the Fund's transfer agent or a Lehman Brothers
Investment Representative must (a) state the Class and number or dollar amount
of shares to be redeemed, (b)

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<PAGE>

identify the shareholder's account number and (c) be signed by each registered
owner exactly as the shares are registered. If the shares to be redeemed were
issued in certificate form, the certificates must be endorsed for transfer (or
be accompanied by an endorsed stock power) and must be submitted to the Fund's
transfer agent together with the redemption request. 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.

AUTOMATIC CASH WITHDRAWAL PLAN

The Fund offers holders of Retail Shares an automatic cash withdrawal plan,
under which shareholders who own Retail Shares of the Fund with a value of at
least $10,000 may elect to receive periodic cash payments of at least $100
monthly. Retirement plan accounts are eligible for automatic cash withdrawal
plans only where the shareholder is eligible to receive qualified distributions
and has an account value of at least $5,000. For further information regarding
the automatic cash withdrawal plan, shareholders should contact their Lehman
Brothers Investment Representatives.

EXCHANGE PRIVILEGE

Retail Shares of the Fund may be exchanged for Class A shares of certain other
funds in the Lehman Brothers Group of Funds that are offered directly to
individual investors which have different investment objectives that may be of
interest to shareholders. 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.
Orders for exchanges will only be accepted on days on which both funds determine
their net asset value. To obtain information regarding the availability of funds
into which shares of the Fund may be exchanged, investors should contact their
Lehman Brothers Investment Representatives.

Shareholders of the funds in the Lehman Brothers Group of Funds sold without a
sales charge or with a maximum sales charge of less than 4.75% will be subject
to the appropriate "sales charge differential" upon the exchange of their shares
for Retail Shares of the Fund or other funds sold with a higher sales charge.
The "sales charge differential" is limited to a percentage rate no greater than
the excess of the sales charge rate applicable to purchases of shares of the
mutual fund being acquired in the exchange over the sales charge rate(s)
actually paid on the mutual fund shares relinquished in the exchange and on any
predecessor of those shares. For purposes of the exchange privilege, shares
obtained through automatic reinvestment of dividends, as described below, are
treated as having paid the same sales charges applicable to the shares on which
the dividends were paid. However, except in the case of the 401(k) Program, if
no sales charge was imposed upon the initial purchase of the shares, any shares
obtained through automatic reinvestment will be subject to a sales charge
differential upon exchange.

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<PAGE>

ADDITIONAL INFORMATION REGARDING THE EXCHANGE PRIVILEGE. 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.
Therefore, an exchanging shareholder may realize a taxable gain or loss in
connection with an exchange. Shareholders exercising the exchange privilege must
obtain and should review carefully a copy of the prospectus of the fund into
which the exchange is being made. For further information regarding the exchange
privilege or to obtain the current prospectuses for members of the Lehman
Brothers Group of Funds, investors should contact their Lehman Brothers
Investment Representatives. Lehman Brothers reserves the right to reject any
exchange request. The exchange privilege may be modified or terminated at any
time after notice to shareholders.

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<PAGE>

VALUATION OF SHARES

The net asset value per share of Fund shares is determined as of 4:00 p.m.,
Eastern time, and is computed separately for each class of shares by adding the
value of all securities and other assets of the Fund, subtracting class-specific
liabilities, and dividing the result by the total number of the Fund's
outstanding shares. Generally, the Fund's investments are valued at market
value or, in the absence of a market value with respect to any securities, at
fair value using methods determined in good faith by the Adviser under the
supervision of the Trustees and may include yield equivalents or a pricing
matrix. Further information regarding the Fund's valuation policies is
contained in the Statement of Additional Information.

MANAGEMENT OF THE FUND

The business and affairs of the Fund are managed under the direction of the
Trust's Board of Trustees. The Trustees approve all significant agreements
between the Trust and the persons or companies that furnish services to the
Fund, including agreements with its Distributor, Adviser, Administrator,
Custodian and Transfer Agent. The day-to-day operations of the Fund are
delegated to the Fund's Investment Adviser and Administrator. The Statement of
Additional Information relating to the Fund contains general background
information regarding each Trustee and Executive Officer of the Trust.

INVESTMENT ADVISER-LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.

Lehman Brothers Global Asset Management Inc. ("LBGAM" or the "Adviser") serves
as the Fund's Investment Adviser. LBGAM, together with other Lehman Brothers
investment advisory affiliates, had in excess of $____ billion in assets under
management as of April 30, 1995. Subject to the supervision and direction of
the Trust's Board of Trustees, LBGAM manages the portfolio of the Fund in
accordance with the Fund's 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. As compensation for the services of LBGAM as
Adviser to the Fund, LBGAM is entitled to receive 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, is the portfolio manager of the
Fund. Mr. Hartman is also Co-Chairman of the Board of Trustee of the Trust.

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<PAGE>

Mr. Hartman jointed LBGAM's Mortgage Department in 1987 and was Senior Vice
President of Mortgage Finance, responsible for RTC, FNMA and the Scudder FNMA
MBS Fund. 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 and
Timothy N. Neumann, Vice Presidents of LBGAM. Mr. Hartman has managed the Fund
since the commencement of operations.

ADMINISTRATOR AND TRANSFER AGENT-THE SHAREHOLDER SERVICES GROUP, INC.

The Shareholder Services Group, Inc. ("TSSG"), located at One Exchange Place,
Boston, Massachusetts 02109, serves as the Fund's Administrator and Transfer
Agent. TSSG is a wholly owned subsidiary of First Data Corporation. As
Administrator, TSSG calculates the net asset value of the Fund's shares and
generally assists in all aspects of the Fund's administration and operation. As
compensation for its services as Administrator, TSSG is entitled to a monthly
fee at the annual rate of .10% of the value of the Fund's average daily net
assets. TSSG is also entitled to receive a fee from the Fund for its services as
Transfer Agent. TSSG pays Boston Safe, the Fund's Custodian, a portion of its
monthly administration fee for custody services rendered to the Fund.

On May 6, 1994, TSSG acquired the third party mutual fund administration
business of The Boston Company Advisors, Inc., an indirect wholly-owned
subsidiary of Mellon Bank Corporation ("Mellon"). In connection with this
transaction, Mellon assigned to TSSG its agreement with Lehman Brothers such
that Lehman Brothers and its affiliates, consistent with their fiduciary duties
and assuming certain service quality standards are met, would recommend TSSG as
the provider of administration services to the Fund. This duty to recommend
expires on May 21, 2000.

DISTRIBUTOR AND PLAN OF DISTRIBUTION

Lehman Brothers, located at Three World Financial Center, New York, New York
10285, is the Distributor of the Fund. Lehman Brothers, a leading full service
investment firm serving U.S. and foreign securities and commodities markets,
meets the diverse financial needs of individuals, institutions and governments
around the world.

The Trust has adopted a plan of distribution with respect to the Retail Shares
of the Fund (the "Plan of Distribution") pursuant to Rule 12b-1 under the 1940
Act.

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<PAGE>

Under the Plan of Distribution, the Fund has agreed with respect to such class
to pay Lehman Brothers monthly for advertising, marketing and distributing its
shares at an annual rate of up to 0.50% of its average daily net assets. From
time to time, Lehman Brothers may waive receipt of fees under the Plan of
Distribution for the Fund while retaining the ability to be paid under such Plan
thereafter. Lehman Brothers voluntarily has agreed to waive a portion of Rule
12b-1 fees so that such fees will equal 0.25% of the Fund's average daily net
assets attributable to the Retail Shares. This voluntary waiver is expected to
continue [through December 31, 1995] [for at least one year from the date of
this Prospectus.] Under the Plan of Distribution, Lehman Brothers may retain
all or a portion of the payments made to it pursuant to the Plan and may make
payments to its Investment Representatives or Introducing Brokers that engage in
the sale of Fund shares. The Plan of Distribution also provides that Lehman
Brothers may make payments to assist in the distribution of the Retail 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. The fees payable to Lehman
Brothers under the Plan of Distribution for advertising, marketing and
distributing Retail Shares of the Fund and payments by Lehman Brothers to its
Investment Representatives or Introducing Brokers are payable without regard to
actual expenses incurred. Lehman Brothers Investment Representatives and any
other person entitled to receive compensation for selling Retail Shares of the
Fund may receive different levels of compensation for selling one particular
class of shares over another in the Fund.

CUSTODIAN-BOSTON SAFE DEPOSIT AND TRUST COMPANY

Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly owned subsidiary
of Mellon Bank Corporation, located at One Boston Place, Boston, Massachusetts
02108, serves as the Fund's Custodian. In addition, under the terms of the
Stock Purchase Agreement dated September 14, 1992 between Mellon and Lehman
Brothers (then named Shearson Lehman Brothers Inc.), Lehman Brothers agreed to
recommend Boston Safe as custodian of mutual funds affiliated with Lehman
Brothers until May 21, 2000 to the extent consistent with its fiduciary duties
and other applicable law.

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<PAGE>

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, administration and distribution 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. Fund expenses are allocated to a particular class based
on either expenses identifiable to the Class or relative net assets of the Class
and other Classes of Fund Shares. LBGAM and TSSG have agreed to reimburse the
Fund to the extent required by applicable state law for certain expenses that
are described in the Statement of Additional Information relating to the Fund.
In addition, in order to maintain a competitive expense ratio, the Adviser and
Administrator have voluntarily agreed to waive fees to the extent necessary to
maintain an annualized expense ratio at a level no greater than .65% with
respect to the Retail Shares of the Fund.

DIVIDENDS

The Fund's policy is to distribute its investment income and net realized
capital gains. Dividends will be declared daily and paid monthly. Shares begin
accruing dividends on the business day following receipt of the purchase order
and continue to accrue dividends up to and including the day that such shares
are redeemed. Unless a shareholder instructs that dividends and capital gains
distributions on shares of any Class be paid in cash and credited to the
shareholder's account at Lehman Brothers, dividends and capital gains
distributions will be reinvested automatically in additional shares of that
Class at net asset value, subject to no sales charge or CDSC. 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 certain expenses borne differ by Class. As a
result, the per share dividends on Retail Shares will be lower than those on
other classes of the Fund's shares which are offered directly to institutional
investors. See "Statement of Additional Information."

Each shareholder or its authorized representative will receive an annual
statement designating the amount of any dividends and distributions made during
each year and their federal tax qualification.

TAXES

The Fund intends to qualify and elect to be treated as a regulated investment
company for federal income tax purposes under Subchapter M of the Code. If so
qualified, the Fund will not be subject to federal

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<PAGE>

income taxes on its investment company taxable income (as that term is defined
in the Code, determined without regard to the deduction for dividends paid) and
net capital gain (the excess of the Fund's net long-term capital gain over its
net short-term capital loss), if any, that it distributes to its shareholders in
each taxable year. To qualify as a regulated investment company, the Fund must,
among other things, distribute to its shareholders at least 90% of its net
investment company taxable income for such taxable year. However, the Fund would
be subject to corporate income tax at a rate of 35% on any undistributed income
or net capital gain. The Fund must also derive less than 30% of its gross income
in each taxable year from the sale or other disposition of certain securities
held for less than three months (the "30% limitation"). If in any year the Fund
should fail to qualify as a regulated investment company, the Fund would be
subject to federal income tax in the same manner as an ordinary corporation, and
distributions to shareholders would be taxable to such holders as ordinary
income to the extend of the earnings and profits of the Fund. Distributions in
excess of earnings and profits will be treated as a tax-free return of capital,
to the extent of a holder's basis in its shares, and any excess, as a long- or
short-term capital gain.

The Fund intends to distribute substantially all of its investment company
taxable income each year. Such distributions, whether paid in cash or reinvested
in additional shares, of net investment income will be taxable as ordinary
income. Federal income taxes for distributions to an IRA or a qualified
retirement plan are deferred under the Code. A portion of such dividends may
qualify for the dividends-received deduction generally available for corporate
shareholders under the Code. Distributions to shareholders of net capital gain,
whether paid in cash or reinvested in additional shares, that are designated by
the Fund as "capital gains dividends" will be taxable as long-term capital
gains, whether paid in cash or additional shares, regardless of how long the
shares have been held by such shareholders. Shareholders receiving distributions
from the Fund in the form of additional shares will be treated for federal
income tax purposes as receiving a distribution in an amount equal to the fair
market value of the additional shares on the date of such a distribution.

Gain or loss, if any, recognized on the sale or other disposition of shares of
the Fund will be taxed as capital gain or loss if the shares are capital assets
in the shareholder's hands. Generally, a shareholder's gain or loss will be a
long-term gain or loss if the shares have been held for more than one year. If a
shareholder sells or otherwise disposes of a share of the Fund before holding it
for more than six months, any loss on the sale or other disposition of such
share shall be treated as a long-term capital loss to the extent of any capital
gain dividends received by the shareholder with respect to such share. A loss
realized on a sale or exchange of shares may be disallowed if other shares are
acquired within a 61-day period beginning 30 days before and ending 30 days
after the date that the shares are disposed of.

Dividends and distributions by the Fund are generally taxable to the
shareholders at the time the dividend or distribution is made. Any dividend
declared by the Fund in October, November or December of any calendar year,
however, which is payable to shareholders of record on a specified date in such
a month and not paid on or before December 31 of such year will be treated as
received by the Shareholders as of December 31 of such year, provided that the
dividend is paid during January of the following year.

The Fund may engage in hedging involving futures contracts, options on futures
contracts and short sales. See "Investment Objective and Policies - Other
Investments and Investment Practices." Such transactions will be subject to
special provisions of the Code that, among other things, may affect the
character of gains and losses realized by the Fund (that is, may affect whether
gains or losses are ordinary or capital), accelerate recognition of income to
the Fund and defer recognition of certain of the Fund's losses. These rules
could therefore affect the character, amount and timing of distributions to
shareholders. In addition, these provisions (1) will require the Fund to "mark-
to-market" certain types of positions in its portfolio (that is, treat them as
if they were closed out) and (2) may cause the Fund to recognize income without

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<PAGE>

receiving cash with which to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding income and
excise taxes. The extent to which the Fund may be able to use such hedging
techniques and continue to qualify as a regulated investment company may be
limited by the 30% limitation discussed above. The Fund intends to monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any futures
contract, option or hedged investment in order to mitigate the effect of these
rules and prevent disqualification of the Fund as a regulated investment
company.

The Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to non-
corporate shareholders. This tax may be withheld from dividends if (i) the
shareholder fails to furnish the Fund with the shareholder's correct taxpayer
identification number, (ii) the Internal Revenue Service ("IRS") notifies the
Fund that the shareholder has failed to report properly certain interest and
dividend income to the IRS and to respond to notices to that effect, or (iii)
when required to do so, the shareholder fails to certify that he or she is not
subject to backup withholding.

Ordinary income dividends paid by the Fund to shareholders who are non-resident
aliens or foreign entities will be subject to a 30% withholding tax unless a
reduced rate of withholding or a withholding exemption is provided under
applicable treaty law or the income is "effectively connected" with a U.S. trade
or business. Generally, subject to certain exceptions, capital gain dividends
paid to non-resident shareholders or foreign entities will not be subject to
U.S. tax. Non-resident shareholders are urged to consult their own tax advisers
concerning the applicability of the U.S. withholding tax.

------------------------

The foregoing discussion is only a brief summary 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 advisers with specific reference to their own tax situation.

PERFORMANCE INFORMATION

From time to time, in advertisements or in reports to shareholders, the "total
return," "yields" and "effective yields" for each class of 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.
Total return figures for Retail Shares include the maximum initial 4.75% sales
charge and take into account the Rule 12b-1 fees payable with respect to such
shares. Total return figures will be given for the recent one-, five- and ten-
year periods, or the life of Retail Shares of the Fund, to the extent they have
not been in existence for any such periods, and may be given for other periods
as well, such as on a year-by-year basis. When considering average annual total
return figures for periods longer than one year, it is important to note that
the total return for any one year in the period might have been greater or less
than the average for the entire period. "Aggregate total return" figures may be
used for various periods, representing the cumulative

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<PAGE>

change in value of an investment in Retail Shares for the specific period (again
reflecting changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate total return may be calculated either with or without
the effect of the maximum 4.75% sales charge for the Retail Shares and may be
shown by means of schedules, charts or graphs and may indicate subtotals of the
various components of total return (that is, change in the value of initial
investment, income dividends and capital gains distributions).

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 each class of shares of 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 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.

DESCRIPTION OF SHARES

The Trust is a Massachusetts business trust established on November 25, 1992.
The Trust's Declaration of Trust authorizes the Board of Trustees to issue an
unlimited number of full and fractional shares of beneficial interest in the
Trust and to classify or reclassify any unissued shares into one or more
additional classes of shares. The Trust is an open-end management investment
company which authorized the issuance of multiple classes of shares for its
family of investment portfolios. The issuance of separate classes of shares is
intended to address the different service needs of different types of investors.
Each share represents interests in each Fund in proportion to each share's net
asset value, except that shares of certain classes bear fees and expenses for
certain shareholder services or distribution and support services provided to
that class and certain other class related expenses. As indicated, the shares
described in this Prospectus represent Retail Shares.

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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.

Holders of the Fund's shares will vote in the aggregate and not by class on all
matters, except where otherwise required by law and except when the Board of
Trustees determines that the matter to be voted upon affects only the
shareholders of a particular class. Further, shareholders of the Funds will
vote in the aggregate and not by portfolio except as otherwise required by law
or when the Board of Trustees determines that the matter to be voted upon
affects only the interests of the shareholders of a particular portfolio. (See
the Statement of Additional Information under "Additional Description Concerning
Fund Shares" for examples where the 1940 Act requires voting by portfolio.)
Shareholders of the Trust are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative; and, accordingly, the holders of more
than 50% of the aggregate shares of the Trust may elect all of the trustees.

---------

-27-
<PAGE>

SHORT DURATION
U.S. GOVERNMENT FUND

------------

PROSPECTUS

MAY __, 1995

------------

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 THEIR
INVESTMENT REPRESENTATIVE OR LEHMAN BROTHERS AT 1-800-861-4171.

LEHMAN BROTHERS

-28-
<PAGE>

Member SIPC

AMERICAN EXPRESS TOWER, WORLD FINANCIAL CENTER, NEW YORK, NEW YORK 10285

-29-

ring 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 documentributor.
This Prospectus does not constitute an offering by the Fund or
by the Distributor in any jurisdiction in which such offering may not lawfully
be made.

TABLE OF CONTENTS

<TABLE>
<S> <C>
Benefits to Investors 2
Background and Expense Information 2
Investment Objective and Policies 4
Purchase of Shares 12
Redemption of Shares 14
Exchange Privilege 16
Valuation of Shares 16
Management of the Fund 17
Dividends 21
Taxes 21
The Fund's Performance 23
Additional Information 24
</TABLE>

This Prospectus and the Statement of Additional Information incorporated herein
relate primarily to the Fund and describe only the investment objective and
policies, operations, contracts and other matters relating to the Fund.
Investors wishing to obtain similar information regarding the Trust's other
portfolios may obtain separate prospectuses describing them by contacting Lehman
Brothers at 800-861-4171.

<PAGE>

PROSPECTUS
MAY __, 1995

SHORT DURATION MUNICIPAL FUND

AN INVESTMENT PORTFOLIO OF LEHMAN BROTHERS
INSTITUTIONAL FUNDS GROUP TRUST

This Prospectus describes the SHORT DURATION MUNICIPAL FUND (the "Fund"), a
diversified portfolio of the Lehman Brothers Institutional Funds Group Trust
(the "Trust"), an open-end, management investment company. This Prospectus
describes one class of shares, Retail Shares, offered by the Fund.

The Fund's investment objective is to provide a high level of current income
consistent with minimal fluctuation of net asset value. The Fund invests
substantially all of its assets in tax-exempt obligations issued by state and
local governments, territories and possessions of the United States (including
the District of Columbia) and their political subdivisions, agencies and
instrumentalities. All or a portion of the Fund's dividends may be a specific
preference item for purposes of federal individual and corporate alternative
minimum taxes.

LEHMAN BROTHERS INC. ("Lehman Brothers" or the "Distributor") sponsors the Fund
and acts as Distributor of its shares. LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT
INC. (the "Adviser") serves as the Fund's Investment Adviser.

This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information dated May ___, 1995, as
amended or supplemented from time to time, has been filed with the Securities
and Exchange Commission and is available to investors without charge by calling
The Shareholder Services Group, Inc. ("TSSG"), the Fund's Transfer Agent, at
800-861-4171. The Statement of Additional Information is incorporated in its
entirety by reference into this Prospectus.

-----------

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.

-1-
<PAGE>

BENEFITS TO INVESTORS

The Fund offers investors several important benefits:

- a professionally managed portfolio of tax-exempt obligations issued by
state and local governments.

- investment liquidity through convenient purchase and redemption
procedures.

- a convenient way to invest without the administrative burdens normally
associated with the direct ownership of securities.

- automatic dividend reinvestment feature, plus exchange privilege with
the shares of certain other funds in the Lehman Brothers Group of
Funds.

BACKGROUND AND EXPENSE INFORMATION

The following Expense Summary lists the costs and expenses that a holder of
Retail Shares can expect to incur as an investor in the Fund, based upon
estimated expenses and average net assets for the current fiscal year.

-2-
<PAGE>

EXPENSE SUMMARY

<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees (after waivers) ______%
Rule 12b-1 fees (after waivers)* .25%
Other Expenses - including Administration Fees
(after waivers) ______%

Total Fund Operating Expenses
(after waivers or expense reimbursement)** ______%
------
------
<FN>
*Reflects voluntary waiver of Rule 12b-1 fees which is expected to continue
until at least one year from the date of this Prospectus. Absent such voluntary
waivers, Rule 12b-1 fees would equal .50% of average net assets.

**In order to maintain a competitive expense ratio, the Adviser and
Administrator may voluntarily waive a portion of their fees. The maximum annual
contractual fees payable to the Adviser and Administrator total .40% of the
Fund's average daily net assets. Absent waivers Total Fund Operating Expenses
of Retail Shares would be ____% of the Fund's average daily net assets.
</TABLE>

EXAMPLE

-3-
<PAGE>

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 Retail Shares:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
$_____ $______

</TABLE>

Long-term shareholders in mutual funds with Rule 12b-1 fees, such as the Fund,
may pay more than the economic equivalent of the maximum front-end sales charge
permitted by rules of the National Association of Securities Dealers, Inc.

INVESTMENT OBJECTIVE AND POLICIES

The Fund pursues its investment objective by investing primarily in a
professionally managed portfolio of tax-exempt obligations issued by or on
behalf of states, territories and possessions of the United States, the District
of Columbia, and their respective authorities, agencies, instrumentalities and
political subdivisions and tax-exempt derivative securities such as tender
option bonds, participations, beneficial interests in trusts and partnership
interests (collectively, "Municipal Obligations"). Under normal market
conditions, the Fund will invest at least 80% of its net assets in Municipal
Obligations. The market value of the obligations held by the Fund will
generally vary inversely with changes in market interest rates. Thus, the
market value of these obligations generally declines when interest rates rise
and generally rises when interest rates decline.

-4-
<PAGE>

Although the Fund is not expected to do so, the Fund has the authority to invest
as much as 20% of its net assets in taxable investments, which are obligations
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
and repurchase agreements collateralized by U.S. Government securities ("Taxable
Investments"). This activity may generate taxable interest. See "Taxation."

RATINGS ON MUNICIPAL OBLIGATIONS

The Fund's investments in Municipal Obligations will at the time of investment
be rated within the three highest rating categories for municipal securities by
Standard & Poor's Corporation ("S&P") (AAA, AA or A) or by Moody's Investors
Service, Inc. ("Moody's") (Aaa, Aa, or A) or any other comparable nationally-
recognized rating agency, or their equivalent ratings or, if unrated, determined
by the Adviser to be of comparable credit quality. The credit rating assigned
to Municipal Obligations by these rating agencies may reflect the existence of
guarantees, letters of credit or other credit enhancement features available to
the issuers or holders of such Municipal Obligations.

DURATION

Generally, the Fund's average portfolio duration will be no more than three
years. The individual Municipal Obligations in which the Fund invests will have
effective maturities not exceeding five years. Unlike maturity, which indicates
when the bond repays principal, "duration" incorporates the cash flows of all
interest and principal payments and the proceeds from calls and redemptions over
the life of the bond. These payments are multiplied by the number of years over
which they are received to produce a value that is expressed in years (i.e., the
duration).

MUNICIPAL OBLIGATIONS AND OTHER INVESTMENTS

MUNICIPAL OBLIGATIONS. Municipal Obligations include bonds, notes and other
instruments issued by or on behalf of states, territories and possessions of the
United States (including the District of Columbia) and their political
subdivisions, agencies or instrumentalities, the interest on which is, in the
opinion of bond counsel, exempt from regular federal income tax (i.e., excluded
from gross income for federal income tax purposes but not necessarily exempt
from the federal alternative minimum tax or from the personal income taxes of
any state). In addition, Municipal Obligations include participation interests
in such securities the interest on which is, in the opinion of bond counsel for
the issuers or counsel selected by the Adviser exempt from regular federal
income tax. The definition of Municipal Obligations includes other types of
securities that currently exist or may be developed in the future and that are,
or will be, in the opinion of counsel, as described above, exempt from regular
federal income tax, provided that investing in such securities is consistent
with the Fund's investment objective and policies.

The two principal classifications of Municipal Obligations which may be held by
the Fund are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular facility
or class of facilities, or in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being
financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. While some private
activity bonds are general obligation securities, the vast majority are revenue
bonds. Consequently, the credit quality of private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved. Each of the Municipal Obligations described below may take the form
of either general obligation or revenue securities.

-5-
<PAGE>

Municipal Obligations are often issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities such
as bridges, highways, housing, hospitals, mass transportation, schools, streets
and water and sewer works. Other public purposes for which Municipal
Obligations may be issued include refunding outstanding obligations, obtaining
funds for general operating expenses, and obtaining funds to lend to other
public institutions and facilities. Municipal Obligations also include "private
activity" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for privately-operated housing facilities,
airport, mass transit or port facilities, sewage disposal, solid waste disposal
or hazardous waste treatment or disposal facilities and certain local facilities
for water supply, gas or electricity. In addition, proceeds of certain
industrial development bonds are used for the construction, equipment, repair or
improvement of privately operated industrial or commercial facilities. The
interest income from private activity bonds may subject certain investors to the
federal alternative minimum tax.

MUNICIPAL LEASES, CERTIFICATES OF PARTICIPATION AND OTHER PARTICIPATION
INTERESTS. The Fund may invest in municipal leases and certificates of
participation in municipal leases. A municipal lease is an obligation in the
form of a lease or installment purchase which is issued by a state or local
government to acquire equipment and facilities. Income from such obligations is
generally exempt from state and local taxes in the state of issuance. Municipal
leases frequently involve special risks not normally associated with general
obligation or revenue bonds. Leases and installment purchase or conditional
sale contracts (which normally provide for title to the leased asset to pass
eventually to the governmental issuer) have evolved as a means for governmental
issuers to acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of debt. The debt issuance limitations
are deemed to be inapplicable because of the inclusion in many leases or
contracts of "non-appropriation" clauses that relieve the governmental issuer of
any obligation to make future payments under the lease or contract unless money
is appropriated for such purpose by the appropriate legislative body on a yearly
or other periodic basis. In addition, such leases or contracts may be subject
to the temporary abatement of payments in the event the issuer is prevented from
maintaining occupancy of the leased premises or utilizing the leased equipment.
Although the obligation may be secured by the leased equipment or facilities,
the disposition of the property in the event of nonappropriation or foreclosure
might prove difficult, time consuming and costly, and result in an
unsatisfactory or delayed recoupment of the Fund's original investment.

Certificates of participation represent undivided interests in municipal leases,
installment purchase agreements or other instruments. The certificates are
typically issued by a trust or other entity which has received an assignment of
the payments to be made by the state or political subdivision under such leases
or installment purchase agreements.

Certain municipal lease obligations and certificates of participation may be
deemed illiquid for the purpose of the Fund's 15% limitation on investments in
illiquid securities. Other municipal lease obligations and certificates of
participation acquired by the Fund may be determined by the Adviser, pursuant to
guidelines adopted by the Trustees of the Trust, to be liquid securities for the
purpose of such limitation. In determining the liquidity of municipal lease
obligations and certificates of participation, the Adviser will consider a
variety of factors including: (1) the willingness of dealers to bid for the
security; (2) the number of dealers willing to purchase or sell the obligation
and the number of other potential buyers; (3) the frequency of trades or quotes
for the obligation; and (4) the nature of marketplace trades. In addition, the
Adviser will consider factors unique to particular lease obligations and
certificates of participation affecting the marketability thereof. These
include the general creditworthiness of the issuer, the importance of the
property covered by the lease to the issuer and the likelihood that the
marketability of the obligation will be maintained throughout the time the
obligation is held by the Fund.

-6-

<PAGE>

The Fund may also purchase participations in Municipal Obligations held by a
commercial bank or other financial institution. Such participations provide the
Fund with the right to a PRO RATA undivided interest in the underlying Municipal
Obligations. In addition, such participations generally provide the Fund with
the right to demand payment, on not more than seven days notice, of all or any
part of the Fund's participation interest in the underlying Municipal
Obligation, plus accrued interest. These demand features will be taken into
consideration in determining the effective maturity of such participations and
the average portfolio duration of the Fund. The Fund will only invest in such
participations if, in the opinion of bond counsel for the issuers or counsel
selected by the Adviser, the interest from such participations is exempt from
regular federal income tax.

MUNICIPAL NOTES. Municipal Obligations purchased by the Fund may include fixed
rate notes or variable rate demand notes. Such notes may not be rated by credit
rating agencies, but unrated notes purchased by the Fund will be determined by
the Adviser to be of comparable quality at the time of purchase to rated
instruments purchasable by the Fund. While there may be no active secondary
market with respect to a particular variable rate demand note purchased by the
Fund, the Fund may, upon notice specified in the note, demand payment of the
principal of the note at any time or during specified periods not exceeding
thirteen months, depending upon the instrument involved, and may resell the note
at any time to a third party. The absence of such an active secondary market,
however, could make it difficult for the Fund to dispose of a variable rate
demand note if the issuer were to default on its payment obligation or during
periods that the Fund is not entitled to exercise its demand rights, and the
Fund could, for this or other reasons, suffer a loss to the extent of the
default.

TAX-EXEMPT COMMERCIAL PAPER. Issues of commercial paper typically represent
short-term, unsecured, negotiable promissory notes. These obligations are
issued by state and local governments and their agencies to finance working
capital needs of municipalities or to provide interim construction financing and
are paid from general or specific revenues of municipalities or are re-financed
with long-term debt. In some cases, tax-exempt commercial paper is backed by
letters of credit, lending agreements, note repurchase agreements or other
credit facility arrangements offered by banks or other institutions. The Fund
will invest only in tax-exempt commercial paper rated at least Prime-2 by
Moody's or A-2 by S&P.

PRE-REFUNDED MUNICIPAL OBLIGATIONS. The Fund may invest in pre-refunded
Municipal Obligations. The principal of and interest on pre-refunded Municipal
Obligations are no longer paid from the original revenue source for the
Municipal Obligations. Instead, the source of such payments is typically an
escrow fund consisting of obligations issued or guaranteed by the U.S.
Government. The assets in the escrow fund are derived from the proceeds of
refunding bonds issued by the same issuer as the pre-refunded Municipal
Obligations, but usually on terms more favorable to the issuer. Issuers of
Municipal Obligations use this advance refunding technique to obtain more
favorable terms with respect to Municipal Obligations which are not yet subject
to call or redemption by the issuer. For example, advance refunding enables an
issuer to refinance debt at lower market interest rates, restructure debt to
improve cash flow or eliminate restrictive covenants in the indenture or other
governing instrument for the pre-refunded Municipal Obligations. However,
except for a change in the revenue source from which principal and interest
payments are made, the pre-refunded Municipal Obligations remain outstanding on
their original terms until they mature or are redeemed by the issuer. The
effective maturity of pre-refunded Municipal Obligations will be the redemption
date if the issuer has assumed an obligation or indicated its intention to

-7-
<PAGE>

redeem such obligations on the redemption date. Pre-refunded Municipal
Obligations are often purchased at a price which represents a premium over their
face value.

VARIABLE AND FLOATING RATE SECURITIES. The interest rates payable on certain
securities in which the Fund may invest, which will generally be revenue
obligations, are not fixed and may fluctuate based upon changes in market rates.
A variable rate obligation has an interest rate which is adjusted at
predesignated periods. Interest on a floating rate obligation is adjusted
whenever there is a change in the market rate of interest on which the interest
rate payable is based. Variable or floating rate obligations generally permit
the holders of such obligations to demand payment of principal from the issuer
or a third party at any time or at stated intervals. Variable and floating rate
obligations are less effective than fixed rate instruments at locking in a
particular yield. Such obligations may fluctuate in value in response to
interest rate changes if there is a delay between changes in market interest
rates and the interest reset date for the obligation. The Fund will take demand
features or reset dates into consideration in determining the average portfolio
duration of the Fund and the effective maturity of individual Municipal
Obligations. In addition, the absence of an unconditional demand feature
exercisable within seven days will require a variable or floating rate
obligation to be treated as illiquid for purposes of the Fund's 15% limitation
on illiquid investments. The failure of the issuer or a third party to honor its
obligations under a demand or put feature might also require a variable or
floating rate obligation to be treated as illiquid for purposes of the Fund's
15% limitation on illiquid investments.

TENDER OPTION BONDS. The Fund may purchase tender option bonds. A tender
option bond is a municipal obligation (generally held pursuant to a custodial
arrangement) having a relatively long maturity and bearing interest at a fixed
rate substantially higher than prevailing short-term tax-exempt rates, that has
been coupled with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which such institution grants the
security holders the option, at periodic intervals, to tender their securities
to the institution and receive the face value thereof. As consideration for
providing the option, the financial institution receives periodic fees equal to
the difference between the municipal obligation's fixed coupon rate and the
rate, as determined by a remarketing or similar agent at or near the
commencement of such period, that would cause the securities, coupled with the
tender option, to trade at or near par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax exempt rate.
The Adviser will consider on an ongoing basis the creditworthiness of the issuer
of the underlying municipal obligation, of any custodian and of the third party
provider of the tender option. In certain instances and for certain tender
option bonds, the option may be terminable in the event of a default in payment
of principal or interest on the underlying municipal obligations and for other
reasons. Additionally, the above description of tender option bonds is meant
only to provide an example of one possible structure of such obligations, and
the Fund may purchase tender option bonds with different types of ownership,
payment, credit and/or liquidity arrangements.

AUCTION RATE MUNICIPAL OBLIGATIONS. The Municipal Obligations in which the Fund
may invest include auction rate securities. Provided that the auction mechanism
is successful, auction rate securities usually permit the holder to sell the
securities in an auction at par value at specified intervals. The interest rate
is reset by "Dutch" auction in which bids are made by broker-dealers and other
institutions for a certain amount of securities at a specified minimum yield.
The interest rate set by the auction is the lowest interest or dividend rate
that covers all securities offered for sale. While this process is designed to
permit auction rate securities to be traded at par value, there is the risk that
the auction will fail due to insufficient demand for the securities. The Fund
will take the next schedules auction date of auction rate securities into

-8-
<PAGE>

consideration in determining the average portfolio duration of the Fund and the
effective maturity of individual auction rate securities.

ZERO COUPON AND CAPITAL APPRECIATION BONDS. The Fund may invest in zero coupon
and capital appreciation bonds, which are debt securities issued or sold at a
discount from their face value and which do not entitle the holder to any
periodic payment of interest prior to maturity or a specified redemption date
(or cash payment date). The amount of the discount varies depending on the time
remaining until maturity or cash payment date, prevailing interest rates, the
liquidity of the security and the perceived credit quality of the issuer. These
securities may also take the form of debt securities that have been stripped of
their unmatured interest coupons, the coupons themselves or receipts or
certificates representing interest in such stripped debt obligations or coupons.
Discount with respect to stripped tax-exempt securities or their coupons may be
taxable. The market prices of capital appreciation bonds generally are more
volatile than the market prices of interest-bearing securities and are likely to
respond to a greater degree to changes in interest rates than interest-bearing
securities having similar maturity and credit quality.

INVERSE FLOATING RATE INSTRUMENTS. The Fund may invest in "leveraged" inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly the
duration of an inverse floater may exceed its stated final maturity.

OTHER INVESTMENT PRACTICES

REPURCHASE AGREEMENTS. The Fund may agree to purchase securities from financial
institutions subject to the seller's agreement to repurchase them at an agreed
upon time and price within one year from the date of acquisition ("repurchase
agreements"). The Fund will not invest more than 15% of the value of its net
assets in repurchase agreements with terms which exceed seven days. The seller
under a repurchase agreement will be required to maintain the value of the
securities subject to the agreement at not less than the repurchase price
(including accrued interest). Default by or bankruptcy of the seller would,
however, expose the Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations.

REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for temporary purposes
by entering into reverse repurchase agreements in accordance with the investment
restrictions described below. Pursuant to such agreements, the Fund would sell
portfolio securities to financial institutions and agree to repurchase then at
an agreed upon date and price. The Fund would consider entering into reverse
repurchase agreements to avoid otherwise selling securities during unfavorable
market conditions. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the price of
the securities the Fund is obligated to repurchase. The Fund may engage in
reverse repurchase agreements provided that the amount of the reverse repurchase
agreements and any other borrowings does not exceed one-third of the value of
the Fund's total assets (including the amount borrowed) less liabilities (other
than borrowings).

-9-
<PAGE>

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To assist in reducing
fluctuations in net asset value, the Fund may purchase and sell of futures
contracts on U.S. Government securities, Mortgage Securities and Eurodollar
Securities, or purchase call and put options on such futures contracts. The
Fund will engage in futures and related options transactions only for bona die
hedging purposes. Although the use of hedging strategies is intended to reduce
the Fund's exposure to interest rate volatility, it may cause fluctuations in
net asset value. Unanticipated changes in interest rates or securities prices
may result in a poorer overall performance for the Fund than if it had not
entered in any futures contracts or options transactions. The risks associated
with the use of futures contract and options on futures contacts include (1) the
imperfect correlation between the change in market value of the securities held
by the Fund and the prices of the futures and options, and (2) the possible
absence of a liquid secondary market for a futures contract or option and the
resulting ability to close a futures position prior to its maturity date. See
"Investment Objective and Policies - Additional Information on Investment
Practices - Futures Contracts and Options on Future Contracts" in the Statement
of Additional Information.

-10-
<PAGE>

be sold to qualified institutional buyers in accordance with Rule 144A under
that Act ("Rule 144A securities"). Section 4(2) paper is restricted as to
disposition under the federal securities laws, and generally is sold to
institutional investors such as the Fund who agree that they are purchasing the
paper for investment and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) paper is normally
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market in the Section
4(2) paper, thus providing liquidity. Rule 144A securities generally must be
sold to other qualified institutional buyers. If a particular investment in
Section 4(2) paper or Rule 144A securities is not determined to be liquid, that
investment will be included within the 15% limitation on investment in illiquid
securities.

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. 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 Adviser
has determined are creditworthy under guidelines established by the Fund's Board
of Trustees and will receive collateral in the form of cash or U.S. Government
securities equal to at least 100% of the value of the securities owned.

PORTFOLIO TURNOVER. Although the Fund does not intend to invest for the purpose
of seeking short-term profits, securities in its portfolio will be sold whenever
the 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.

-11-
<PAGE>

INVESTMENT LIMITATIONS

The Fund's investment objective and policies described above are not fundamental
and may be changed by the Trust's Board of Trustees without a vote of
shareholders. If there is a change in the investment objective, shareholders
should consider whether the Fund remains an appropriate investment in light of
their then current financial position and needs. The Fund's investment
limitations described below may not be changed without the affirmative vote of
the holders of a majority of its outstanding shares. There can be no assurance
that the Fund will achieve its investment objective. (A complete list of the
investment limitations that cannot be changed without a vote of shareholders is
contained in the Statement of Additional Information under "Investment Objective
and Policies.")

The Fund may not:

1. Borrow money, except that the Fund may (i) borrow money from banks
from temporary or emergency purposes (not for leveraging or investment) and (ii)
engage in reverse repurchase agreements; provided that (i) and (ii) in
combination do not exceed one-third of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than borrowings).

PURCHASE OF SHARES

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<PAGE>

change imposed at the time of purchase. The Fund reserves the right to reject
any purchase order and to suspend the offering of shares for a period of time.

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.
Purchase orders for shares are accepted only on days which both Lehman Brothers
and the Federal Reserve Bank of Boston are open for business. Purchase orders
received by Lehman Brothers or an Introducing Broker by 4:00 p.m., Eastern time,
on any day the Fund's net asset value is calculated are priced according to the
net asset value determined on that day. Purchase orders received after 4:00
p.m., Eastern time, are priced as of the time the net asset value next
determined. Payment is generally due to Lehman Brothers or an Introducing
Broker by 3:00 p.m., Eastern time, on the next business day following the order.

SYSTEMATIC INVESTMENT PLAN

MINIMUM INVESTMENTS

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<PAGE>

REDEMPTION OF SHARES

Fund shares may be redeemed in one of the following ways:

REDEMPTION THROUGH LEHMAN BROTHERS OR AN INTRODUCING BROKER

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<PAGE>

Redemption requests may be made through Lehman Brothers or an Introducing
Broker.

REDEMPTION BY MAIL

Lehman Brothers Short Duration Municipal Fund
c/o The Shareholder Services Group, Inc.
P.O. Box 9184
Boston, Massachusetts 02209-9184

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<PAGE>

EXCHANGE PRIVILEGE

Shares of the Fund may be exchanged for shares of a comparable class of other
funds in the Lehman Brothers Group of Funds, to the extent shares are offered
for sale in the shareholder's state of residence.

VALUATION OF SHARES

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<PAGE>

MANAGEMENT OF THE FUND

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<PAGE>

The business and affairs of the Fund are managed under the direction of the
Trust's Board of Trustees. The Trustees approve all significant agreements
between the Trust and the persons or companies that furnish services to the
Fund, including agreements with its Distributor, Adviser, Administrator and
Transfer Agent, and Custodian. The day-to-day operations of the Fund are
delegated to the Fund's Adviser and Administrator. The Statement of Additional
Information relating to the Fund contains general background information
regarding each Trustee and executive officer of the Trust.

INVESTMENT ADVISER - LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT INC.

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<PAGE>

April 30, 1995. Subject to the supervision and direction of the Trust's Board
of Trustees, LBGAM manages the portfolio of the Fund in accordance with the
Fund's 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. As compensation for the services of LBGAM as Investment Adviser to the
Fund, LBGAM is entitled to receive a monthly fee payable by the Fund at the
annual rate of .30% of the value of the Fund's average daily net assets.

Nicholas Rabiecki, III, a Vice President and Investment Officer of the Fund, is
the portfolio manager of the Fund. Mr. Rabiecki, a Vice President and Senior
Portfolio Manager of LBGAM, joined LBGAM in July 1993 as Portfolio Manager of
the Tax-Free Money Market Funds. Previously, Mr. Rabiecki was a Senior Fixed-
Income Portfolio Manager with Chase Private Banking where he was responsible for
the short and intermediate term tax-free investment strategy and the management
of the Vista Tax-Exempt Money Market Funds, as well as the management of
separately managed accounts. Mr. Rabiecki is the portfolio manager primarily
responsible for managing the day-to-day operations of the Fund, including the
making of investment selections. Mr. Rabiecki will manage the Fund as of
commencement of operations.

ADMINISTRATOR AND TRANSFER AGENT - THE SHAREHOLDER SERVICES GROUP, INC.

The Shareholder Services Group, Inc. ("TSSG"), located at One Exchange Place, 53
State Street, Boston, Massachusetts 02109, serves as the Fund's Administrator
and Transfer Agent. TSSG is a wholly owned subsidiary of First Data
Corporation. As Administrator, TSSG calculates the net asset value of the
Fund's shares and generally assists in all aspects of the Fund's administration
and operation. As compensation for its services as Administrator, TSSG is
entitled to a monthly fee at the annual rate of .10% of the value of the Fund's
average daily net assets. TSSG is also entitled to receive a fee from the Fund
for its services as Transfer Agent. TSSG pays Boston Safe, the Fund's
custodian, a portion of its monthly administration fee for custody services
rendered to the Fund.

On May 6, 1994, TSSG acquired the third party mutual fund administration
business of The Boston Company Advisors, Inc., an indirect wholly-owned
subsidiary of Mellon Bank Corporation ("Mellon"). In connection with this
transaction, Mellon assigned to TSSG its agreement with Lehman Brothers such
that Lehman Brothers and its affiliates, consistent with any fiduciary duties
and assuming certain service quality standards are met, would recommend TSSG as
the provider of administration services to the Fund. This duty to recommend
expires on May 21, 2000.

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<PAGE>

DISTRIBUTOR

Lehman Brothers located at Three World Financial Center, New York, New York
10285, is the Distributor of the Fund. Lehman Brothers, a leading full service
investment firm serving U.S. and foreign securities and commodities markets,
meets the diverse financial needs of individuals, institutions and governments
around the world.

The Trust has adopted a plan of distribution with respect to the Retail Shares
of the Fund (the "Plan of Distribution") pursuant to Rule 12b-1 under the 1940
Act. Under the Plan of Distribution, the Fund has agreed with respect to such
class to pay Lehman Brothers monthly for advertising, marketing and distributing
its shares at an annual rate of up to 0.50% of its average daily net assets.
Lehman Brothers has agreed to voluntarily waiver Rule 12b-1 fees so that such
fees will equal 0.25% of the Fund's average daily net assets attributable to the
Retail Shares. This voluntary waiver is expected to continue for at least one
year from the date of this Prospectus. Under the Plan of Distribution, Lehman
Brothers may retain all or a portion of the payments made to it pursuant to the
Plan and may make payments to its Investment Representatives or Introducing
Brokers that engage in the sale of Fund shares. The Plan of Distribution also
provides that Lehman Brothers may make payments to assist in the distribution of
the Retail Shares out of the other fees received by it or its affiliates from
the Fund, its past profits or any other sources available to it. From time to
time, Lehman Brothers may waive receipt of fees under the Plan of Distribution
for the Fund while retaining the ability to be paid under such Plan thereafter.
The fees payable to Lehman Brothers under the Plan of Distribution for
advertising, marketing and distributing Retail Shares of the Fund and payments
by Lehman Brothers to its Investment Representatives or Introducing Brokers are
payable without regard to actual expenses incurred. Lehman Brothers Investment
Representatives and any other person entitled to receive compensation for
selling Retail Shares of the Fund may receive different levels of compensation
for selling one particular class of shares over another in the Fund.

CUSTODIAN - BOSTON SAFE DEPOSIT AND TRUST COMPANY

Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly owned subsidiary
of Mellon Bank Corporation, located at One Boston Place, Boston, Massachusetts
02108, serves as the Fund's Custodian. Under the terms of the Stock Purchase
Agreement dated September 14, 1992 between Mellon and Lehman Brothers (then
named Shearson Lehman Brothers Inc.), Lehman Brothers agreed to recommend Boston
Safe as custodian of mutual funds affiliated with Lehman Brothers until May 21,
2000 to the extent consistent with its fiduciary duties and other applicable
law.

BANKING LAWS

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<PAGE>

EXPENSES

DIVIDENDS

TAXES

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<PAGE>

ordinary income to Fund investors who are not currently exempt from federal
income taxes, whether such income is received in cash or reinvested in
additional shares.

The Fund may hold without limit certain private activity bonds issued after
August 7, 1986. Investors must include, as an item of tax preference, the
portion of dividends paid by the Fund that is attributable to interest on such
bonds in their federal alternative minimum taxable income for purposes of
determining liability (if any) for the 24% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate investors must also take all exempt-
interest dividends into account in determining certain adjustments for federal
alternative minimum and environmental tax purposes. The environmental tax
applicable to corporations is imposed at the rate of .12% on the excess of the
corporation's modified federal alternative minimum taxable income over
$2,000,000. Investors receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.

Dividends declared in October, November or December of any year payable to
investors of record on a specified date in such months will be deemed to have
been received by the investors and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.

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<PAGE>

Investors will be advised at least annually as to the federal income tax status
of distributions made to them each year.

THE FUND'S PERFORMANCE

From time to time, in advertisements or in reports to investors, the "total
return," "yields" and "effective yields" for shares may be quoted. Total return
and yield quotations are computed separately for each class of shares. "Total
return" for a particular class of shares represents the change, over a specified
period of time, in the value of an investment in the shares after reinvesting
all income and capital gain distributions. It is calculated by dividing that
change by the initial investment and is expressed as a percentage. The "yield"
quoted in advertisements for a particular class of shares refers to the income
generated by an investment in such shares over a specified period (such as a 30-
day period) identified in the advertisement. This income is then "annualized;"
that is, the amount of income generated by the investment during that period is
assumed to be generated each such period over a 52-week or one-year period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
particular class is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment.

The Fund's performance may be compared to that of other mutual funds with
similar objectives, to bond or other relevant indices, or to rankings prepared
by independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, such data are reported in national
financial publications such as MORNINGSTAR, INC., BARRON'S, IBC/DONOGHUE'S INC.
BOND FUND REPORT, USA TODAY, THE WALL STREET JOURNAL and THE NEW YORK TIMES,
BUSINESS WEEK, FORBES, FORTUNE, INSTITUTIONAL INVESTOR, INVESTORS DAILY, MONEY,
reports prepared by Lipper Analytical Services, Inc. and publications of a local
or regional nature. The Fund's Lipper ranking in the "Short Municipal Debt"
category may also be quoted from time to time in advertising and sales
literature.

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<PAGE>

Additional Information. Current performance information may be obtained through
a Lehman Brothers Investment Representative or by calling 1-800-861-4171.

ADDITIONAL INFORMATION

The Trust is a Massachusetts business trust established on November 25, 1992.
The Trust's Declaration of Trust authorizes the Board of Trustees to issue an
unlimited number of full and fractional shares of beneficial interest in the
Trust and to classify or reclassify any unissued shares into one or more
additional classes of shares. The Trust is an open-end management investment
company which has authorized the issuance of multiple classes of shares for its
family of investment portfolios. The issuance of separate classes of shares is
intended to address the different service needs of different types of investors.
Each share represents interests in each Fund in proportion to each share's net
asset value, except that shares of certain classes bear fees and expenses for
certain shareholder services or distribution and support services provided to
that class and certain other class related expenses. As indicated, the shares
described in this Prospectus represent Retail Shares.

Holders of the Fund's shares will vote in the aggregate and not by class on all
matters, except where otherwise required by law and except when the Board of
Trustees determines that the matter to be voted upon affects only the
shareholders of a particular class. Further, shareholders of the Funds will
vote in the aggregate and not by portfolio except as otherwise required by law
or when the Board of Trustees determines that the matter to be voted upon
affects only the interests of the shareholders of a particular portfolio. (See
the Statement of Additional Information under "Additional Description Concerning
Fund Shares" for examples where the 1940 Act requires voting by portfolio.)
Shareholders of the Trust are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative; and, accordingly, the holders of more
than 50% of the aggregate shares of the Trust may elect all of the trustees.

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<PAGE>

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<PAGE>

GOVERNMENT OBLIGATIONS MONEY MARKET FUND

CASH MANAGEMENT FUND
TREASURY INSTRUMENTS MONEY MARKET FUND II

INVESTMENT PORTFOLIOS OFFERED BY
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

STATEMENT OF ADDITIONAL INFORMATION

MAY ____, 1995

This Statement of Additional Information is meant to be read in conjunction
with the Prospectuses for Government Obligations Money Market Fund, Cash
Management Fund and Treasury Instruments Money Market Fund II, each dated May
___, 1995, as amended or supplemented from time to time, and is incorporated by
reference in its entirety into those Prospectuses. Because this Statement of
Additional Information is not itself a prospectus, no investment in shares of
Government Obligations Money Market Fund, Cash Management Fund or Treasury
Instruments Money Market Fund II should be made solely upon the information
contained herein. Copies of the Prospectuses for Government Obligations Money
Market Fund, Cash Management Fund and Treasury Instruments Money Market Fund II
may be obtained by calling Lehman Brothers Inc. ("Lehman Brothers") at 1-800-
368-5556. Capitalized terms used but not defined herein have the same meanings
as in the Prospectuses.

TABLE OF CONTENTS

PAGE
----
<S> <C>

The Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Objective and Policies. . . . . . . . . . . . . . . . 2
Additional Purchase and Redemption Information . . . . . . . . . 6
Management of the Funds. . . . . . . . . . . . . . . . . . . . . 8
Additional Information Concerning Taxes. . . . . . . . . . . . . 17
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Additional Yield Information . . . . . . . . . . . . . . . . . . 18
Additional Description Concerning Fund Shares. . . . . . . . . . 21
Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Financial Statements . . . . . . . . . . . . . . . . . . . . . . 22
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 22

</TABLE>

<PAGE>

THE TRUST

Lehman Brothers Institutional Funds Group Trust (the "Trust") is an
open-end management investment company. The Trust currently includes a family
of portfolios, three of which are Government Obligations Money Market, Cash
Management Fund and Treasury Instruments Money Market Fund II (individually, a
"Fund"; collectively, the "Funds").

The securities held by Government Obligations Money Market Fund consist of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and repurchase agreements relating to such obligations.
Securities held by Cash Management Fund consist of U.S. Treasury bills, notes
and obligations issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities and repurchase agreements relating
to such obligations. Securities held by Treasury Instruments Money Market
Fund II are limited to U.S. Treasury bills, notes and other direct obligations
of the U.S. Treasury and repurchase agreements relating to direct Treasury
obligations. Although all three Funds have the same Investment Adviser, Lehman
Brothers Global Asset Management, Inc. (the "Adviser"), and have comparable
investment objectives, their yields normally will differ due to their differing
cash flows and differences in the specific portfolio securities held.

THIS STATEMENT OF ADDITIONAL INFORMATION AND THE FUNDS' PROSPECTUSES RELATE
PRIMARILY TO THE FUNDS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUNDS. INVESTORS WISHING
TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER PORTFOLIOS MAY OBTAIN
INFORMATION DESCRIBING THEM BY CONTACTING LEHMAN BROTHERS AT 800-368-5556.

INVESTMENT OBJECTIVE AND POLICIES

As stated in the Funds' Prospectuses, the investment objective of the Funds
is current income with liquidity and security of principal. The following
policies supplement the description in the Prospectuses of the investment
objectives and policies of the Funds.

The Funds are managed to provide stability of capital while achieving
competitive yields. The Adviser intends to follow a value-oriented,
research-driven and risk-averse investment strategy, engaging in a full range of
economic, strategic, credit and market-specific analyses in researching
potential investment opportunities.

PORTFOLIO TRANSACTIONS

Subject to the general control of the Trust's Board of Trustees, the
Adviser is responsible for, makes decisions with respect to and places orders
for all purchases and sales of portfolio securities for the Funds. Purchases of
portfolio securities are usually principal transactions without brokerage
commissions. In making portfolio investments, the Adviser seeks to obtain the
best net price and the most favorable execution of orders. To the extent that
the execution and price offered by more than one dealer are comparable, the
Adviser may, in its discretion, effect transactions in portfolio securities with
dealers who provide the Trust with research advice or other services. Although
the Funds will not seek

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<PAGE>

profits through short-term trading, the Adviser may, on behalf of the Funds,
dispose of any portfolio security prior to its maturity if it believes such
disposition is advisable.

Investment decisions for the Funds are made independently from those for
other investment company portfolios advised by the Adviser. Such other
investment company portfolios may invest in the same securities as the Funds.
When purchases or sales of the same security are made at substantially the same
time on behalf of such other investment company portfolios, transactions are
averaged as to price, and available investments allocated as to amount, in a
manner which the Adviser believes to be equitable to each portfolio, including
the Funds. In some instances, this investment procedure may adversely affect the
price paid or received by the Funds or the size of the position obtained for the
Funds. To the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for the Funds with those to be sold or purchased for
such other investment company portfolios in order to obtain best execution.

The Funds may seek profits through short-term trading. The Funds' annual
portfolio turnover rates will be relatively high but the Funds' portfolio
turnover is not expected to have a material effect on their net incomes. The
portfolio turnover rate for each of the Funds is expected to be zero for
regulatory reporting purposes.

ADDITIONAL INFORMATION ON INVESTMENT PRACTICES

The repurchase price under the repurchase agreements described in the
Funds' Prospectuses generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement). Securities
subject to repurchase agreements will be held by the Funds' Custodian,
sub-custodian or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by the Funds under the 1940 Act.

Whenever the Funds enter into reverse repurchase agreements as described in
their Prospectuses, they will place in a segregated custodian account liquid
assets having a value equal to the repurchase price (including accrued interest)
and will subsequently monitor the account to ensure such equivalent value is
maintained. Reverse repurchase agreements are considered to be borrowings by the
Funds under the 1940 Act.

As stated in the Funds' Prospectuses, the Funds may purchase securities on
a "when-issued" basis (i.e., for delivery beyond the normal settlement date at a
stated price and yield). When a Fund agrees to purchase when-issued securities,
its Custodian will set aside cash or liquid portfolio securities equal to the
amount of the commitment in a separate account. Normally, the Custodian will set
aside portfolio securities to satisfy a purchase commitment, and in such a case
such Fund may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of such Fund's commitment. It may be expected that a Fund's net

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<PAGE>

assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash.
Because the Funds will set aside cash or liquid assets to satisfy their
respective purchase commitments in the manner described, such a Fund's liquidity
and ability to manage its portfolio might be affected in the event its
commitments to purchase when-issued securities ever exceeded 25% of the value of
its assets. The Funds do not intend to purchase when-issued securities for
speculative purposes but only in furtherance of their investment objectives. The
Funds reserve the right to sell the securities before the settlement date if it
is deemed advisable.

When a Fund engages in when-issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in a Fund
incurring a loss or missing an opportunity to obtain a price considered to be
advantageous.

Each Fund has the ability to lend securities from its portfolio to brokers,
dealers and other financial organizations. There is no investment restriction on
the amount of securities that may be loaned. A Fund may not lend its portfolio
securities to Lehman Brothers or its affiliates without specific authorization
from the SEC. Loans of portfolio securities by a Fund will be collateralized by
cash, letters of credit or securities issued or guaranteed by the U.S.
government or its agencies which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities (and
will be marked to market daily). From time to time, a Fund may return a part of
the interest earned from the investment of collateral received for securities
loaned to the borrower and/or a third party, which is unaffiliated with the Fund
or with Lehman Brothers, and which is acting as a "finder." With respect to
loans by the Funds of their portfolio securities, the Funds would continue to
accrue interest on loaned securities and would also earn income on loans. Any
cash collateral received by the Funds in connection with such loans would be
invested in short-term U.S. government obligations.

INVESTMENT LIMITATIONS

The Funds' Prospectuses summarize certain investment limitations that may
not be changed without the affirmative vote of the holders of a "majority of the
outstanding shares" of the respective Fund (as defined below under
"Miscellaneous"). Investment limitations numbered 1 through 7 may not be changed
without such a vote of shareholders; investment limitations 8 through 13 may be
changed by a vote of the Trust's Board of Trustees at any time.

A Fund may not:

1. Purchase the securities of any issuer if as a result more than 5%
of the value of the Fund's assets would be invested in the securities of
such issuer, except that 25% of the value of the Fund's assets may be
invested without regard to this 5% limitation and provided that there is no
limitation with respect to investments in U.S. government securities.

2. Borrow money except from banks or, in the case of the Cash
Management Fund and subject to specific authorization by the SEC, from
funds advised by the Adviser or an affiliate of the Adviser. A Fund may
borrow money for temporary purposes and then in an amount not exceeding 10%
(one-third in the case of the Cash Management Fund) of the value of the
particular Fund's total assets, or mortgage, pledge or hypothecate its
assets except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% (one-third in
the case of the Cash Management Fund) of the value of the particular Fund's
total assets at the time of such borrowing. Borrowing may take the

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<PAGE>

form of a sale of portfolio securities accompanied by a simultaneous
agreement as to their repurchase. Additional investments will not be made
when borrowings exceed 5% of the Fund's assets.

3. Make loans except that the Fund may (i) purchase or hold debt
obligations in accordance with its investment objective and policies, (ii)
may enter into repurchase agreements for securities, (iii) may lend
portfolio securities and (iv) with respect to the Cash Management Fund,
subject to specific authorization by the SEC, lend money to other funds
advised by the Adviser or an affiliate of the Adviser.

4. Act as an underwriter, except insofar as the Fund may be deemed
an underwriter under applicable securities laws in selling portfolio
securities.

5. Purchase or sell real estate or real estate limited partnerships
except that the Fund may invest in securities secured by real estate or
interests therein.

6. Purchase or sell commodities or commodity contracts, or invest in
oil, gas or mineral exploration or development programs or in mineral
leases.

7. Purchase any securities which would cause 25% or more of the
value of its total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the
same industry, provided that there is no limitation with respect to
investments in U.S. government securities.

8. Knowingly invest more than 10% of the value of the Fund's assets
in securities that may be illiquid because of legal or contractual
restrictions on resale or securities for which there are no readily
available market quotations.

9. Purchase securities on margin, make short sales of securities or
maintain a short position.

10. Write or sell puts, calls, straddles, spreads or combinations
thereof.

11. Invest in securities if as a result the Fund would then have more
than 5% of its total assets in securities of companies (including
predecessors) with less than three years of continuous operation.

12. Purchase securities of other investment companies except as
permitted under the 1940 Act or in connection with a merger, consolidation,
acquisition or reorganization.

13. Invest in warrants.

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<PAGE>

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

IN GENERAL

Information on how to purchase and redeem a Fund's shares, including the
timing of placing a purchase and redemption order, is included in its
Prospectus. The issuance of shares is recorded on the books of the Funds, and
share certificates are not issued.

The regulations of the Comptroller of the Currency (the "Comptroller")
provide that funds held in a fiduciary capacity by a national bank approved by
the Comptroller to exercise fiduciary powers must be invested in accordance with
the instrument establishing the fiduciary relationship and local law. The Trust
believes that the purchase of Fund shares by such national banks acting on
behalf of their fiduciary accounts is not contrary to applicable regulations if
consistent with the particular account and proper under the law governing the
administration of the account.

Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Funds on fiduciary funds that are invested in a Fund's
Class B, Class C or Class E shares. Institutions, including banks regulated by
the Comptroller and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult their legal advisers before investing fiduciary
funds in a Fund's Class B, Class C or Class E shares.

Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange ("NYSE") is closed, other than customary weekend and holiday
closings, or during which trading on the NYSE is restricted, or during which (as
determined by the SEC by rule or regulation) an emergency exists as a result of
which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (The Funds may
also suspend or postpone the recordation of the transfer of their shares upon
the occurrence of any of the foregoing conditions.) In addition, the Funds
may redeem shares involuntarily in certain other instances if the Board of
Trustees determines that failure to redeem may have material adverse
consequences to a Fund's investors in general. Each Fund is obligated to redeem
shares solely in cash up to $250,000 or 1% of the Fund's net asset value,
whichever is less, for any one investor within a 90-day period. Any redemption
beyond this amount will also be in cash unless the Board of Trustees determines
that conditions exist which make payment of redemption proceeds wholly in cash
unwise or undesirable. In such a case, 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. Investors who receive
a redemption in kind may incur transaction costs if they sell such securities or
property, and may receive less than the redemption value of such securities or
property upon sale, particularly where such securities are sold prior to
maturity.

Any institution purchasing shares on behalf of separate accounts will be
required to hold the shares in a single nominee name (a "Master Account").
Institutions investing in more than one of the Trust's portfolios, or classes of
shares must maintain a separate Master Account for each portfolio and class of
shares. Sub-accounts may be established by name or number either when the Master
Account is opened or later.

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<PAGE>

NET ASSET VALUE

Each Fund's net asset value per share is calculated separately for each
class by dividing the total value of the assets belonging to a Fund attributable
to a class, less the value of any class-specific liabilities charged to such
Fund, by the total number of that Fund's shares of such class outstanding.
"Assets belonging to" a Fund consist of the consideration received upon the
issuance of shares together with all income, earnings, profits and proceeds
derived from the investment thereof, including any proceeds from the sale,
exchange or liquidation of such investments, any funds or payments derived from
any reinvestment of such proceeds, and a portion of any general assets of the
Trust not belonging to a particular portfolio. Assets belonging to a particular
Fund are charged with the direct liabilities of that Fund and with a share of
the general liabilities of the Trust allocated in proportion to the relative net
assets of such Fund and the Trust's other portfolios. Determinations made in
good faith and in accordance with generally accepted accounting principles by
the Board of Trustees as to the allocations of any assets or liabilities with
respect to a Fund are conclusive.

As stated in the Funds' Prospectuses, in computing the net asset value of
shares of the Funds for purposes of sales and redemptions, the Funds use the
amortized cost method of valuation. Under this method, the Funds value each of
their portfolio securities at cost on the date of purchase and thereafter assume
a constant proportionate amortization of any discount or premium until maturity
of the security. As a result, the value of a portfolio security for purposes of
determining net asset value normally does not change in response to fluctuating
interest rates. While the amortized cost method provides certainty in portfolio
valuation, it may result in valuations for the Funds' securities which are
higher or lower than the market value of such securities.

In connection with their use of amortized cost valuation, each of the Funds
limits the dollar-weighted average maturity of its portfolio to not more than 90
days and does not purchase any instrument with a remaining maturity of more than
thirteen months (with certain exceptions) (12 months in the case of Government
Obligations Money Market Fund). In determining the average weighted portfolio
maturity of each Fund, a variable rate obligation that is issued or guaranteed
by the U.S. government, or an agency or instrumentality thereof, is deemed to
have a maturity equal to the period remaining until the obligation's next
interest rate adjustment. The Trust's Board of Trustees has also established
procedures, pursuant to rules promulgated by the SEC, that are intended to
stabilize the net asset value per share of each Fund for purposes of sales and
redemptions at $1.00. Such procedures include the determination at such
intervals as the Board deems appropriate, of the extent, if any, to which each
Fund's net asset value per share calculated by using available market quotations
deviates from $1.00 per share. In the event such deviation exceeds 1/2 of 1%
with respect to a Fund, the Board will promptly consider what action, if any,
should be initiated. If the Board believes that the amount of any deviation from
the $1.00 amortized cost price per share of a Fund may result in material
dilution or other unfair results to investors or existing investors, it will
take such steps as it considers appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity; shortening the Fund's
average portfolio maturity; withholding or reducing dividends; redeeming shares
in kind; or utilizing a net asset value per share determined by using available
market quotations.

-7-
<PAGE>

MANAGEMENT OF THE FUNDS

TRUSTEES AND OFFICERS

The Trust's Trustees and Executive Officers, their addresses, principal
occupations during the past five years and other affiliations are as follows:

NAME AND ADDRESS POSITION WITH THE TRUST PRINCIPAL OCCUPATIONS DURING PAST 5
YEARS AND OTHER AFFILIATIONS
---------------- ----------------------- -----------------------------------
<S> <C> <C>

ANDREW GORDON (1) Co-Chairman of the Board, Managing Director, Lehman Brothers.
3 World Financial Center Trustee and President
New York, NY 10285
Age:

KIRK HARTMAN (1) Co-Chairman of the Board, Trustee, Managing Director, Lehman Brothers.
3 World Financial Center Executive Vice President and
New York, NY 10285 Investment Officer
Age:

CHARLES F. BARBER (2)(3) Trustee Consultant; formerly Chairman of the Board,
66 Glenwood Drive ASARCO Incorporated.
Greenwich, CT 06830
Age:

</TABLE>

-8-
<PAGE>

<TABLE>

BURT N. DORSETT (2)(3) Trustee Managing Partner, Dorsett McCabe Capital
201 East 62nd Street Management, Inc., an investment counseling firm;
New York, NY 10022 Director, Research Corporation Technologies, a
Age: non-profit patent-clearing and licensing
operation; formerly President, Westinghouse
Pension Investments Corporation; formerly
Executive Vice President and Trustee, College
Retirement Equities Fund, Inc., a variable
annuity fund; and formerly Investment Officer,
University of Rochester.

EDWARD J. KAIER (2)(3) Trustee Partner with the law firm of Hepburn Willcox
1100 One Penn Center Hamilton & Putnam.
Philadelphia, PA 19103
Age:

S. DONALD WILEY (2)(3) Trustee Vice-Chairman and Trustee, H.J. Heinz Company
USX Tower Foundation; prior to October 1990, Senior Vice
Pittsburgh, PA 15219 President, General Counsel and Secretary, H.J.
Age: Heinz Company.

</TABLE>

-9-
<PAGE>

<TABLE>

JOHN M. WINTERS Vice President and Senior Vice President and Senior Money Market
3 World Financial Center Investment Officer Manager, Lehman Brothers, Global Asset Management
New York, NY 10285 Inc.; formerly Product Manager with Lehman
Age: Brothers Capital Markets Group.

NICHOLAS RABIECKI, III Vice President and Vice President and Senior Portfolio Manager,
3 World Financial Center Investment Officer Lehman Brothers Global Asset Management, Inc.;
New York, NY 10285 formerly Senior Fixed-Income Portfolio Manager
Age: with Chase Private Banking.

MICHAEL C. KARDOK Treasurer Vice President, The Shareholder Services Group,
One Exchange Place Inc.; prior to May 1994, Vice President, The
Boston, MA 02109 Boston Company Advisors, Inc.
Age:

PATRICIA L. BICKIMER Secretary Vice President and Associate General Counsel, The
One Exchange Place Shareholder Services Group, Inc.; prior to May
Boston, MA 02109 1994, Vice President and Associate General
Age: Counsel, The Boston Company Advisors, Inc.

<FN>
----------------

1. Considered by the Trust to be "interested persons" of the Trust as
defined in the 1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.

</TABLE>

Messrs. Gordon, Hartman and Dorsett serve as trustees or directors of other
investment companies for which Lehman Brothers, the Adviser or one of their
affiliates serve as distributor and investment adviser.

No employee of Lehman Brothers, the Adviser or The Shareholder Services
Group, Inc. ("TSSG"), the Trust's Administrator and Transfer Agent, 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, the Adviser or TSSG or any of their affiliates, a fee of $20,000 per
annum plus $1,250 per meeting attended and reimburses

-10-
<PAGE>

them for travel and out-of-pocket expenses. For the fiscal period ended January
31, 1995, such fees and expenses totaled $1,851 for the Government Obligations
Money Market Fund, $286 for the Cash Management Fund and $6,290 for the Treasury
Instruments Money Market Fund II and $104,841 for the Trust in the aggregate.
[As of May 15, 1995, Trustee and Officers of the Trust as a group beneficially
owned less than 1% of the outstanding shares of each Fund.]

By virtue of the responsibilities assumed by Lehman Brothers, the Adviser,
TSSG and their affiliates under their respective agreements with the Trust, the
Trust itself requires no employees in addition to its Officers.

The following table sets forth certain information regarding the
compensation of the Trust's Trustees during the fiscal year ended January 31,
1995. No executive officer or person affiliated with the Trust received
compensation from the Trust during the fiscal year ended January 31, 1995 in
excess of $60,000.

COMPENSATION TABLE

Total Compensation From
Name of Aggregate Pension or Retirement Estimated the Trust and Fund
Person and Compensation Benefits Accrued as Part of Annual Benefits Upon Complex Paid to
Position from the Trust Trust Expenses Retirement Trustees*
---------- -------------- --------------------------- -------------------- ----------------------
<S> <C> <C> <C> <C>

Andrew Gordon $0 $0 N/A $0 (2)
Co-Chairman of the
Board, Trustee and
President

Kirk Hartman $0 $0 N/A $0 (3)
Co-Chairman of the
Board, Trustee,
Executive Vice
President and
Investment Officer

Charles Barber, Trustee $_____ $0 N/A $____(1)

Burt N. Dorsett, $_____ $0 N/A $____(2)
Trustee

Edward J. Kaier, $_____ $0 N/A $____(1)
Trustee

</TABLE>

-11-

<PAGE>

<TABLE>

S. Donald $_____ $0 N/A $____(1)
Wiley,
Trustee

<FN>
----------------
* Represents the total compensation paid to such persons by all investment
companies (including the Trust) from which such person received compensation
during the fiscal year ended January 31, 1995 that are considered part of the
same "fund complex" as the Trust because they have common or affiliated
investment advisers. The parenthetical number represents the number of such
investment companies, including the Trust.

</TABLE>

DISTRIBUTOR

Lehman Brothers acts as Distributor of the Funds' shares. Lehman Brothers,
located at 3 World Financial Center, New York, New York 10285, is a wholly-owned
subsidiary of Lehman Brothers Holdings Inc. ("Holdings"). As of December 31,
1994, FMR Corp. beneficially owned approximately 12.3%, Nippon Life Insurance
Company beneficially owned approximately 8.7% and Heine Securities Corp.
beneficially owned approximately 5.1% of the outstanding voting securities of
Holdings. Each Fund's shares are sold on a continuous basis by Lehman Brothers.
The Distributor pays the cost of printing and distributing prospectuses to
persons who are not investors of the Funds (excluding preparation and printing
expenses necessary for the continued registration of Fund shares) and of
preparing, printing and distributing all sales literature. No compensation is
payable by the Funds to Lehman Brothers for its distribution services.

INVESTMENT ADVISER

Lehman Brothers Global Asset Management, Inc. serves as the Investment
Adviser to each of the Funds. the Adviser, located at 3 World Financial Center,
New York, New York 10285, is a wholly-owned subsidiary of Holdings. The
investment advisory agreements provide that the Adviser is responsible for all
investment activities of the Funds, including executing portfolio strategy,
effecting Fund purchase and sale transactions and employing professional
portfolio managers and security analysts who provide research for the Funds.

-12-
<PAGE>

continuance is approved annually (i) by the Trust's Board of Trustees or (ii) by
a vote of a "majority" (as defined in the 1940 Act) of a Fund's outstanding
voting securities, except that in either event the continuance is also approved
by a majority of the Trustees of the Trust who are not "interested persons" (as
defined in the 1940 Act). Each Investment Advisory Agreement may be terminated
(i) on 60 days' written notice by the Trustees of the Trust, (ii) by vote of
holders of a majority of a Fund's outstanding voting securities, or upon 90
days' written notice by Lehman Brothers, or (iii) automatically in the event of
its assignment (as defined in the 1940 Act).

As compensation for the Adviser's services rendered to the Funds, the
Adviser is entitled to a fee, computed daily and paid monthly, at the annual
rate of .10% of the average daily net assets of the Fund. For the fiscal period
ended January 31, 1994 and the fiscal year ended January 31, 1995, the Adviser
was entitled to receive advisory fees in the following amounts: the Government
Obligations Money Market Fund, $72,100 and $86,255, respectively, the Cash
Management Fund, $27,323 and $11,931, respectively, and the Treasury Instruments
Money Market Fund II, $96,737 and $357,350, respectively. Waivers by the
Adviser of advisory fees and reimbursement of expenses to maintain the Funds'
operating expense ratios at certain levels amounted to: the Government
Obligations Money Market Fund, $72,100 and $163,039, respectively, for the
fiscal period ended January 31, 1994, and $48,079 and $0, respectively, for the
fiscal year ended January 31, 1995, the Cash Management Fund, $27,323 $130,650,
respectively, and $11,938 and $45,492, respectively, for the fiscal year ended
January 31, 1995, and the Treasury Instruments Money Market Fund II, $96,737 and
$173,335, respectively for the fiscal period ended January 31, 1994, and
$231,451 and $0, respectively, for the fiscal year ended January 31, 1995. In
order to maintain competitive expense ratios during 1995 and thereafter, the
Adviser and Administrator have agreed to voluntary fee waivers and expense
reimbursements for each of the Funds if total operating expenses exceed certain
levels. See "Background and Expense Information" in each Fund's Prospectus.

PRINCIPAL HOLDERS

At May 15, 1995, the principal holders of Class A Shares of Government
Obligations Money Market Fund were as follows: ______. _______ was the
principal holder of Class B Shares of Government Obligations Money Market Fund
as of May 15, 1995, with 99.99% shares held of record.

Principal holders of Class A Shares of Treasury Instruments Money Market
Fund II as of May 15, 1995, were as follows: As of May 15, 1995, the principal
holders of Class B Shares of Treasury Instruments Money Market Fund II were as
follows: __________________

-13-
<PAGE>

As of May 15, 1995 there were no investors in the Class C shares or Class E
shares of the Government Obligations Money Market Fund, Cash Management Fund and
the Treasury Instruments Money Market Fund II and all outstanding shares were
held by Lehman Brothers.

The investors described above have indicated that they each hold their
shares on behalf of various accounts and not as beneficial owners. To the extent
that any investor is the beneficial owner of more than 25% of the outstanding
shares of a Fund, such investor may be deemed to be a "control person" of that
Fund for purposes of the 1940 Act.

ADMINISTRATOR AND TRANSFER AGENT

TSSG, a subsidiary of First Data Corporation, is located at One Exchange
Place, Boston, Massachusetts 02109, and serves as the Trust's Administrator and
Transfer Agent. As the Trust's Administrator, TSSG has agreed to provide the
following services: (i) assist generally in supervising the Funds' operations,
providing and supervising the operation of an automated data processing system
to process purchase and redemption orders, providing information concerning the
Funds to their shareholders of record, handling investor problems, supervising
the services of employees and monitoring the arrangements pertaining to the
Funds' agreements with Service Organizations; (ii) prepare reports to the Funds'
investors and prepare tax returns and reports to and filings with the SEC;
(iii) compute the respective net asset value per share of each Fund;
(iv) provide the services of certain persons who may be elected as trustees or
appointed as officers of the Trust by the Board of Trustees; and (v) maintain
the registration or qualification of the Funds' shares for sale under state
securities laws. TSSG is entitled to receive, as compensation for its services
rendered under an administration agreement, an administrative fee, computed
daily and paid monthly, at the annual rate of .10% of the average daily net
assets of each Fund. TSSG pays Boston Safe, the Fund's Custodian, a portion of
its monthly administration fee for custody services rendered to the Funds.

Prior to May 6, 1994, The Boston Company Advisors, Inc. ("TBCA"), an
indirect, wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"), served
as Administrator of the Funds. On May 6, 1994, TSSG acquired TBCA's third party
mutual fund administration business from Mellon, and each Fund's administration
agreement with TBCA was assigned to TSSG. For the fiscal period ended January
31, 1994 and the fiscal year ended January 31, 1995, the Administrator was
entitled to receive administration fees in the following amounts: the
Government Obligations Money Market

-14-
<PAGE>

Fund, $72,100, and $86,255, respectively, the Cash Management Fund, $27,323 and
$11,931, respectively, and the Treasury Instruments Money Market Fund II,
$96,737 and $357,350, respectively. Waivers by the Administrator of
administration fees and reimbursement of expenses to maintain the Funds'
operating expense ratios at certain levels amounted to: the Government
Obligations Money Market Fund, $72,100 and $19,087, respectively for the fiscal
period ended January 31, 1994, and $64,842 and $0, respectively, for the fiscal
year ended January 31, 1995, the Cash Management Fund, $27,323 and $9,381,
respectively for the fiscal period ended January 31, 1994, and $9,111 and $0,
respectively, for the fiscal year ended January 31, 1995, and the Treasury
Instruments Money Market Fund II, $96,737 and $42,443, respectively for the
fiscal period ended January 31, 1994, and $269,369 and $0, respectively, for the
fiscal year ended January 31, 1995. In order to maintain competitive expense
ratios, the Adviser and Administrator may agree to waive fees or to reimburse
the Funds if total operating expenses exceed certain levels. See "Background
and Expense Information" in each Fund's Prospectus.

Under the transfer agency agreement, TSSG maintains the investor account
records for the Trust, handles certain communications between investors and the
Trust, distributes dividends and distributions payable by the Trust and produces
statements with respect to account activity for the Trust and its investors. For
these services, TSSG receives a monthly fee based on average net assets and is
reimbursed for out-of-pocket expenses.

CUSTODIAN

Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly-owned
subsidiary of Mellon, is located at One Boston Place, Boston, Massachusetts
02108, serves as the Custodian of the Trust pursuant to a custody agreement.
Under the custody agreement, Boston Safe holds each Fund's portfolio securities
and keeps all necessary accounts and records. For its services, Boston Safe
receives a monthly fee from TSSG based upon the month-end market value of
securities held in custody and also receives securities transaction charges,
including out-of-pocket expenses. The assets of the Trust are held under bank
custodianship in compliance with the 1940 Act.

SERVICE OGANIZATIONS

As stated in the Funds' Prospectuses, the Funds will enter into an
agreement with each financial institution which may purchase Class B, Class C or
Class E shares. The Funds will enter into an agreement with each Service
Organization whose customers ("Customers") are the beneficial owners of Class B,
Class C or Class E shares that requires the Service Organization to provide
certain services to Customers in consideration of the Funds' payment of .25%,
.35%, or .15%, respectively, of the average daily net asset value of the
respective Class beneficially owned by the Customers. Such services with
respect to the Class C shares include: (i) aggregating and processing purchase
and redemption requests from Customers and placing net purchase and redemption
orders with a Fund's Distributor; (ii) processing dividend payments from the
Funds on behalf of Customers; (iii) providing information periodically to
Customers showing their positions in shares; (iv) arranging for bank wires;
(v) responding to Customer inquiries relating to the services performed by the
Service Organization and handling correspondence; (vi) forwarding investor
communications from the Funds (such as proxies, investor reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
Customers; (vii) acting as shareholder of record or nominee; and (viii) other
similar account administrative services. In addition, a Service Organization at
its option, may also provide to its Customers of Class C shares (a) a service
that invests the assets of their accounts in shares pursuant to specific or pre-
authorized instructions; (b) provide sub-accounting with respect to shares
beneficially owned by Customers or the information necessary for sub-accounting;
and (c) provide check writing services. Service Organizations that purchase
Class C shares will also provide assistance in connection with the support of
the distribution of Class C shares to its Customers,

-15-
<PAGE>

including marketing assistance and the forwarding to Customers of sales
literature and advertising provided by a Distributor of the shares. Holders of
Class B shares of a Fund will receive the services set forth in (i) and (v) and
may receive one or more of the services set forth in (ii), (iii), (iv), (vi),
(vii) and (viii) above. A Service Organization, at its option, may also provide
to its Customers of Class B shares services including: (a) providing Customers
with a service that invests the assets of their accounts in shares pursuant to
specific or pre-authorized instruction; (b) providing sub-accounting with
respect to shares beneficially owned by Customers or the information necessary
for sub-accounting; (c) providing reasonable assistance in connection with the
distribution of shares to Customers; and (d) providing such other similar
services as the Fund may reasonably request to the extent the Service
Organization is permitted to do so under applicable statutes, rules, or
regulations. Holders of Class E shares of a Fund will receive the services set
forth in (i) and (v) above. A Service Organization, and at its option, may also
provide to its Customers of Class E shares services including: those services
set forth in (ii), (iii), (iv), (vi), (vii) and (viii) above and the optional
services set forth in (a), (b) and (c) above.

Each Fund's agreements with Service Organizations are governed by a
Shareholder Services Plan (the "Plan") that has been adopted by the Trust's
Board of Trustees under Rule 12b-1 of the 1940 Act. Under this Plan, the Board
of Trustees reviews, at least quarterly, a written report of the amounts
expended under the Fund's agreements with Service Organizations and the purposes
for which the expenditures were made. In addition, the Funds' arrangements with
Service Organizations must be approved annually by a majority of the Trust's
Trustees, including a majority of the Trustees who are not "interested persons"
of the Trust as defined in the 1940 Act and have no direct or indirect financial
interest in such arrangements (the "Disinterested Trustees").

The Board of Trustees has approved the Funds' arrangements with Service
Organizations based on information provided by the Funds' service contractors
that there is a reasonable likelihood that the arrangements will benefit the
Funds and their investors by affording the Funds greater flexibility in
connection with the servicing of the accounts of the beneficial owners of their
shares in an efficient manner. Any material amendment to the Funds' arrangements
with Service Organizations must be approved by a majority of the Trust's Board
of Trustees (including a majority of the Disinterested Trustees). So long as the
Funds' arrangements with Service Organizations are in effect, the selection and
nomination of the members of the Trust's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust will be committed
to the discretion of such non-interested Trustees.

For the fiscal year ended January 31, 1995, the following service fees were
paid by Government Obligations Money Market Fund: Class B shares, $19,702; no
service fees were paid with respect to Class C or Class E shares. For the
period February 8, 1993 (commencement of operations) to January 31, 1994,
Government Obligations Money Market Fund paid $771 in service fees with respect
to its Class B Shares; no service fees were paid with respect to Class C shares.
For the fiscal year ended January 31, 1995, the following service fees were paid
by Cash Management Fund: Class B Shares, $26; Class C Shares, $2; no service
fees were paid with respect to Class E shares. For the period February 8, 1993
(commencement of operations) to January 31, 1994, Cash Management Fund did not
pay any service fees. For the fiscal year ended January 31, 1995, the following
service fees were paid by Treasury Instruments Money Market Fund II: Class B
Shares, $83,224; no service fees were paid with respect to Class C or Class E
shares. For the period February 8, 1993 (commencement of operations) to January
31, 1994, Treasury Instruments Money Market Fund II paid $55,687 in service fees
with respect to its Class B Shares;

-16-
<PAGE>

no service fees were paid with respect to Class C or Shares. Class E Shares
were not offered by the Funds during the fiscal period ended January 31, 1994.

EXPENSES

The Funds' expenses include taxes, interest, fees and salaries of the
Trust's Trustees and Officers who are not directors, officers or employees of
the Trust's service contractors, SEC fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to investors, advisory, and administration fees, charges of the
Custodian, certain insurance premiums, outside auditing and legal expenses,
costs of investor reports and shareholder meetings and any extraordinary
expenses. In addition to these expenses, the individual classes of the Fund bear
certain expenses including Transfer Agent and dividend disbursing agent fees
and, with respect to Class B, C and E shares, Service Organization fees. The
Funds also pay for brokerage fees and commissions (if any) in connection with
the purchase and sale of portfolio securities. The Adviser and TSSG have agreed
that if, in any fiscal year, the expenses borne by a Fund exceed the applicable
expense limitations imposed by the securities regulations of any state in which
shares of the particular Fund are registered or qualified for sale to the
public, they will reimburse such Fund for any excess to the extent required by
such regulations in the same proportion that each of their fees bears to the
Fund's aggregate fees for investment advice and administrative services. Unless
otherwise required by law, such reimbursement would be accrued and paid on the
same basis that the advisory and administration fees are accrued and paid by
such Fund. To the Funds' knowledge, of the expense limitations in effect on the
date of this Statement of Additional Information, none is more restrictive than
two and one-half percent (2 1/2%) of the first $30 million of a Fund's average
annual net assets, two percent (2%) of the next $70 million of the average
annual net assets and one and one-half percent (1 1/2%) of the remaining average
annual net assets.

ADDITIONAL INFORMATION CONCERNING TAXES

The following summarizes certain additional tax considerations generally
affecting each Fund and its investors that are not described in each Fund's
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their investors or possible legislative changes, and
the discussion here and in each Fund's Prospectus is not intended as a
substitute for careful tax planning. Investors should consult their tax advisers
with specific reference to their own tax situation.

As stated in each Prospectus, each Fund of the Trust is treated as a
separate corporate entity under the Code and qualified as a regulated investment
company under the Code and intends to so qualify in future years. In order to so
qualify for a taxable year, each Fund must satisfy the distribution requirement
described in its Prospectus, derive at least 90% of its gross income for the
year from certain qualifying sources, comply with certain diversification tests
and derive less than 30% of its gross income from the sale or other disposition
of securities and certain other investments held for less than three months.
Interest (including original issue discount and accrued market discount)
received by a Fund upon maturity or disposition of a security held for less than
three months will not be treated as gross income derived from the sale or other
disposition of such security within the meaning of this requirement. However,
any other income which is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.

A 4% nondeductible excise tax is imposed on regulated investment companies
that fail to distribute currently an amount equal to specified percentages of
their ordinary taxable income and

-17-
<PAGE>

capital gain net income (excess of capital gains over capital losses). Each Fund
intends to make sufficient distributions or deemed distributions of its ordinary
taxable income and any capital gain net income each calendar year to avoid
liability for this excise tax.

If for any taxable year a Fund does not qualify for tax treatment as a
regulated investment company, all of its taxable income will be subject to
federal income tax at regular corporate rates without any deduction for
distributions to Fund investors. In such event, dividend distributions would be
taxable as ordinary income to the Fund's investors to the extent of its current
and accumulated earnings and profits, and would be eligible for the dividends
received deduction in the case of corporate shareholders.

Each Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of taxable dividends or 31% of gross proceeds realized upon
sale paid to any investor who has failed to provide a correct tax identification
number in the manner required, or who is subject to withholding by the Internal
Revenue Service for failure to properly include on his return payments of
taxable interest or dividends, or who has failed to certify to the Fund that he
is not subject to backup withholding when required to do so or that he is an
"exempt recipient."

Depending upon the extent of the Funds' activities in states and localities
in which their offices are maintained, in which their agents or independent
contractors are located or in which they are otherwise deemed to be conducting
business, the Funds may be subject to the tax laws of such states or localities.
In addition, in those states and localities which have income tax laws, the
treatment of the Funds and their investors under such laws may differ from their
treatment under federal income tax laws. Investors are advised to consult their
tax advisers concerning the application of state and local taxes.

DIVIDENDS

Net income of each of the Funds for dividend purposes consists of
(i) interest accrued and original issue discount earned on the Fund's assets,
(ii) plus the amortization of market discount and minus the amortization of
market premium on such assets, (iii) less accrued expenses directly attributable
to the Fund and the general expenses (E.G., legal, accounting and trustees'
fees) of the Trust prorated to the Fund on the basis of its relative net assets.
In addition, Class B, Class C and Class E shares bear exclusively the expense of
fees paid to Service Organizations with respect to the relevant Class of shares.
See "Management of the Funds-Service Organizations." With respect to the Cash
Management Fund dividends may be based on estimates of net interest income for
the Fund. Actual income may differ from estimates and differences, if any, will
be included in the calculation of subsequent dividends.

As stated, the Trust uses its best efforts to maintain the net asset value
per share of each Fund at $1.00. As a result of a significant expense or
realized or unrealized loss incurred by either of these portfolios, it is
possible that the portfolio's net asset value per share may fall below $1.00.

ADDITIONAL YIELD INFORMATION

-18-
<PAGE>

The "yields" and "effective yields" are calculated separately for each
class of shares of each Fund and in accordance with the formulas prescribed by
the SEC. The seven-day yield for each class of shares is calculated by
determining the net change in the value of a hypothetical pre-existing account
in the particular Fund which has a balance of one share of the class involved at
the beginning of the period, dividing the net change by the value of the account
at the beginning of the period to obtain the base period return, and multiplying
the base period return by 365/7. The net change in the value of an account in a
Fund includes the value of additional shares purchased with dividends from the
original share and dividends declared on the original share and any such
additional shares, net of all fees charged to all investor accounts in
proportion to the length of the base period and the Fund's average account size,
but does not include gains and losses or unrealized appreciation and
depreciation. In addition, an effective annualized yield quotation may be
computed on a compounded basis with respect to each class of its shares by
adding 1 to the base period return for the class involved (calculated as
described above), raising that sum to a power equal to 365/7, and subtracting 1
from the result.

Similarly, based on the calculations described above, the Funds' 30-day (or
one-month) yields and effective yields may also be calculated. Such yields refer
to the average daily income generated over a 30-day (or one-month) period, as
appropriate.

Based on the period ended January 31, 1995, the yields and effective yields
for each of the Funds were as follows:

7-DAY 30-DAY
7-DAY EFFECTIVE 30-DAY EFFECTIVE
YIELD YIELD YIELD YIELD
<S> <C> <C> <C> <C>

GOVERNMENT OBLIGATIONS MONEY MARKET FUND

Class A Shares _____% _____% _____% _____%
Class B Shares _____% _____% _____% _____%
Class C Shares _____% _____% _____% _____%
Class E Shares _____% _____% _____% _____%

Class A Shares* _____% _____% _____% _____%
Class B Shares* _____% _____% _____% _____%
Class C Shares* _____% _____% _____% _____%
Class E Shares* _____% _____% _____% _____%

CASH MANGEMENT FUND

Class A Shares _____% _____% _____% _____%
Class B Shares _____% _____% _____% _____%
Class C Shares _____% _____% _____% _____%
Class E Shares _____% _____% _____% _____%

</TABLE>

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<PAGE>

<TABLE>

Class A Shares* _____% _____% _____% _____%
Class B Shares* _____% _____% _____% _____%
Class C Shares* _____% _____% _____% _____%
Class E Shares* _____% _____% _____% _____%

TREASURY INSTRUMENTS MONEY MARKET FUND II

Class A Shares _____% _____% ____% _____%
Class B Shares _____% _____% ____% _____%
Class C Shares _____% _____% ____% _____%
Class E Shares _____% _____% ____% _____%

Class A Shares* _____% _____% ____% _____%
Class B Shares* _____% _____% ____% _____%
Class C Shares* _____% _____% ____% _____%
Class E Shares* _____% _____% ____% _____%

</TABLE>

-20-
<PAGE>

<TABLE>

<S> <C>

<FN>
**without fee waivers and/or expense reimbursements
Note: different investment policies as the 100% Government Obligations Money
Market Fund. Tax-Equivalent yields assume a maximum Federal Tax Rule of 31%.

</TABLE>

Class B, Class C and Class E Shares bear the expenses of fees paid to
Service Organizations. As a result, at any given time, the net yield of Class B,
Class C and Class E Shares could be up to .25%, .35%, and .15% lower than the
net yield of Class A Shares, respectively.

From time to time, in advertisements or in reports to investors, the
performance of the Funds may be quoted and compared to that of other money
market funds or accounts with similar investment objectives and to stock or
other relevant indices. For example, the yields of the Funds may be compared to
the Donoghue's MONEY FUND AVERAGE, which is an average compiled by
IBC/Donoghue's MONEY FUND REPORT[REGISTRATED TRADEMARK] of Holliston, MA 01746,
a widely recognized independent publication that monitors the performance of
money market funds, or to the average yields reported by the BANK RATE MONITOR
from money market deposit accounts offered by the 50 leading banks and thrift
institutions in the top five standard metropolitan statistical areas.

The Funds' yields will fluctuate and any quotation of yield should not be
considered as representative of the future performance of the Funds. Since
yields fluctuate, yield data cannot necessarily be used to compare an investment
in the Funds' shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Investors should remember that performance and yield are
generally functions of the kind and quality of the investments held in a
portfolio, portfolio maturity, operating expenses net of waivers and expense
reimbursements and market conditions. Any fees charged by Service Organizations
or other institutional investors with respect to customer accounts in investing
in shares of the Funds will not be included in calculations of yield; such fees,
if charged, would reduce the actual yield from that quoted.

ADDITIONAL DESCRIPTION CONCERNING FUND SHARES

The Trust does not presently intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more Trustees. To the extent
required by law, the Trust will assist in shareholder communication in such
matters.

As stated in the Prospectuses for the Funds, holders of each Fund's shares,
will vote in the aggregate and not by class on all matters, except where
otherwise required by law and except that for each Fund only that Fund's Class
B, Class C and Class E shares will be entitled to vote on matters submitted to a
vote of shareholders pertaining to the Fund's arrangements with Service
Organizations with respect to the relevant Class of shares. (See "Management of
the Funds-Service Organizations").

-21-
<PAGE>

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 auditors, the approval of principal
underwriting contracts and the election of Trustees are not subject to the
separate voting requirements and may be effectively acted upon by shareholders
of the investment company voting without regard to portfolio.

On August 22, 1994, the Cash Management Fund changed its name from the 100%
Government Money Market Fund to the Cash Management Fund.

COUNSEL

Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York, New York 10022, serves as counsel to the Trust and will pass upon the
legality of the shares offered hereby. Willkie Farr & Gallagher also acts as
counsel to Lehman Brothers.

AUDITORS

Ernst & Young, LLP, independent auditors, serve as auditors to the Fund and
render an opinion on the Fund's financial statements. Ernst & Young has offices
at 200 Clarendon Street, Boston, Massachusetts 02116-5072.

FINANCIAL STATEMENTS

The Trust's Annual Report for the fiscal period ended January 31, 1994 is
incorporated into this Statement of Additional Information by reference in its
entirety.

MISCELLANEOUS

SHAREHOLDER VOTE

As used in this Statement of Additional Information and the Prospectuses
for the Funds, a "majority of the outstanding shares" of a Fund or of any other
portfolio means the lesser of (1) 67% of the shares of such Fund (irrespective
of class) or of the portfolio represented at a meeting at which the holders of
more than 50% of the outstanding shares of such Fund or portfolio are present in
person or by proxy, or (2) more than 50% of the outstanding shares of such Fund
(irrespective of class) or of the portfolio.

SHAREHOLDER AND TRUSTEE LIABILITY

-22-
<PAGE>

The Trust is organized as a "business trust" under the laws of the
Commonwealth of Massachusetts. Shareholders of such a trust may, under certain
circumstances, be held personally liable (as if they were partners) for the
obligations of the trust. The Declaration of Trust of the Trust provides that
shareholders of the Funds shall not be subject to any personal liability for the
acts or obligations of the Trust and that every note, bond, contract, order or
other undertaking made by the Trust shall contain a provision to the effect that
the shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of a Fund of any
shareholder of the Fund held personally liable solely by reason of his being or
having been a shareholder and not because of his acts or omissions or some other
reason. The Declaration of Trust also provides that the Trust shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Trust and satisfy any judgment thereon. Thus, the risk
of a shareholder incurring financial loss beyond its investment in a Fund on
account of shareholder liability is limited to circumstances in which the Fund
itself would be unable to meet its obligations.

The Trust's Declaration of Trust provides further that no Trustee, Officer
or agent of the Trust shall be personally liable for or on account of any
contract, debt, tort, claim, damage, judgment or decree arising out of or
connected with the administration or preservation of the trust estate or the
conduct of any business of the Trust, nor shall any Trustee be personally liable
to any person for any action or failure to act except by reason of his own bad
faith, willful misfeasance, gross negligence in the performance of his duties or
by reason of reckless disregard of his obligations and duties as Trustee. It
also provides that all persons having any claim against the Trustees or the
Trust shall look solely to the trust property for payment. With the exceptions
stated, the Declaration of Trust provides that a Trustee is entitled to be
indemnified against all liabilities and expenses reasonably incurred by him in
connection with the defense or disposition of any proceeding in which he may be
involved or with which he may be threatened by reason of his being or having
been a Trustee, and that the Trustees have the power, but not the duty, to
indemnify officers and employees of the Trust unless such person would not be
entitled to indemnification had he been a Trustee.

-23-

<PAGE>

NEW YORK MUNICIPAL MONEY MARKET FUND

INVESTMENT PORTFOLIOS OFFERED BY
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

STATEMENT OF ADDITIONAL INFORMATION

MAY ___, 1995

This Statement of Additional Information is meant to be read in conjunction
with the Prospectus for the New York Municipal Money Market Fund portfolio,
dated May ___, 1995 as amended or supplemented from time to time, and is
incorporated by reference in its entirety into the Prospectus. Because this
Statement of Additional Information is not itself a prospectus, no investment in
shares of the New York Municipal Money Market Fund portfolio should be made
solely upon the information contained herein. Copies of the Prospectus for
shares may be obtained by calling Lehman Brothers Inc. ("Lehman Brothers") at 1-
800-368-5556. Capitalized terms used but not defined herein have the same
meanings as in the Prospectus.

TABLE OF CONTENTS

PAGE
----
<S> <C>
The Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Objective and Policies. . . . . . . . . . . . . . . . 2
Municipal Obligations. . . . . . . . . . . . . . . . . . . . . . 7
Additional Purchase and Redemption Information . . . . . . . . . 18
Management of the Fund . . . . . . . . . . . . . . . . . . . . . 20
Additional Information Concerning Taxes. . . . . . . . . . . . . 27
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Additional Yield Information . . . . . . . . . . . . . . . . . . 30
Additional Description Concerning Shares . . . . . . . . . . . . 30
Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Financial Statements . . . . . . . . . . . . . . . . . . . . . . 31
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 31
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>

<PAGE>

THE TRUST

Lehman Brothers Institutional Funds Group Trust (the "Trust") is an
open-end investment company. The Trust currently includes a family of
portfolios, one of which is New York Municipal Money Market Fund (the "Fund").
The Fund is currently authorized to offer four classes of shares. Each class
represents an equal, PRO RATA interest in the Fund. Each share accrues daily
dividends in the same manner, except that Class B, Class C and Class E Shares
bear fees payable by the Fund to Lehman Brothers or institutional investors for
services they provide to the beneficial owners of such shares.

THIS STATEMENT OF ADDITIONAL INFORMATION AND THE FUND'S PROSPECTUS RELATE
PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND. INVESTORS WISHING
TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER PORTFOLIOS MAY OBTAIN
INFORMATION DESCRIBING THEM BY CONTACTING LEHMAN BROTHERS AT 800-368-5556.

INVESTMENT OBJECTIVE AND POLICIES

As stated in the Fund's Prospectus, the investment objective of the Fund is
to provide as high a level of current income exempt from federal income tax and,
to the extent possible, from New York State and New York City personal income
taxes, as is consistent with the preservation of capital and relative stability
of principal. The following policies supplement the description of the Fund's
investment objective and policies in the Prospectus.

The Fund is managed to provide stability of capital while achieving
competitive yields. Lehman Brothers Global Asset Management, Inc. ("LBGAM or
the "Adviser"), the Investment Adviser of the Fund, intends to follow a
value-oriented, research-driven and risk-averse investment strategy, engaging in
a full range of economic, strategic, credit and market-specific analyses in
researching potential investment opportunities.

PORTFOLIO TRANSACTIONS

Subject to the general control of the Trust's Board of Trustees, the
Adviser is responsible for, makes decisions with respect to and places orders
for all purchases and sales of portfolio securities. Purchases are usually
principal transactions without brokerage commissions. Purchases, if any, from
underwriters may include a commission or concession paid by the issuer to the
underwriter and purchases from dealers serving as market markers may include the
spread between the bid and asked prices. In making portfolio investments, the
Adviser seeks to obtain the best net price and the most favorable execution of
orders. To the extent that the execution and price offered by more than one
dealer are comparable, the Adviser may, in its discretion, effect transactions
in portfolio securities with dealers who provide the Trust with research advice
or other services.

Investment decisions for the Fund are made independently from those for the
Trust's other portfolios or other investment company portfolios or accounts
advised by the Adviser. Such other investment company portfolios may invest in
the same securities as the Fund. When purchases or sales of the same security
are made at substantially the same time on behalf of such other investment

-2-
<PAGE>

company portfolios, transactions are averaged as to price, and available
investments allocated as to amount, in a manner which the Adviser believes to be
equitable to each investment company portfolio, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained for the Fund. To the
extent permitted by law, the Adviser may aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for such other
investment companies in order to obtain best execution.

Portfolio securities will not be purchased from or sold to and the Fund
will not enter into repurchase agreements with Lehman Brothers, the Adviser or
any affiliated person of any of them (as such term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) except to the extent permitted
by the Securities and Exchange Commission ("SEC"). In addition, the Fund will
not purchase Municipal Obligations during the existence of any underwriting or
selling group relating thereto of which Lehman Brothers or any affiliate thereof
is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Fund may be at a disadvantage because of these limitations in
comparison with other investment company portfolios which have a similar
investment objective but are not subject to such limitations. Furthermore, with
respect to such transactions, securities and deposits, the Fund will not give
preference to Service Organizations with whom the Fund enters into agreements.
(See the Prospectus, "Management of the Fund -- Service Organizations.")

The Fund may participate, if and when practicable, in bidding for the
purchase of Municipal Obligations directly from an issuer in order to take
advantage of the lower purchase price available to members of such a group. The
Fund will engage in this practice, however, only when the Adviser, in its sole
discretion, believes such practice to be otherwise in the Fund's interest.

The Fund does not intend to seek profits through short-term trading. The
Fund's annual portfolio turnover will be relatively high because of the
short-term nature of the instruments in which it invests, but the Fund's
portfolio turnover is not expected to have a material effect on its net income.
The Fund's portfolio turnover is expected to be zero for regulatory reporting
purposes.

ADDITIONAL INFORMATION ON INVESTMENT PRACTICES

VARIABLE AND FLOATING RATE INSTRUMENTS. Municipal Obligations purchased by
the Fund may include variable and floating rate instruments, which provide for
adjustments in the interest rate on certain reset dates or whenever a specified
interest rate index changes, respectively. Variable and floating rate
instruments are subject to the credit quality standards described in the
Prospectus. In some cases the Fund may require that the obligation to pay the
principal of the instrument be backed by a letter or line of credit or
guarantee. Such instruments may carry stated maturities in excess of 397 days
provided that the maturity-shortening provisions stated in Rule 2a-7 under the
1940 Act are satisfied. Although a particular variable or floating rate demand
instrument may not be actively traded in a secondary market, in some cases, the
Fund may be entitled to principal on demand and may be able to resell such notes
in the dealer market.

Variable and floating rate demand instruments held by the Fund may have
maturities of more than 13 months provided: (i) the Fund is entitled to the
payment of principal at any time or during specified intervals not exceeding 13
months, subject to notice of no more than 30 days, and (ii) the rate of interest
on such instruments is adjusted (based upon a pre-selected market sensitive
index such as the prime rate of a major commercial bank) at periodic intervals
not exceeding 13 months. In determining the Fund's average weighted portfolio
maturity and whether a variable or floating rate demand instrument has

-3-
<PAGE>

a remaining maturity of 13 months or less, the maturity of each instrument will
be computed in accordance with guidelines established by the SEC. In
determining whether an unrated variable or floating rate demand instrument is of
comparable quality at the time of purchase to instruments with minimal credit
risk, the Adviser will follow guidelines adopted by the Trust's Board of
Trustees.

TENDER OPTION BONDS. The Fund may invest up to 10% of the value of its
assets in tender option bonds. The Fund will not purchase tender option bonds
unless (a) the demand feature applicable thereto is exercisable by the Fund
within 13 months of the date of such purchase upon no more than 30 days' notice
and thereafter is exercisable by the Fund no less frequently than annually upon
no more than 30 days' notice and, (b) at the time of such purchase, the Adviser
reasonably expects that (i) based upon its assessment of current and historical
interest rate trends, prevailing short-term tax-exempt rates will not exceed the
stated interest rate on the underlying Municipal Obligations at the time of the
next tender fee adjustment, and (ii) the circumstances which might entitle the
grantor of a tender option to terminate the tender option would not occur prior
to the time of the next tender opportunity. At the time of each tender
opportunity, the Fund will exercise the tender option with respect to any tender
option bonds unless the Adviser reasonably expects that, (a) based upon its
assessment of current and historical interest rate trends, prevailing short-term
tax-exempt rates will not exceed the stated interest rate on the underlying
Municipal Obligations at the time of the next tender fee adjustment, and (b) the
circumstances which might entitle the grantor of a tender option to terminate
the tender option would not occur prior to the time of the next tender
opportunity. The Fund will exercise the tender feature with respect to tender
option bonds, or otherwise dispose of its tender option bonds, prior to the time
the tender option is scheduled to expire pursuant to the terms of the agreement
under which the tender option is granted. The Fund otherwise will comply with
the provisions of Rule 2a-7 under the 1940 Act in connection with the purchase
of tender option bonds, including, without limitation, the requisite
determination by the Board of Trustees that the tender option bonds in question
meet the quality standards described in Rule 2a-7. In the event of a default of
the Municipal Obligation underlying a tender option bond, or the termination of
the tender option agreement, the Fund would look to the maturity date of the
underlying security for purposes of compliance with Rule 2a-7 and, if its
remaining maturity was greater than 13 months, the Fund would sell the security
as soon as would be practicable. The Fund will purchase tender option bonds
only when it is satisfied that (a) the custodial and tender option arrangements,
including the fee payment arrangements, will not adversely affect the tax-exempt
status of the underlying Municipal Obligations and (b) payment of any tender
fees will not have the effect of creating taxable income for the Fund. Based on
the tender option bond arrangement, the Fund expects to value the tender option
bond at par; however, the value of the instrument will be monitored to assure
that it is valued at fair value.

WHEN-ISSUED SECURITIES. As stated in the Prospectus, the Fund may purchase
Municipal Obligations on a "when-issued" basis (I.E., for delivery beyond the
normal settlement date at a stated price and yield). When the Fund agrees to
purchase when-issued securities, its Custodian will set aside in a separate
account, cash or liquid portfolio securities equal to the amount of the
commitment. Normally, the Custodian will set aside portfolio securities to
satisfy a purchase commitment, and in such a case the Fund may be required
subsequently to place additional assets in the separate account in order to
ensure that the value of the account remains equal to the amount of the Fund's
commitment. It may be expected that the Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because the Fund will set aside cash
or liquid assets to satisfy its purchase commitments in the manner described,
the Fund's liquidity and ability to manage its portfolio might be affected in
the event its commitments to purchase when-issued securities ever exceeded 25%
of the value of its assets. When the Fund engages in

-4-

<PAGE>

when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous. The
Fund does not intend to purchase when-issued securities for speculative purposes
but only in furtherance of its investment objective. The Fund reserves the
right to sell the securities before the settlement date if it is deemed
advisable.

STAND-BY COMMITMENTS. The Fund may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, a dealer agrees to purchase, at the Fund's option, specified
Municipal Obligations at their amortized cost value to the Fund plus accrued
interest, if any. (Stand-by commitments acquired by the Fund may also be
referred to as "put" options.) Stand-by commitments may be sold, transferred or
assigned only with the underlying instruments.

The Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held in the Fund's portfolio is not
expected to exceed 1/2 of 1% of the value of the Fund's total assets calculated
immediately after each stand-by commitment is acquired.

The Fund intends to enter into stand-by commitments only with dealers,
banks and broker-dealers which, in the opinion of the Adviser, present minimal
credit risks. In evaluating the creditworthiness of the issuer of a stand-by
commitment, the Adviser will review periodically the issuer's assets,
liabilities, contingent claims and other relevant financial information.

The Fund will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. Stand-by commitments acquired by the Fund would be valued at zero in
determining net asset value. Where the Fund paid any consideration directly or
indirectly for a stand-by commitment, its cost would be reflected as unrealized
depreciation for the period during which the commitment was held by the Fund.

PARTICIPATIONS. The Fund may purchase from financial institutions
tax-exempt participation interests in Municipal Obligations. A participation
interest gives the Fund an undivided interest in the Municipal Obligation in the
proportion that the Fund's participation interest bears to the total amount of
the Municipal Obligation. These instruments may have floating or variable rates
of interest. If the participation interest is unrated, it will be backed by an
irrevocable letter of credit or guarantee of a bank that the Trust's Board of
Trustees has determined meets certain quality standards or the payment
obligation otherwise will be collateralized by obligations of the U.S.
Government and its agencies and instrumentalities ("U.S. Government
securities"). The Fund will have the right, with respect to certain
participation interests, to demand payment, on a specified number of days'
notice, for all or any part of the Fund's interest in the Municipal Obligations,
plus accrued interest. The Fund will invest no more than 5% of its total assets
in participation interests.

ILLIQUID SECURITIES. The Fund may not invest more than 10% of its total
net assets in illiquid securities, including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a 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.

-5-
<PAGE>

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 Adviser anticipates that the market for certain restricted securities such
as institutional municipal securities will expand further as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL system sponsored by the National Association of Securities
Dealers.

The 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 nationally recognized
statistical rating organizations ("NSROs") for Municipal Obligations that may be
purchased by the Fund.

INVESTMENT LIMITATIONS

The Fund's Prospectus sets forth certain investment limitations that may
not be changed without the affirmative vote of the holders of a majority of the
Fund's outstanding shares (as defined below under "Miscellaneous"). Investment
limitations numbered 1 through 6 may not be changed without such a vote of
shareholders; investment limitations 7 through 12 may be changed by a vote of
the Trust's Board of Trustees at any time.

The Fund may not:

1. Borrow money, except from banks for temporary purposes and then in
amounts not exceeding 10% of the value of the Fund's total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the Fund's total assets at
the time of such borrowing. Additional investments will not be made when
borrowings exceed 5% of the Fund's assets.

2. Make loans, except that the Fund may purchase or hold debt instruments
in accordance with its investment objective and policies.

3. Act as an underwriter of securities, except insofar as the Fund may be
deemed an underwriter under applicable securities laws in selling portfolio
securities.

4. Purchase or sell real estate or real estate limited partnerships,
provided that the Fund may purchase securities of issuers which invest in real
estate or interests therein.

5. Purchase or sell commodities or commodity contracts, or invest in oil,
gas or mineral

-6-
<PAGE>

exploration or development programs or in mineral leases.

6. Purchase any securities which would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the securities of
issuers conducting their principal business activities in the same industry,
provided that there is no limitation with respect to investments in U.S.
Government securities.

7. Knowingly invest more than 10% of the value of the Fund's assets in
securities that may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.

8. Purchase securities on margin, make short sales of securities or
maintain a short position.

9. Write or sell puts, calls, straddles, spreads or combinations thereof.

10. Invest in securities if as a result the Fund would then have more than
5% of its total assets in securities of companies (including predecessors) with
less than three years of continuous operation.

11. Purchase securities of other investment companies except as permitted
under the 1940 Act or in connection with a merger, consolidation, acquisition or
reorganization.

12. Invest in warrants.

MUNICIPAL OBLIGATIONS

IN GENERAL

Municipal Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses and the extension of loans to public
institutions and facilities. Private activity bonds that are issued by or on
behalf of public authorities to finance various privately-operated facilities
are included within the term Municipal Obligations if the interest paid thereon
is (subject to the federal alternative minimum tax) exempt from regular federal
income tax. Opinions relating to the validity of Municipal Obligations and to
the exemption of interest thereon from federal income taxes are rendered by
counsel to the issuers or bond counsel to the respective issuing authorities at
the time of issuance. Neither the Fund nor the Adviser will review
independently the underlying proceedings relating to the issuance of Municipal
Obligations or the bases for such opinions.

-7-
<PAGE>

amount thereof. In some cases, Municipal Obligations are represented by
custodial receipts evidencing rights to receive specific future interest
payments, principal payments, or both, on the underlying municipal securities
held by the custodian. Under such arrangements, the holder of the custodial
receipt has the option to tender the underlying municipal securities at its face
value to the sponsor (usually a bank or broker/dealer or other financial
institution), which is paid periodic fees equal to the difference between the
bond's fixed coupon rate and the rate that would cause the bond, coupled with
the tender option, to trade at par on the date of a rate adjustment. The Fund
may hold tax-exempt derivatives, such as participation interests and custodial
receipts, for Municipal Obligations which give the holder the right to receive
payment of principal subject to the conditions described above. The Internal
Revenue Service has not ruled on whether the interest received on tax-exempt
derivatives in the form of participation interests or custodial receipts is
tax-exempt, and accordingly, purchases of any such interests or receipts are
based on the opinion of counsel to the sponsors of such derivative securities.
Neither the Fund nor the Adviser will independently review the underlying
proceedings related to the creation of any tax-exempt derivatives or the bases
for such opinions.

As described in the Fund's Prospectus, the two principal classifications of
Municipal Obligations consist of "general obligation" and "revenue" issues, and
the Fund's portfolio may include "moral obligation" issues, which are normally
issued by special purpose authorities. There are, of course, variations in the
quality of Municipal Obligations, both within a particular classification and
between classifications, and the yields on Municipal Obligations depend upon a
variety of factors, including general money market conditions, the financial
condition of the issuer, general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation and the rating of
the issue. The ratings of statistical rating organizations represent their
opinions as to the quality of Municipal Obligations. It should be emphasized,
however, that ratings are general and are not absolute standards of quality, and
Municipal Obligations with the same maturity, interest rate and rating may have
different yields while Municipal Obligations of the same maturity and interest
rate with different ratings may have the same yield. Subsequent to its purchase
by the Fund, an issue of Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Fund. The Adviser will consider such an event in determining whether the Fund
should continue to hold the obligation.

An issuer's obligations under its Municipal Obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Obligations may be
adversely affected by litigation or other conditions.

Among other types of Municipal Obligations, the Fund may purchase
short-term General Obligation Notes, Tax Anticipation Notes, Bond Anticipation
Notes, Revenue Anticipation Notes, Tax-Exempt Commercial Paper, Construction
Loan Notes and other forms of short-term loans. Such instruments are issued
with a short-term maturity in anticipation of the receipt of tax funds, the
proceeds of bond placements or other revenues. In addition, the Fund may invest
in other types of tax-exempt instruments, including general obligation and
private activity bonds, provided they have remaining maturities of 13 months or
less at the time of purchase.

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SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS

Some of the significant financial considerations relating to the
investments of the Fund in New York Municipal Obligations are summarized below.
The following information constitutes only a brief summary and does not purport
to be a complete description.

STATE ECONOMY. New York State (the "State") is the third most populous
state in the nation and has a relatively high level of personal wealth. The
State's economy is diverse with a comparatively large share of the nation's
finance, insurance, transportation, communications and services employment, and
a comparatively small share of the nation's farming and mining activity. The
State has a declining proportion of its workforce engaged in manufacturing, and
an increasing proportion engaged in service industries. New York City (the
"City"), which is the most populous city in the State and nation and is the
center of the nation's largest metropolitan area, accounts for a large portion
of the State's population and personal income.

A national recession commenced in mid-1990. The downturn continued
throughout the State's 1990-91 fiscal year and was followed by a period of weak
economic growth during the 1991 and 1992 calendar years. For calendar year
1993, the national economy grew faster than in 1992, but still at a very
moderate rate, as compared to other recoveries. Economic recovery started
considerably later in the State than in the nation as a whole due in part to the
significant retrenchment in the banking and financial industries, downsizing by
several major corporations, cutbacks in defense spending and an oversupply of
office buildings. The forecast made by the Division of the Budget for the
overall rate of growth of the national economy during calendar 1994 is similar
to the "consensus" of a widely followed survey of national economic forecasters.

The New York economy, as measured by employment, shifted from recession to
recovery near the start of calendar year 1993. During the course of calendar
year 1993, employment began to increase, albeit sporadically, and the
unemployment rate declined. The recovery is expected by the State to continue
in calendar year 1994, with employment growing more rapidly, on average, than in
the previous calendar year. Many uncertainties exist in forecasts of both the
national and State economies, including employment levels and consumer attitudes
toward spending, Federal fiscal and monetary policies and the condition of the
world economy, which could have an adverse effect on the State. There can be no
assurance that the State economy will not experience worse-than-predicted
results in the 1993-94 and 1994-95 fiscal years, with corresponding material and
adverse effects on the State's projections of receipts and disbursements.

STATE BUDGET. The State Constitution requires the Governor to submit to
the Legislature a

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balanced Executive Budget which contains a complete plan of expenditures for the
ensuing fiscal year and all moneys and revenues estimated to be available
therefor, accompanied by bills containing all proposed appropriations or
reappropriations and any new or modified revenue measures to be enacted in
connection with the Executive Budget. The entire plan constitutes the proposed
State financial plan for that fiscal year. The Governor submits to the
Legislature, on at least a quarterly basis, reports of actual receipts,
revenues, disbursements, expenditures, tax refunds and reimbursements, and
repayment of advances in form suitable for comparison with the State financial
plan, together with explanations of deviations from the State financial plan. At
such time, the Governor is required to submit any amendments to the State
financial plan necessitated by such deviations.

The Governor released the recommended Executive Budget for the 1994-95
fiscal year on January 18, 1994 and amended it on February 17, 1994 (the
"Recommended 1994-95 State Financial Plan"). The Recommended 1994-95 State
Financial Plan projected a balanced General Fund, with receipts and transfers
from other funds projected at $33.422 billion, including $339 million carried
over from the surplus anticipated for the State's 1993-94 fiscal year.
Disbursements and transfers to other funds are projected at $33.399 billion and,
in addition, the financial plan includes a $23 million repayment to the State's
Tax Stabilization Reserve Fund. The Division of the Budget projects that at the
close of the State's 1994-95 fiscal year, the balance in the Tax Stabilization
Reserve Fund will be $157 million.

The State's budget for the 1994-95 fiscal year was enacted by the
Legislature on June 7, 1994, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service. The State
financial plan for the 1994-95 fiscal year was formulated on June 16, 1994 and
is based upon the State's budget as enacted by the Legislature and signed into
law by the Governor (the "1994-95 State Financial Plan"). This delay in the
enactment of the State's 1994-95 fiscal year budget may reduce the effectiveness
of several of the actions proposed.

The 1994-95 State Financial Plan is based on a number of assumptions and
projections. Because it is not possible to predict accurately the occurrence of
all factors that may affect the 1994-95 State Financial Plan, actual results may
differ and have differed materially in recent years, from projections made at
the outset of a fiscal year. There can be no assurance that the State will not
face substantial potential budget gaps in future years resulting from a
significant disparity between tax revenues projected from a lower recurring
receipts base and the spending required to maintain State programs at current
levels. To address any potential budgetary imbalance, the State may need to
take significant actions to align recurring receipts and disbursements in future
fiscal years.

RECENT FINANCIAL RESULTS. The General Fund is the principal operating fund
of the State. It receives all State income that is not required by law to be
deposited in another fund which for the State's 1994-95 fiscal year, is expected
to comprise approximately 52% of total projected governmental fund receipts.

The General Fund is balanced on a cash basis with total projected receipts
of $34.321 billion, an increase of $2.092 billion over total receipts in the
prior fiscal year. Total General Fund disbursements in the current fiscal year
are projected to be $34.248 billion, an increase of $2.351 billion over the
total amount disbursed and transferred in the prior fiscal year.

The State's financial position as shown in its Combined Balance Sheet as of
March 31, 1993

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included an accumulated deficit in its combined governmental funds of $681
million represented by liabilities of $12.864 billion and assets of $12.183
billion available to liquidate such liabilities.

DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by which
the State of New York may incur debt. Under the State Constitution, the State
may not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (I.E., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State. The total amount of long-term State general obligation
debt authorized but not issued as of December 31, 1993 was approximately $2.273
billion.

The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.

The State of New York also employs two other types of long-term financing
mechanisms which are State-supported but are not general obligations of the
State: moral obligation and lease-purchase or contractual-obligation financing.

In 1990, as part of a State fiscal reform program, legislation was enacted
creating the New York Local Government Assistance Corporation ("LGAC"), a public
benefit corporation empowered to issue long-term obligations to fund certain
payments to local governments traditionally funded through New York State's
annual seasonal borrowing. The Legislation empowered LGAC to issue its bonds
and notes in an amount not in excess of $4.7 billion (exclusive of certain
refunding bonds) plus certain other amounts. Over a period of years, the
issuance of those long-term obligations, which will be amortized over no more
than 30 years, is expected to result in eliminating the need for continuing
short-term seasonal borrowing for those purposes. The legislation dedicated
revenues equal to one-quarter of the four cent State sales and use tax to pay
debt service on these bonds. The legislation also imposed a cap on the annual
seasonal borrowing of the State at $4.7 billion, less net proceeds of bonds
issued by LGAC and bonds issued to provide for capitalized interest, except in
cases where the Governor and the legislative leaders have certified both the
need for additional borrowing and provided a schedule for reducing it to the
cap. If borrowing above the cap is thus permitted in any fiscal year, it is
required by law to be reduced to the cap by the fourth fiscal year after the
limit was first exceeded. As of June 1994, LGAC had issued its bonds to provide
net proceeds of $3.856 billion and has been authorized to issue its bonds to
provide net proceeds of up to an additional $315 million during the State's
1994-95 fiscal year.

In April 1993, legislation was also enacted providing for significant
changes in the long-term financing practices of the State and the Authorities.

The Legislature passed a proposed constitutional amendment that would
permit the State, within a formula-based cap, to issue revenue bonds, which
would be debt of the State secured solely by a pledge of certain State tax
receipts (including those allocated to State funds dedicated for transportation
purposes), and not by the full faith and credit of the State. In addition, the
proposed amendment would require that State debt be incurred only for capital
projects included in a multi-year capital financing plan

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and would prohibit, after its effective date, lease-purchase and contractual-
obligation financing mechanisms for State facilities. Public hearings were held
on the proposed constitutional amendment during 1993. Following these hearings,
in February 1994, the Governor and the State Comptroller recommended a revised
constitutional amendment which would further tighten the ban on lease-purchase
and contractual-obligation financing, incorporate existing lease-purchase and
contractual-obligation debt under the proposed revenue bond cap while
simultaneously reducing the size of the cap. After considering these
recommendations, the Legislature passed a revised constitutional amendment which
tightens the ban, and provides for a phase-in to a lower cap. Before the
approved constitutional amendment or any revised amendment enacted in 1994 can
be presented to the voters for their consideration, it must be passed by a
separately elected legislature. The amendment must therefore be passed by the
newly elected Legislature in 1995 prior to presentation to the voters at the
earliest in November 1995. The amendment could not become effective before
January 1, 1996.

On January 13, 1992, Standard & Poor's Corporation ("Standard & Poor's")
reduced its ratings on the State's general obligation bonds from A to A- and, in
addition, reduced its ratings on the State's moral obligation, lease purchase,
guaranteed and contractual obligation debt. Standard & Poor's also continued
its negative rating outlook assessment on State general obligation debt. On
April 26, 1993, Standard & Poor's revised the rating outlook assessment to
stable. On February 14, 1994, Standard & Poor's raised its outlook to positive
and, on February 28, 1994, confirmed its A- rating. On January 6, 1992, Moody's
Investors Service, Inc. ("Moody's") reduced its rating on outstanding limited-
liability State lease purchase and contractual obligations from A to Baa1. On
February 28, 1994, Moody's reconfirmed its A rating on the State's general
obligation long-term indebtedness.

The State anticipates that its capital programs will be financed, in part,
by State and public authorities borrowings in 1994-95. The State expects to
issue $374 million in general obligation bonds including $140 million for the
purpose of redeeming outstanding bond anticipation notes and $140 million in
general obligation commercial paper. The Legislature has also authorized the
issuance of up to $69 million in certificates of participation during the
State's 1994-95 fiscal year for equipment purchases. The projection of the
State regarding its borrowings for the 1994-95 fiscal year may change if
circumstances require.

Payments for principal and interest due on general obligation bonds and
interest due on bond anticipation notes and on tax and revenue anticipation
notes were $782.5 million for the 1993-94 fiscal year, and are estimated to be
$786.3 million for the 1994-95 fiscal year. These figures do not include
interest payable on State General Obligation Refunding Bonds issued in July 1992
("Refunding Bonds"), to the extent that such interest was to be paid from an
escrow fund established with the proceeds of such Refunding Bonds. Principal
and interest payments on fixed rate and variable rate bonds issued by LGAC were
$239.4 million for the 1993-94 fiscal year, and are estimated to be $289.9
million for 1994-95. State lease-purchase rental and contractual obligation
payments for 1993-94, including State installment payments relating to
certificates of participation, were $1.258 billion and are estimated to be
$1.495 billion in 1994-95.

New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.

LITIGATION. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (a) the validity of agreements and treaties by which various Indian

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tribes transferred title to the State of certain land in central upstate New
York; (b) certain aspects of New York State's Medicaid policies and its rates,
regulations and procedures; (c) contamination in the Love Canal area of Niagara
Falls; (d) action against State and City officials alleging inadequate shelter
allowances to maintain proper housing; (e) challenges to the practice of
reimbursing certain Office of Mental Health patient care expenses from the
client's Social Security benefits; (f) alleged responsibility of the State's
officials to assist in remedying racial segregation in the City of Yonkers; (g)
challenge to the methods by which the State reimburses localities for the
administrative costs of food stamp programs; (h) action in which the State is a
third party defendant, for injunctive or other appropriate relief, concerning
liability for the maintenance of stone groins constructed along certain areas of
Long Island's shoreline; (i) action by school districts and their employees
challenging the constitutionality of Chapter 175 of the Laws of 1990 which
deferred school district contributions to the public retirement system and
reduced by like amount state aid to the school districts; (j) challenges by
commercial insurers, employee welfare benefit plans, and health maintenance
organizations to Section 2807-c of the Public Health Law, which imposes 13%, 11%
and 9% surcharges on inpatient hospital bills and a bad debt and charity care
allowance on all hospital bills and hospital bills paid by such entities; and
(k) challenge by a long distance carrier to the constitutionality of Tax Law
Section 186-a(2-a) which restricted certain deduction of local access service
fees.

A number of cases have also been instituted against the State challenging
the constitutionality of various public authority financing programs.

In a proceeding commenced on August 6, 1991 (SCHULZ, ET AL. V. STATE OF NEW
YORK, ET AL., Supreme Court, Albany County), petitioners challenge the
constitutionality of two bonding programs of the New York State Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991. In addition,
petitioners challenge the fiscal year 1991-92 judiciary budget as having been
enacted in violation of Sections 1 and 2 of Article VII of the State
Constitution. The defendants' motion to dismiss the action on procedural
grounds was denied by order of the Supreme Court dated January 2, 1992. By
order dated November 5, 1992, the Appellate Division, Third Department, reversed
the order of the Supreme Court and granted defendants' motion to dismiss on
grounds of standing and mootness. By order dated September 16, 1993, on motion
to reconsider, the Appellate Division, Third Department, ruled that plaintiffs
have standing to challenge the bonding program authorized by Chapter 166 of the
laws of 1991. The proceeding is presently pending in Supreme Court, Albany
County.

In SCHULZ, ET AL. V. STATE OF NEW YORK, ET AL., commenced May 24, 1993,
Supreme Court, Albany County, petitioners challenge, among other things, the
constitutionality of, and seek to enjoin, certain highway, bridge and mass
transportation bonding programs of the New York State Thruway Authority and the
Metropolitan Transportation Authority authorized by Chapter 56 of the Laws of
1993. Petitioners contend that the application of State tax receipts held in
dedicated transportation funds to pay debt service on bonds of the Thruway
Authority and of the Metropolitan Transportation Authority violates Section 8
and 11 of Article VII and Section 5 of Article X of the State Constitution and
due process provisions of the State and Federal Constitutions. By order dated
July 27, 1993, the Supreme Court granted defendants' motions for summary
judgment, dismissed the complaint, and vacated the temporary restraining order
previously issued. By decision dated October 21, 1993, the Appellate Division,
Third Department, affirmed the judgment of the Supreme Court. Plaintiffs'
appeal of the decision of the Appellate Division is pending in the Court of
Appeals.

Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the State's Comptroller has

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developed a plan to restore the State's retirement systems to prior funding
levels. Such funding is expected to exceed prior levels by $30 million in
fiscal 1994-95, $63 million in fiscal 1995-96, $116 million in fiscal year 1996-
97, $193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in that
case of STATE OF DELAWARE V. STATE OF NEW YORK, on January 21, 1994, the State
entered into a settlement agreement with Delaware. The State made an immediate
$35 million payment to Delaware and agreed to make annual payments of $33
million in each of the next five fiscal years. In return, Delaware has agreed
to withdraw its claims and its request for summary judgment. The State and
Massachusetts have also executed a settlement agreement which provides for
aggregate payments by New York State of $23 million, payable over five
consecutive years. Litigation continues with respect to other parties and the
State may be required to make additional payments during the State's 1994-95
fiscal year.

The legal proceedings noted above involve State finances, State programs
and miscellaneous tort, real property and contract claims in which the State is
a defendant and the monetary damages sought are substantial. These proceedings
could affect adversely the financial condition of the State in the and 1994-95
fiscal year or thereafter. Adverse developments in these proceedings or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced 1994-95 State Financial Plan. An adverse decision in any of these
proceedings could exceed the amount of the 1994-95 State Financial Plan reserve
for the payment of judgments and, therefore, could affect the ability of the
State to maintain a balanced 1994-95 State Financial Plan. In its audited
financial statements for the 1992-93 fiscal year, the State reported its
estimated liability for awarded and anticipated unfavorable judgments to be $721
million.

Although other litigation is pending against New York State, except as
described above, no current litigation involves New York State's authority, as a
matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.

AUTHORITIES. The fiscal stability of New York State is related to the
fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. As of September 30, 1993, date of the latest data available,
there were 18 Authorities that had outstanding debt of $100 million or more.
The aggregate outstanding debt, including refunding bonds, of these 18
Authorities was $63.5 billion as of September 30, 1993, of which approximately
$7.7 billion was moral obligation debt and approximately $19.3 billion was
financed under lease-purchase or contractual-obligation financing arrangements.

Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the 18 Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. As of March 31, 1994, aggregate public
authority debt outstanding as State-supported debt was $21.1 billion and as
State-related debt was $29.4 billion.

Experience has shown that if an Authority suffers serious financial
difficulties, both the ability of

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the State and the Authorities to obtain financing in the public credit markets
and the market price of the State's outstanding bonds and notes may be adversely
affected. The New York State Housing Finance Agency and the New York State
Urban Development Corporation have in the past required substantial amounts of
assistance from the State to meet debt service costs or to pay operating
expenses. Further assistance, possibly in increasing amounts, may be required
for these, or other, Authorities in the future. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State funds.

NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State of New
York is closely related to the fiscal health of its localities, particularly the
City of New York, which has required and continues to require significant
financial assistance from New York State. The City's independently audited
operating results for each of its 1981 through 1993 fiscal years, which end on
June 30, show a General Fund surplus reported in accordance with GAAP. In
addition, the City's financial statements for the 1993 fiscal year received an
unqualified opinion from the City's independent auditors, the eleventh
consecutive year the City has received such an opinion.

In 1975, New York City suffered a fiscal crisis that impaired the borrowing
ability of both the City and New York State. In that year the City lost access
to public credit markets. The City was not able to sell short-term notes to the
public again until 1979.

In 1975, Standard & Poor's suspended its A rating of City bonds. This
suspension remained in effect until March 1981, at which time the City received
an investment grade rating of BBB from Standard & Poor's. On July 2, 1985,
Standard & Poor's revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On July 2, 1993, Standard & Poor's reconfirmed its A-
rating of City bonds, continued its negative rating outlook assessment and
stated that maintenance of such rating depended upon the City's making further
progress towards reducing budget gaps in the outlying years. Moody's ratings of
City bonds were revised in November 1981 from B (in effect since 1977) to Bal,
in November 1983 to Baa, in December 1985 to Baa1, in May 1988 to A and again in
February 1991 to Baa1.

New York City is heavily dependent on New York State and federal assistance
to cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. MAC is authorized
to issue bonds and notes payable from certain stock transfer tax revenues, from
the City's portion of the State sales tax derived in the City and from State per
capita aid otherwise payable by the State to the City. Failure by the State to
continue the imposition of such taxes, the reduction of the rate of such taxes
to rates less than those in effect on July 2, 1975, failure by the State to pay
such aid revenues and the reduction of such aid revenues below a specified level
are included among the events of default in the resolutions authorizing MAC's
long-term debt. The occurrence of an event of default may result in the
acceleration of the maturity of all or a portion of MAC's debt. As of December
31, 1993, MAC had outstanding an aggregate of approximately $5.204 billion of
its bonds. MAC bonds and notes constitute general obligations of MAC and do not
constitute an enforceable obligation or debt of either the State or the City.
Under its enabling legislation, MAC's authority to issue bonds and notes (other
than refunding bonds and notes) expired on December 31, 1984. Legislation has
been passed by the legislature which would, under certain conditions, permit MAC
to issue up to $1.465 billion of additional bonds, which are

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<PAGE>

not subject to a moral obligation provision.

Since 1975, the City's financial condition has been subject to oversight
and review by the New York State Financial Control Board (the "Control Board")
and since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.

On February 10, 1994, the Mayor submitted to the Control Board for its
review a mid-year modification to the 1994-1997 Financial Plan (the "February
Modification"). The February Modification projected a balance budge for fiscal
year 1994, based upon revenues of $31.738 billion, including a general reserve
of $198 million. For fiscal years 1995, 1996 and 1997, the February
Modification projected budget gaps of $2.261 billion, $3.167 billion and $3.253
billion, respectively, and assumed no wage and salary increases beyond the
expiration of current labor agreements which expire in fiscal years 1995 and
1996. These gaps have grown since November by about $530 million in fiscal year
1995, and $650 million and $550 million in fiscal years 1996 and 1997,
respectively, owing in large part to lower estimates of real property tax
revenues. To close the budget gap projected for fiscal year 1995, the February
Modification included a gap-closing program that consisted of the following
major elements: (i) an agency program of $1.048 billion; (ii) fringe benefit
and pension savings of $400 million; (iii) an intergovernmental aid package of
$400 million; (iv) a workforce reduction program of $144 million; and (v) the
assumption of a $234 million surplus roll from fiscal year 1994. Implementation
of many of the gap-closing initiatives requires the cooperation of the municipal
labor unions, the City Council and the State and Federal governments. The
February Modification also included a tax reduction program, with most of the
financial impact affecting the later years of the Plan period.

On March 1, 1994, the City's Comptroller issued a report on the state of
the City's economy. The report concluded that, while the City's long recession
was over, moderate growth was the best the City can expect. The report
projected that total tax revenues for the 1994, 1995 and 1996 fiscal years will
be slightly higher than projected in the February Modification, and that tax
revenues for the 1997 fiscal year will be slightly below the projections
contained in the February Modification. The report identified revenue risks for
the 1994 through 1997 fiscal years totaling $9 million, $134 million, $184
million and $184 million, respectively. On March 21, 1994, the Comptroller
issued a report on the February Modification. In the report, the Comptroller
identified as risks for the 1995 fiscal year the proposals in the February
Modification that are uncertain because they depend on actions by organizations
other than City government, including the State Legislature and municipal
unions. The Comptroller stated that if none of the uncertain proposals are
implemented, the total risk could be as much as $1.15 billion to $1.53 billion.
The Comptroller noted that there are a number of additional issues, the impact
of which could not be currently quantified.

On March 22, 1994, OSDC issued a report reviewing the February
Modification. The report concluded that a balanced budget is achievable for the
1994 fiscal year. The report noted that expenditures for the 1994 fiscal year
may be higher than projected by $176 million; however, the City has initiated a
program that is intended to reduce nonpersonnel costs by up to $150 million. In
addition, the report noted that the February Modification included a general
reserve of $198 million and assumed

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<PAGE>

savings of $117 million from the implementation of the proposed severance
program for the 1994 fiscal year. While the City intends to transfer $234
million of these resources to help balance the 1995 fiscal year budget, the
report concluded that most of these resources will be needed to maintain budget
balance in the 1994 fiscal year.

With respect to each of the 1995 through 1997 fiscal years, the report
noted the potential for a budget gap of approximately $300 million greater than
shown in the February Modification. With respect to the City's $2.3 billion
gap-closing program for the 1995 fiscal year, the report noted that
approximately $1.4 billion of the gap-closing initiatives must be considered as
high risk because the initiatives are outside the Mayor's direct control to
implement. The report noted that if the necessary approvals and cooperation are
not obtained from various third parties, the City will have only a few months to
develop alternative solutions.

On March 23, 1994, the staff of the Control Board issued its report on the
February Modification. The report stated that, while the February Modification
moves the City in the direction of structural balance, the February Modification
has more risks and fewer details than are desirable and does not set forth
contingency plans or other protections to assist the City if unknown but
inevitable impediments emerge. With respect to the 1994 fiscal year, the report
concluded that the budget is reliably balanced. However, for the 1995 fiscal
year, the report noted that decisions will have to be made in the next
modification as to whether to continue to include for the 1995 fiscal year
revenues from proposed additional Federal and State aid, new Port Authority
lease agreements and a proposed video lottery, funds from MAC for the severance
program, and savings from employee health and pension cost reductions and tort
reform. The report noted that all of these actions, which total $1.2 billion,
are outside the Mayor's direct control and require the support of third parties.
Risks identified in the reports for the 1994 through 1997 fiscal years aggregate
$94 million, $952 million, $1.7 billion and $1.9 billion, respectively,
excluding any risk associated with the State takeover of certain Medicaid costs,
the workforce reduction program and the reduction in health insurance and
pension costs proposed in the February Modification.

Estimates of the City's revenues and expenditures are based on numerous
assumptions and are subject to various uncertainties. If expected federal or New
York State aid is not forthcoming, if unforeseen developments in the economy
significantly reduce revenues derived from economically sensitive taxes or
necessitate increased expenditures for public assistance, if the City should
negotiate wage increases for its employees greater than the amounts provided for
in the City's financial plan or if other uncertainties materialize that reduce
expected revenues or increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional actions, including
increases in taxes and reductions in essential City services. The City might
also seek additional assistance from New York State.

The City requires certain amounts of financing for seasonal and capital
spending purposes. The City has issued $1.75 billion of notes for seasonal
financing purposes during its 1994 fiscal year. The City's capital financing
program projects long-term financing requirements of approximately $17 billion
for the City's fiscal years 1995 through 1998. The major capital requirements
include expenditures for the City's water supply and sewage disposal systems,
roads, bridges, mass transit, schools, hospitals and housing. In addition to
financing for new purposes, the City and the New York City Municipal Water
Finance Authority have issued refunding bonds totaling $1.8 billion in fiscal
year 1994.

Certain localities, in addition to the City, could have financial problems
leading to requests for additional New York State assistance during the State's
1993-94 and 1994-95 fiscal years and thereafter. The potential impact on New
York State of such requests by localities is not included in the projections of

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<PAGE>

the State receipts and disbursements in New York State's 1994-95 fiscal year.

Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the creation of the Financial Control Board for the City of Yonkers (the
"Yonkers Board") by New York State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the
Governor or the Legislature to assist Yonkers could result in allocation of New
York State resources in amounts that cannot yet be determined.

Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1992, the total indebtedness of all localities in
New York State was approximately $35.2 billion, of which $19.5 billion was debt
of New York City (excluding $5.9 billion in MAC debt); a small portion
(approximately $71.6 million) of this indebtedness represented borrowing to
finance budgetary deficits and was issued pursuant to enabling New York State
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Seventeen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1992.

From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities.
If New York State, New York City or any of the Authorities were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by localities
within New York State could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions and long-range economic trends. The longer-range problems of
declining urban population, increasing expenditures and other economic trends
could adversely affect localities and require increasing New York State
assistance in the future.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

IN GENERAL

Information on how to purchase and redeem Fund shares, and how such shares
are priced, is included in the Prospectus. The issuance of shares is recorded on
the books of the Fund, and share certificates are not issued.

Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund on fiduciary funds that are invested in the Fund's
Class B, Class C or Class E shares. Institutions, including banks regulated by
the Comptroller and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult their legal advisers before investing fiduciary
funds in the Fund's Class B, Class C or Class E shares.

-18-
<PAGE>

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 ("NYSE") is closed, other than customary weekend and holiday
closings, or during which trading on the NYSE is restricted, or during which (as
determined by the SEC by rule or regulation) an emergency exists as a result of
which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (The Fund may
also suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions). In addition, the Fund may
redeem shares involuntarily in certain other instances if the Board of Trustees
determines that failure to redeem may have material adverse consequences to the
Fund's investors in general. The Fund is obligated to redeem shares solely in
cash up to $250,000 or 1% of such Fund's net asset value, whichever is less, for
any one investor within a 90-day period. Any redemption beyond this amount will
also be in cash unless the Board of Trustees determines that conditions exist
which make payment of redemption proceeds wholly in cash unwise or undesirable.
In such a case, 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
of form of payment might be appropriate. Redemption in kind is not as liquid as
a cash redemption. Investors who receive a redemption in kind may incur
transaction costs, if they sell such securities or property, and may receive
less than the redemption value of such securities or property upon sale,
particularly where such securities are sold prior to maturity.

Any institution purchasing shares on behalf of separate accounts will be
required to hold the shares in a single nominee name (a "Master Account").
Institutions investing in more than one class of the Fund's shares must maintain
a separate Master Account for each class. Sub-accounts may be established by
name or number either when the Master Account is opened or later.

NET ASSET VALUE

The Fund's net asset value per share is calculated separately for each
class by adding the value of all of the Fund's portfolio securities and other
assets belonging to the Fund attributable to a class, subtracting the class-
specific liabilities charged to the Fund including dividends that have been
declared but not paid, and dividing the result by the number of the Fund's
shares of that class outstanding. "Assets belonging to" the Fund consist of the
consideration received upon the issuance of the Fund's shares together with all
income, earnings, profits and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments and any funds or
payments derived from any reinvestment of such proceeds and a portion of any
general assets of the Trust not belonging to a particular portfolio. Assets
belonging to the Fund are charged with the direct liabilities of the Fund and
with a share of the general liabilities of the Trust allocated on a daily basis
in proportion to the relative net assets of the Fund and the Trust's other
portfolios. Determinations made in good faith and

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<PAGE>

in accordance with generally accepted accounting principles of the Trust's Board
of Trustees as to the allocation of any assets or liabilities with respect to
the Fund are conclusive.

As stated in the Prospectus, in computing the net asset value of its shares
for purposes of sales and redemptions, the Fund uses the amortized cost method
of valuation. Under this method, the Fund values each of its portfolio
securities at cost on the date of purchase and thereafter assumes a constant
proportionate amortization of any discount or premium until maturity of the
security. As a result, the value of a portfolio security for purposes of
determining net asset value normally does not change in response to fluctuating
interest rates. While the amortized cost method provides certainty in portfolio
valuation, it may result in valuations of the Fund's securities which are higher
or lower than the market value of such securities.

In connection with its use of amortized cost valuation, the Fund limits the
dollar-weighted average maturity of its portfolio to not more than 90 days and
does not purchase any instrument with a remaining maturity of more than 13
months (397 days) (with certain exceptions). The Trust's Board of Trustees has
also established, pursuant to rules promulgated by the SEC, procedures that are
intended to stabilize the Fund's net asset value per share for purposes of sales
and redemptions at $1.00. Such procedures include the determination at such
intervals as the Board deems appropriate, of the extent, if any, to which the
Fund's net asset value per share calculated by using available market quotations
deviates from $1.00 per share. In the event such deviation exceeds 1/2 of 1%,
the Board will promptly consider what action, if any, should be initiated. If
the Board believes that the amount of any deviation from the Fund's $1.00
amortized cost price per share may result in material dilution or other unfair
results to investors, it will take such steps as it considers appropriate to
eliminate or reduce to the extent reasonably practicable any such dilution or
unfair results. These steps may include selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten the Fund's average
portfolio maturity, redeeming shares in kind, reducing or withholding dividends,
or utilizing a net asset value per share determined by using available market
quotations.

MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

The Trust's Trustees and Executive Officers, their addresses, principal
occupations during the past 5 years and other affiliations are as follows:

NAME AND ADDRESS POSITION WITH THE TRUST PRINCIPAL OCCUPATIONS DURING PAST 5
YEARS AND OTHER AFFILIATIONS
---------------- ------------------------ -----------------------------------
<S> <C> <C>
Andrew Gordon (1) Co-Chairman of the Board Managing Director, Lehman Brothers.
3 World Financial Center Trustee and President
New York, NY 10285
Age:

Kirk Hartman (1) Co-Chairman of the Board Managing Director, Lehman Brothers.

</TABLE>

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<PAGE>

<TABLE>

<S> <C> <C>
3 World Financial Center Trustee, Executive Vice President
New York, NY 10285 and Investment
Age:

Charles F. Barber(2)(3) Trustee Consultant; formerly Chairman of the Board,
66 Glenwood Drive ASARCO Incorporated.
Greenwich, CT 06830
Age:

Burt N. Dorsett(2)(3) Trustee Managing Partner, Dorsett McCabe
201 East 62nd Street Capital Management, Inc. an investment
New York, NY 10022 counseling firm; Director, Research
Age: Corporation Technologies, a non-profit
patent-clearing and licensing operation;
formerly President, Westinghouse Pension
Investments Corporation; formerly Executive
Vice President and Trustee, College
Retirement Equities Fund, Inc., a variable
annuity fund; and formerly
Investment Officer, University of Rochester.

Edward J. Kaier(2)(3) Trustee Partner with the law firm of
1100 One Penn Center Hepburn Willcox Hamilton & Putnam.
Philadelphia, PA 19103
Age:

S. Donald Wiley(2)(3) Trustee Vice-Chairman and Trustee, H.J.
USX Tower Heinz Company Foundation; prior
Pittsburgh, PA 15219 to October 1990, Senior Vice President, General
Age: Counsel and Secretary, H.J. Heinz Company.

John M. Winters Vice President and Senior Vice President and Senior Money Market
3 World Financial Center Investment Officer Portfolio Manager, Lehman Brothers
New York, NY 10285 Global Asset Management Inc.; formerly
Age: Product Manager with Lehman Brothers
Capital Markets Group.

Nicholas Rabiecki, III Vice President Vice President and Senior Portfolio Manager, Lehman

</TABLE>

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<PAGE>

<TABLE>

3 World Financial Center and Investment Officer Brothers Global Asset Management, Inc.; formerly
New York, NY 10285 Senior Fixed-Income Portfolio Manager with Chase
Age: Private Banking.

Michael C. Kardok Treasurer Vice President, The Shareholder Services Group,
One Exchange Place Inc.; prior to May 1994, The Boston Company
Boston, MA 02109 Advisors, Inc.
Age:

Patricia L. Bickimer Secretary Vice President and Associate General Counsel,
One Exchange Place The Shareholder Services Group, Inc.; prior to
Boston, MA 02109 May 1994, Vice President and Associate General
Age: Counsel, The Boston Company Advisors, Inc.
<FN>
----------------
(1) Considered by the Trust to be "interested persons" of the Trust as defined
in the 1940 Act.
(2) Audit Committee Member.
(3) Nominating Committee Member.
</TABLE>

Messrs. Gordon, Hartman and Dorsett, serve as Trustees or Directors of
other investment companies for which Lehman Brothers, the Adviser or one of
their affiliates serve as distributor and investment adviser.

COMPENSATION TABLE

Total
Compensation
Name of Aggregate Pension or Retirement Estimated From the Trust
Person and Compensation Benefits Accrued as Annual Benefits and Fund Complex
Position from the Trust Part of Trust Expenses Upon Retirement Paid to Trustees*
---------- -------------- ---------------------- --------------- -----------------
<S> <C> <C> <C> <C>

</TABLE>

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<PAGE>

Andrew Gordon, $0 $0 N/A $0 (2)
Co-Chairman of the
Board, Trustee and
President

Kirk Hartman, $0 $0 N/A $0 (3)
Co-Chairman of the
Board, Trustee,
Executive Vice President
and Investment Officer

Charles Barber, $_____ $0 N/A $____(1)
Trustee

Burt N. Dorsett, $_____ $0 N/A $_____(2)
Trustee

Edward J. Kaier, $_____ $0 N/A $_____(1)
Trustee

S. Donald Wiley, $_____ $0 N/A $_____(1)
Trustee
<FN>
----------------
* Represents the total compensation paid to such persons by all investment
companies (including the Trust) from which such person received compensation
during the fiscal year ended January 31, 1995 that are considered part of the
same "fund complex" as the Trust because they have common or affiliated
investment advisers. The parenthetical number represents the number of such
investment companies, including the Trust.

</TABLE>

DISTRIBUTOR

Lehman Brothers acts as Distributor of the Fund's shares. Lehman Brothers,
located at 3 World Financial Center, New York, New York 10285, is a wholly-owned
subsidiary of Lehman Brothers Holdings Inc. ("Holdings"). As of December 31,
1994, FMR Corp. beneficially owned approximately 12.3%, Nippon Life Insurance
Company beneficially owned approximately 8.7% and Heine Securities Corporation
beneficially owned approximately 5.1% of the outstanding voting securities of
Holdings. The Fund's shares are sold on a continuous basis by Lehman Brothers.
The Distributor pays the cost of printing and distributing prospectuses to
persons who are not investors of the Fund (excluding preparation and printing
expenses necessary for the continued registration of the Fund's shares) and of
preparing, printing, and distributing all sales literature. No compensation is
payable by the Fund to Lehman Brothers for its distribution services.

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<PAGE>

INVESTMENT ADVISER

Lehman Brothers Global Asset Management Inc. serves as the Investment
Adviser to the Fund. The Adviser, located at 3 World Financial Center, New
York, New York 10285, is a wholly-owned subsidiary of Holdings. The investment
advisory agreement provides that the Adviser is responsible for all investment
activities of the Fund, including executing portfolio strategy, Fund purchase
and sale transactions and employs professional portfolio managers and security
analysts who provide research for the Fund.

The Investment Advisory Agreement with respect to the Fund was approved by
the Trust's Board of Trustees, including a majority of the "non-interested"
Trustees, on November 2, 1994 to continue until February 5, 1996 unless
terminated or amended prior to that date according to its terms The Investment
Advisory Agreement will continue in effect from year to year provided the
continuance is approved annually (i) by the Trust's Board of Trustees or (ii) by
a vote of a "majority" (as defined in the 1940 Act) of the Fund's outstanding
voting securities, except that in either event the continuance is also approved
by a majority of the Trustees of the Trust who are not "interested persons" (as
defined in the 1940 Act). The Investment Advisory Agreement may be terminated
(i) on 60 days' written notice by the Trustees of the Trust, (ii) by vote of
holders of a majority of the Fund's outstanding voting securities, or upon 90
days' written notice by Lehman Brothers, or (iii) automatically in the event of
its assignment (as defined in the 1940 Act).

As compensation for the Adviser's services rendered to the Fund, the
Adviser is entitled to a fee, computed daily and paid monthly, at the annual
rate of .10% of the average daily net assets of the Fund. As of January 31,
1995, the Fund had not commenced operations and, accordingly, no advisory fees
were paid by the Fund. In order to maintain a competitive expense ratio during
1995 and thereafter, the Adviser and Administrator have agreed to voluntary fee
waivers and expense reimbursements for the Fund if total operating expenses
exceed certain levels. See "Background and Expense Information" in the
Prospectus.

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<PAGE>

ADMINISTRATOR AND TRANSFER AGENT

TSSG, a subsidiary of First Data Corporation, is located at One Exchange
Place, Boston, Massachusetts 02109, and serves as the Trust's Administrator and
Transfer Agent. As the Fund's Administrator, TSSG has agreed to provide the
following services: (i) assist generally in supervising the Fund's operations,
providing and supervising the operation of an automated data processing system
to process purchase and redemption orders, providing information concerning the
Fund to its shareholders of record, handling investor problems, supervising the
services of employees whose principal responsibility and function is to preserve
and strengthen investor relations and monitoring the arrangements pertaining to
the Fund's agreements with Service Organizations; (ii) accumulate information
for and coordinate the preparation of reports to the Fund's investors and the
SEC; (iii) compute the net asset value per share of the Fund; (iv) provide the
services of certain persons who may be elected as trustees or appointed as
officers of the Trust by the Board of Trustees; and (v) maintain the
registration or qualification of the Fund's shares for sale under state
securities laws. TSSG is entitled to receive, as compensation for its services
rendered under an administration agreement, an administrative fee, computed
daily and paid monthly, at the annual rate of .10% of the average daily net
assets of the Fund. TSSG pays Boston Safe, the Fund's Custodian, a portion of
its monthly administration fee for custody services rendered to the Fund. As of
January 31, 1994, the Fund had not commenced operations and, accordingly, no
administration fees were paid by the Fund. In order to maintain a competitive
expense ratio during 1995 and thereafter, the Adviser and Administrator have
agreed to voluntary fee waivers and expense reimbursements for the Fund if total
operating expenses exceed certain levels. See "Background and Expense
Information" in the Prospectus.

Under the transfer agency agreement, TSSG maintains the shareholder account
records for the Trust, handles certain communications between investors and the
Trust and distributes dividends and distributions payable by the Trust and
produces statements with respect to account activity for the Trust and its
investors. For these services, TSSG receives a monthly fee based on average
annual assets and is reimbursed for out-of-pocket expenses.

CUSTODIAN

Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly owned
subsidiary of Mellon Bank Corporation, is located at One Boston Place, Boston,
Massachusetts

-25-
<PAGE>

02108, and serves as the Custodian of the Trust pursuant to a custody agreement.
Under the custody agreement, Boston Safe holds the Fund's portfolio securities
and keeps all necessary accounts and records. For its services, Boston Safe
receives a monthly fee based upon the month-end market value of securities held
in custody and also receives securities transaction charges, including
out-of-pocket expenses. The assets of the Trust are held under bank
custodianship in compliance with the 1940 Act.

SERVICE ORGANIZATIONS

As stated in the Fund's Prospectus, the Fund will enter into an agreement
with each financial institution which may purchase Class B, Class C or Class E
shares. The Fund will enter into an agreement with each Service Organization
whose customers ("Customers") are the beneficial owners of Class B, Class C or
Class E shares that requires the Service Organization to provide certain
services to Customers in consideration of the Fund's payment of .25%, .35% or
.15%, respectively, of the average daily net asset value of the respective Class
held by the Service Organization for the benefit of its Customers. Such
services with respect to Class C shares include: (i) aggregating and processing
purchase and redemption requests from Customers and placing net purchase and
redemption orders with one of the Fund's Distributors; (ii) processing dividend
payments from the Fund on behalf of Customers; (iii) providing information
periodically to Customers showing their positions in shares; (iv) arranging for
bank wires; (v) responding to Customer inquiries relating to the services
performed by the Service Organization and handling correspondence; (vi)
forwarding investor communications from the Fund (such as proxies, investor
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to Customers; (vii) acting as a shareholder of record or
nominee; and (viii) other similar account administrative services a Service
Organization at its option, may also provide to its Customers of Class C shares
(a) a service that invests the assets of their accounts in shares pursuant to
specific or pre-authorized instructions; (b) provide sub-accounting with respect
to shares beneficially owned by Customers or the information necessary for sub-
accounting; and (c) provide check writing services. In addition, Service
Organizations that purchase Class C shares will also provide assistance in
connection with the support of the distribution of Class C shares to its
Customers, including marketing assistance and the forwarding to Customers of
sales literature and advertising provided by a Distributor of the shares.
Holders of Class B shares of the Fund will receive the services set forth in (i)
and (v) and may receive one or more of the services set forth in (ii), (iii),
(iv), (vi) and (viii) above. A Service Organization, at its option, may also
provide to its Customers of Class B shares services including: (a) providing
Customers with a service that invests the assets of their accounts in shares
pursuant to specific or pre-authorized instruction; (b) providing sub-accounting
with respect to shares beneficially owned by Customers or the information
necessary for sub-accounting; (c) providing reasonable assistance in connection
with the distribution of shares to Customers; and (d) providing such other
similar services as the Fund may reasonably request to the extent the Service
Organization is permitted to do so under applicable statutes, rules, or
regulations. Holders of Class E shares will receive the services set forth in
(i) and (v), above. A Service Organization, at its option, may also provide to
its Customers of Class E shares share servicing including those services set
forth in (ii), (iii), (iv), (vi), (vii) and (viii) above and the optional
services set forth in (a), (b) and (c) above.

The Fund's agreements with Service Organizations are governed by a plan
(the "Plan") which has

-26-
<PAGE>

been adopted by the Board of Trustees under Rule 12b-1 of the 1940 Act. Under
the Plan, the Board of Trustees reviews, at least quarterly, a written report of
the amounts expended under the Fund's agreements with Service Organizations and
the purposes for which the expenditures were made. In addition, the Fund's
arrangements with Service Organizations must be approved annually by a majority
of the Trust's Trustees, including a majority of the Trustees who are not
"interested persons" of the Trust as defined in the 1940 Act and have no direct
or indirect financial interest in such arrangements (the "Disinterested
Trustees").

The Board of Trustees has approved the Fund's arrangements with Service
Organizations based on information provided by the Fund's service contractors
that there is a reasonable likelihood that the arrangements will benefit the
Fund and its investors by affording the Fund greater flexibility in connection
with the servicing of the accounts of the beneficial owners of its shares in an
efficient manner. Any material amendment to the Trust's arrangements with
Service Organizations must be approved by a majority of the Trust's Board of
Trustees (including a majority of the Disinterested Trustees). So long as the
Fund's arrangements with Service Organizations are in effect, the selection and
nomination of the members of the Trust's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust will be committed
to the discretion of such non-interested trustees.

EXPENSES

The Fund's expenses include taxes, interest, fees and salaries of the
Trust's Trustees and Officers who are not directors, officers or employees of
the Fund's service contractors, SEC fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to investors, advisory, sub-advisory and administration fees,
charges of the Administrator, Custodian, Transfer Agent and dividend disbursing
agent, Service Organization fees, certain insurance premiums, outside auditing
and legal expenses, costs of independent pricing service, costs of investor
reports and shareholder meetings and any extraordinary expenses. The Fund also
pays for brokerage fees and commissions (if any) in connection with the purchase
and sale of portfolio securities. The Adviser and TSSG have agreed, that if, in
any fiscal year, the expenses borne by the Fund exceed the applicable expense
limitations imposed by the securities regulations of any state in which shares
of the Fund are registered or qualified for sale to the public, they will
reimburse the Fund any excess to the extent required by such regulations.
Unless otherwise required by law, such reimbursement would be accrued and paid
on the same basis that the advisory and administration fees are accrued and paid
by the Fund. To the Fund's knowledge, of the expense limitations in effect on
the date of this Statement of Additional Information, none is more restrictive
than 2-1/2% of the first $30 million of the Fund's average annual net assets, 2%
of the next $70 million of the average annual net assets and 1-1/2% of the
remaining average annual net assets.

ADDITIONAL INFORMATION CONCERNING TAXES

The following summarizes certain additional federal tax considerations
generally affecting the Fund and its investors that are not described in the
Fund's Prospectus. No attempt is made to present a detailed explanation of the
tax treatment of the Fund or its investors, and the discussion here and in the
Fund's Prospectus is not intended as a substitute for careful tax planning.
Investors should consult their tax advisers with specific reference to their own
tax situations.

-27-
<PAGE>

The Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code") and intends to qualify as a
regulated investment company under the Code.

As described above and in the Fund's Prospectus, the Fund is designed to
provide New York institutional investors and their customers with current
tax-exempt interest income. The Fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Fund would not be suitable for tax-exempt institutions
and may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and individual retirement accounts since such plans and
accounts are generally tax-exempt and, therefore, not only would not gain any
additional benefit from the Fund's dividends being tax-exempt, but such
dividends would be ultimately taxable to the beneficiaries when distributed to
them. In addition, the Fund may not be an appropriate investment for entities
which are "substantial users" of facilities financed by private activity bonds
or "related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non-exempt person who regularly uses a part of such
facilities in his trade or business and whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenues derived by all users of such facilities, or who occupies more
than 5% of the usable area of such facilities or for whom such facilities or a
part thereof were specifically constructed, reconstructed or acquired. "Related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S corporation and its investors.

The percentage of total dividends paid by the Fund with respect to any
taxable year which qualify as federal exempt-interest dividends will be the same
for all investors receiving dividends during such year. In order for the Fund
to pay exempt-interest dividends during any taxable year, at the close of each
fiscal quarter at least 50% of the aggregate value of the Fund's portfolio must
consist of federal tax-exempt interest obligations. In addition, the Fund must
distribute an amount that is equal to at least the sum of 90% of its net
exempt-interest income and 90% of its investment company taxable income with
respect to each taxable year. After the close of its taxable year, the Fund
will notify each investor of the portion of the dividends paid by the Fund to
the investor with respect to such taxable year which constitutes an
exempt-interest dividend. However, the aggregate amount of dividends so
designated cannot exceed the excess of the amount of interest exempt from tax
under Section 103 of the Code received by the Fund during the taxable year over
any amounts disallowed as deductions under Sections 265 and 171(a)(2) of the
Code.

Interest on indebtedness incurred by an investor to purchase or carry Fund
shares is not deductible for federal and New York State and City personal income
tax purposes if the Fund distributes exempt-interest dividends during the
investor's taxable year.

While the Fund does not expect to earn any investment company taxable
income, any such income earned by the Fund will be distributed. In general, the
Fund's investment company taxable income will be its taxable income (for
example, its short-term capital gains) subject to certain adjustments and
excluding the excess of any net long-term capital gain for the taxable year over
the net short-term capital loss, if any, for such year. To the extent such
income is distributed, it will be taxable to investors as ordinary income
(whether paid in cash or additional shares).

The Fund does not expect to realize long-term capital gains and therefore
does not expect to distribute any capital gain dividends.

Dividends declared in October, November or December of any year payable to
investors of

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<PAGE>

record on a specified date in such months will be deemed for federal income tax
purposes to have been received by the investors and paid by the Fund on December
31 of such year in the event such dividends are actually paid during January of
the following year.

A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute currently an amount equal to specified percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). The Fund intends to make sufficient distributions
or deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.

Although the Fund expects to qualify each year as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, the Fund
may be subject to the tax laws of such states or localities.

If for any taxable year the Fund does not qualify for the special federal
income tax treatment afforded regulated investment companies, all of its taxable
income will be subject to federal income tax at regular corporate rates (without
any deduction for distributions to its investors). In such event, dividend
distributions, including amounts derived from interest on tax-exempt
obligations, would be taxable to investors to the extent of current and
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations.

The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of taxable dividends or 31% of gross proceeds realized upon
sale paid to investors who have failed to provide a correct tax identification
number in the manner required, or who are subject to withholding by the Internal
Revenue Service for failure properly to include on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund that
they are not subject to backup withholding when required to do so or that they
are "exempt recipients."

The foregoing discussion is based on federal tax laws and regulations which
are in effect on the date of this Statement of Additional Information; such laws
and regulations may be changed by legislative or administrative action.
Investors are advised to consult their tax advisers concerning the application
of state and local taxes.

DIVIDENDS

Net income for dividend purposes consists of (i) interest accrued and
original discount earned on the Fund's assets for the applicable dividend
period, less (ii) amortization of market premium on such assets, accrued
expenses directly attributable to the Fund, and the general expenses (E.G.,
legal, accounting and trustees' fees) of the Trust prorated to the Fund on the
basis of its relative net assets. The amortization of market discount on the
Fund's assets is not included in the calculation of net income. Any realized
and unrealized gains and losses on portfolio securities are reflected in net
asset value. In addition, the Fund's Class B, Class C and Class E shares bear
exclusively the expense of fees paid to Service Organizations with respect to
each such Class of shares. See "Management of the Fund -- Service
Organizations.

As stated, the Trust uses its best efforts to maintain the net asset value
per share of the Fund at $1.00 As a result of a significant expense or realized
or unrealized loss incurred by the Fund, it is

-29-
<PAGE>

possible that the Fund's net asset value per share may fall below $1.00.

ADDITIONAL YIELD INFORMATION

The "yields," "effective yields" and "tax-equivalent yields" are calculated
separately for each Class of the Fund's shares and in accordance with the
formulas prescribed by the SEC. The seven-day yield for each Class of shares in
the Fund is calculated by determining the net change in the value of a
hypothetical preexisting account in the Fund having a balance of one share of
the Class involved at the beginning of the period, dividing the net change by
the value of the account at the beginning of the period to obtain the base
period return, and multiplying the base period return by 365/7. The net change
in the value of an account in the Fund includes the value of additional shares
purchased with dividends from the original share and dividends declared on the
original share and any such additional shares, net of all fees charged to all
investor accounts in proportion to the length of the base period and the Fund's
average account size, but does not include gains and losses or unrealized
appreciation and depreciation. In addition, the effective yield is calculated
by compounding the unannualized base period return for each Class (calculated as
described above) by adding one to the base period return for the Fund involved,
raising that sum to a power equal to 365/7, and subtracting one from the result.
A tax-equivalent yield for each Class of the Fund's shares is computed by: (a)
dividing the portion of the Fund's yield (calculated as above) that is exempt
from both federal and New York State income taxes by one minus a stated combined
federal and New York State income tax rate; (b) dividing the portion of the
Fund's yield (calculated as above) that is exempt from federal income tax only
by one minus a stated federal income tax rate; and (c) adding the figures
resulting from (a) and (b) above to that portion, if any, of the Fund's yield
that is not exempt from federal income tax. Similarly, based on the
calculations described above, 30-day (or one month) yields, effective yields and
tax-equivalent yields may also be calculated.

Class B, Class C and Class E shares bear the expenses of fees paid to
Service Organizations. As a result, at any given time, the net yield of Class
B, Class C and Class E shares could be up to .25%, .35%, and .15% lower than the
net yield of Class A shares, respectively.

From time to time, in advertisements or in reports to investors, the yields
of the Fund may be quoted and compared to those of other mutual funds with
similar investment objectives and to stock or other relevant indices. For
example, the yields of the Fund may be compared to Donoghue's MONEY FUND
AVERAGE, which is an average compiled by IBC/Donoghue's MONEY FUND
REPORT[REGISTRATED TRADEMARK] of Holliston, MA 01746, a widely recognized
independent publication that monitors the performance of money market funds, or
to the data prepared by Lipper Analytical Services, Inc. ("Lippers"), a
widely-recognized independent service that monitors the performance of mutual
funds.

Yields will fluctuate, and any quotation of yield should not be considered
as representative of the future performance of the Fund. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in the
Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Investors should remember that yield is generally a
function of the kind and quality of the investments held in a portfolio,
portfolio maturity, operating expenses and market conditions. Any fees charged
by banks or other financial institutions to customer accounts investing in
shares of the Fund will not be included in calculations of yield; such fees
would reduce the actual yield from that quoted.

ADDITIONAL DESCRIPTION CONCERNING SHARES

The Trust does not presently intend to hold annual meetings of shareholders
except as required by

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<PAGE>

the 1940 Act or other applicable law. The law under certain circumstances
provides shareholders with the right to call for a meeting of shareholders to
consider the removal of one or more Trustees. To the extent required by the law,
the Trust will assist in shareholder communication in such matters.

As stated in the Fund's Prospectus, holders of shares in the Fund will vote
in the aggregate and not by class, as the case may be, on all matters, except
where otherwise required by law and except that only the Fund's Class B, Class C
and Class E shares, as the case may be, will be entitled to vote on matters
submitted to a vote of shareholders pertaining to the Fund's arrangements with
Service Organizations with respect to the relevant class of shares. (See
"Management of the Fund--Service Organizations"). Further, shareholders of all
of the Trust's portfolios will vote in the aggregate and not by portfolio except
as otherwise required by law or when the Board of Trustees determines that the
matter to be voted upon affects only the interests of the shareholders of a
particular portfolio. Rule 18f-2 under the 1940 Act provides that any matter
required to be submitted by the provisions of such Act or applicable state law,
or otherwise, to the holders of the outstanding securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each portfolio affected by the matter. Rule 18f-2 further provides that a
portfolio shall be deemed to be affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical or that the matter does
not affect any interest of the portfolio. Under the Rule the approval of an
investment advisory agreement or any change in a fundamental investment policy
would be effectively acted upon with respect to a portfolio only if approved by
the holders of a majority of the outstanding voting securities of such
portfolio. However, the Rule also provides that the ratification of the
selection of independent auditors, the approval of principal underwriting
contracts and the election of Trustees are not subject to the separate voting
requirements and may be effectively acted upon by shareholders of the investment
company voting without regard to portfolio.

COUNSEL

Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York, New York 10022, serves as counsel for the Trust and will pass upon the
legality of the shares offered hereby. Willkie Farr & Gallagher also serves as
counsel to Lehman Brothers.

AUDITORS

Ernst & Young LLP, independent auditors, serve as auditors to the Fund and
render an opinion on the Fund's financial statements annually. Ernst & Young
has offices at 200 Clarendon Street, Boston, Massachusetts 02116-5072.

FINANCIAL STATEMENTS

The Trust's Annual Report for the fiscal year ended January 31, 1995 is
incorporated into this Statement of Additional Information by reference in its
entirety.

MISCELLANEOUS

SHAREHOLDER VOTE

As used in this Statement of Additional Information and the Fund's
Prospectus, a "majority of the

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<PAGE>

outstanding shares" of the Fund or of any other portfolio means the lesser of
(1) 67% of the Fund's share, (irrespective of class), or of the portfolio
represented at a meeting at which the holders of more than 50% of the
outstanding shares of the Fund or such portfolio are present in person or by
proxy, or (2) more than 50% of the Fund's outstanding shares (irrespective of
class) or of the portfolio.

SHAREHOLDER AND TRUSTEE LIABILITY

The Trust is organized as a "business trust" under the laws of the
Commonwealth of Massachusetts. Shareholders of such a trust may, under certain
circumstances, be held personally liable (as if they were partners) for the
obligations of the trust. The Declaration of Trust of the Trust provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Trust and that every note, bond, contract, order or other
undertaking made by the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of the Fund of any
shareholder of the Fund held personally liable solely by reason of being or
having been a shareholder and not because of any acts or omissions or some other
reason. The Declaration of Trust also provides that the Trust shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Trust and satisfy any judgment thereon. Thus, the risk
of a Fund shareholder's incurring financial loss beyond the amount invested on
account of shareholder liability is limited to circumstances in which the Fund
itself would be unable to meet its obligations.

The Trust's Declaration of Trust provides further that no Trustee of the
Trust shall be personally liable for or on account of any contract, debt, tort,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of the Trust, nor shall any Trustee be personally liable to any person
for any action or failure to act except by reason of bad faith, willful
misfeasance, gross negligence in performing duties, or by reason of reckless
disregard for the obligations and duties as Trustee. It also provides that all
persons having any claim against the Trustees or the Trust shall look solely to
the trust property for payment. With the exceptions stated, the Declaration of
Trust provides that a Trustee is entitled to be indemnified against all
liabilities and expenses reasonably incurred in connection with the defense or
disposition of any proceeding in which the Trustee may be involved or may be
threatened with by reason of being or having been a Trustee, and that the
Trustees have the power, but not the duty, to indemnify officers and employees
of the Trust unless such persons would not be entitled to indemnification if
they were in the position of Trustee.

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<PAGE>

APPENDIX

DESCRIPTION OF MUNICIPAL SECURITIES RATINGS

COMMERCIAL PAPER RATINGS

A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. The following summarizes the rating categories used by Standard
and Poor's for commercial paper:

"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."

"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-l."

"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.

"B" - Issue has only a speculative capacity for timely payment.

"C" - Issue has a doubtful capacity for payment.

"D" - Issue is in payment default.

Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:

"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory obligations.
Principal repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.

"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.

"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market

A-1
<PAGE>

composition may be more pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection measurements and the
requirement for relatively high financial leverage. Adequate alternate
liquidity is maintained.

"Not Prime" - Issuer does not fall within any of the Prime rating
categories.

The three rating categories of Duff & Phelps for investment grade
commercial paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps employs
three designations, "Duff 1+," "Duff 1" and "Duff 1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:

"Duff 1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.

"Duff 1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.

"Duff 1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.

"Duff 2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.

"Duff 3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.

"Duff 4" - Debt possesses speculative investment characteristics.

"Duff 5" - Issuer has failed to meet scheduled principal and/or
interest payments.

Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:

"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.

"F-1" - Securities possess very strong credit quality. Issues assigned
this rating reflect an assurance of timely payment only slightly less in degree
than issues rated "F-1+."

"F-2" - Securities possess good credit quality. Issues carrying this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as +the "F-1+" and "F-1" categories.

A-2
<PAGE>

"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause those
securities to be rated below investment grade.

"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.

"D" - Securities are in actual or imminent payment default.

Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.

CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS

The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:

"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.

"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.

"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.

"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.

"BB," "B," "CCC," "CC," and "C" - Debt that possesses one of these
ratings is regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "C" the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.

"CI" - This rating is reserved for income bonds on which no interest
is being paid.

"D" - Debt is in default, and payment of interest and/or repayment of
principal is in arrears.

PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.

The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:

A-3
<PAGE>

"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.

"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.

Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.

Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks at the lower end of its generic rating category.

The following summarizes the ratings used by Duff & Phelps for
corporate and municipal long-term debt:

"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.

"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

A-4
<PAGE>

"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.

"BBB" - Debt possesses below average Protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.

"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.

To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.

The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:

"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.

"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+."

"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.

"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.

"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" -Bonds that possess
one of these ratings are considered by Fitch to be speculative investments. The
ratings "BB" to "C" represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation for
bond issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.

A-5
<PAGE>

To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.

MUNICIPAL NOTE RATINGS

A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Corporation for municipal
notes:

"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.

"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.

"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.

Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:

"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.

"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.

"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.

"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.

"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.

Fitch uses the short-term ratings described under Commercial Paper
Ratings for municipal notes.

A-6

<PAGE>

PRIME MONEY MARKET FUND
PRIME VALUE MONEY MARKET FUND

INVESTMENT PORTFOLIOS OFFERED BY
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

STATEMENT OF ADDITIONAL INFORMATION

MAY ___, 1995

This Statement of Additional Information is meant to be read in conjunction
with the Prospectuses for the Prime Money Market Fund and Prime Value Money
Market Fund portfolios dated May ___, 1995, as amended or supplemented from time
to time, and is incorporated by reference in its entirety into each Prospectus.
Because this Statement of Additional Information is not itself a prospectus, no
investment in shares of the Prime Money Market Fund or Prime Value Money Market
Fund portfolios should be made solely upon the information contained herein.
Copies of a Prospectus for Prime Money Market Fund or Prime Value Money Market
Fund shares may be obtained by calling Lehman Brothers Inc. ("Lehman Brothers")
at 1-800-368-5556. Capitalized terms used but not defined herein have the same
meanings as in the Prospectuses.

TABLE OF CONTENTS

PAGE
----
<S> <C>

The Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Objective and Policies. . . . . . . . . . . . . . . . 2
Additional Purchase and Redemption Information . . . . . . . . . 7
Management of the Fund . . . . . . . . . . . . . . . . . . . . . 9
Additional Information Concerning Taxes. . . . . . . . . . . . . 18
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Additional Yield Information . . . . . . . . . . . . . . . . . . 19
Additional Description Concerning Shares . . . . . . . . . . . . 22
Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Financial Statements . . . . . . . . . . . . . . . . . . . . . . 22
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 23
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

</TABLE>

<PAGE>

THE TRUST

Lehman Brothers Institutional Funds Group Trust (the "Trust") is an
open-end management investment company. The Trust currently includes a family of
portfolios, two of which are Prime Money Market Fund and Prime Value Money
Market Fund (individually, a "Fund"; collectively, the "Funds").

Although the Funds have the same Investment Adviser, Lehman Brothers Global
Asset Management, Inc. (the "Adviser"), and have comparable investment
objectives, their yields will normally vary due to their differing cash flows
and their differing types of portfolio securities (for example, Prime Value
Money Market Fund invests in obligations of foreign branches of U.S. banks and
foreign banks and corporate issuers while Prime Money Market Fund does not).

THIS STATEMENT OF ADDITIONAL INFORMATION AND THE FUNDS' PROSPECTUSES RELATE
PRIMARILY TO THE FUNDS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO EACH FUND. INVESTORS WISHING
TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER PORTFOLIOS MAY OBTAIN
INFORMATION DESCRIBING THEM BY CONTACTING LEHMAN BROTHERS AT 800-368-5556.

INVESTMENT OBJECTIVE AND POLICIES

As stated in the Funds' Prospectuses, the investment objective of each Fund
is to provide current income and stability of principal by investing in a
portfolio of money market instruments. The following policies supplement the
description of each Fund's investment objective and policies in the
Prospectuses.

PORTFOLIO TRANSACTIONS

Subject to the general control of the Trust's Board of Trustees, the
Adviser is responsible for, makes decisions with respect to, and places orders
for all purchases and sales of portfolio securities for a Fund. The Adviser
purchases portfolio securities for the Funds either directly from the issuer or
from dealers who specialize in money market instruments. Such purchases are
usually without brokerage commissions. In making portfolio investments, the
Adviser seeks to obtain the best net price and the most favorable execution of
orders. To the extent that the execution and price offered by more than one
dealer are comparable, the Adviser may, in its discretion, effect transactions
in portfolio securities with dealers who provide the Trust with research advice
or other services.

The Adviser may seek to obtain an undertaking from issuers of commercial
paper or dealers selling commercial paper to consider the repurchase of such
securities from a Fund prior to their maturity at their original cost plus
interest (interest may sometimes be adjusted

-2-
<PAGE>

to reflect the actual maturity of the securities) if the Adviser believes that a
Fund's anticipated need for liquidity makes such action desirable. Certain
dealers (but not issuers) have charged and may in the future charge a higher
price for commercial paper where they undertake to repurchase prior to maturity.
The payment of a higher price in order to obtain such an undertaking reduces the
yield which might otherwise be received by a Fund on the commercial paper. The
Trust's Board of Trustees has authorized the Adviser to pay a higher price for
commercial paper where it secures such an undertaking if the Adviser believes
that the prepayment privilege is desirable to assure a Fund's liquidity and such
an undertaking cannot otherwise be obtained.

Investment decisions for each Fund are made independently from those for
another of the Trust's portfolios or other investment company portfolios or
accounts advised by the Adviser. Such other portfolios may also invest in the
same securities as the Funds. When purchases or sales of the same security are
made at substantially the same time on behalf of such other portfolios,
transactions are averaged as to price, and available investments allocated as to
amount, in a manner which the Adviser believes to be equitable to each
portfolio, including the Funds. In some instances, this investment procedure may
adversely affect the price paid or received by a Fund or the size of the
position obtainable for a Fund. To the extent permitted by law, the Adviser may
aggregate the securities to be sold or purchased for a Fund with those to be
sold or purchased for such other portfolios in order to obtain best execution.

The Funds may seek profits through short-term trading. Each Fund's annual
portfolio turnover will be relatively high, but is not expected to have a
material effect on its net income. Each Fund's portfolio turnover rate is
expected to be zero for regulatory reporting purposes.

ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS

With respect to the variable rate notes and variable rate demand notes
described in the Prospectuses, the Adviser will consider the earning power, cash
flows and other liquidity ratios of the issuers of such notes and will
continuously monitor their financial ability to meet payment obligations when
due.

The repurchase price under the repurchase agreements described in the
Funds' Prospectuses generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement). The
collateral underlying each repurchase agreement entered into by the Funds will
consist entirely of direct obligations of the U.S. government and obligations
issued or guaranteed by U.S. government agencies or instrumentalities.
Securities subject to repurchase agreements will be held by the Trust's
Custodian, sub-custodian or in the Federal Reserve/Treasury

-3-
<PAGE>

book-entry system. Repurchase agreements are considered to be loans by the Funds
under the 1940 Act.

As stated in the Funds' Prospectuses, a Fund may purchase securities on a
"when issued" basis (I.E., for delivery beyond the normal settlement date at a
stated price and yield). When a Fund agrees to purchase when-issued securities,
the Custodian will set aside cash or liquid portfolio securities equal to the
amount of the commitment in a separate account. Normally, the Custodian will set
aside portfolio securities to satisfy a purchase commitment, and in such a case
that Fund may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of such Fund's commitment. It may be expected that a Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash.
Because a Fund will set aside cash or liquid assets to satisfy its purchase
commitments in the manner described, such Fund's liquidity and ability to manage
its portfolio might be affected in the event its commitments to purchase
when-issued securities ever exceeded 25% of the value of its assets. When a Fund
engages in when-issued transactions, it relies on the seller to consummate the
trade. Failure of the seller to do so may result in a Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous. Neither
Fund intends to purchase when-issued securities for speculative purposes but
only in furtherance of its investment objective. Each Fund reserves the right to
sell these securities before the settlement date if it is deemed advisable.

Examples of the types of U.S. government obligations that may be held by a
Fund include, in addition to U.S. Treasury Bills, the obligations of the Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, Federal Financing Bank,
General Services Administration, Student Loan Marketing Association, Central
Bank for Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Federal Farm
Credit Banks, Maritime Administration, Resolution Trust Corporation, Tennessee
Valley Authority, U.S. Postal Service and Washington D.C. Armory Board.

For purposes of Prime Value Money Market Fund's investment policies with
respect to obligations of issuers in the banking industry, the assets of a bank
or savings institution will be deemed to include the assets of its domestic and
foreign branches. Prime Value Money Market Fund's investments in the obligations
of foreign branches of U.S. banks and of foreign banks and other foreign issuers
may subject Prime Value Money Market Fund to investment risks that are different
in some respects from those of investment in obligations of U.S. domestic
issuers. Such risks include future political and economic developments, the
possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on such obligations. In addition, foreign branches of U.S. banks and foreign
banks may be subject to less stringent reserve requirements and foreign issuers
generally are subject to different accounting, auditing, reporting and record
keeping standards than those applicable to U.S. issuers. Prime Value Money
Market Fund will acquire securities issued by foreign branches of U.S. banks or
foreign issuers only when the Adviser believes that the risks associated with
such instruments are minimal.

Among the bank obligations in which the Funds may invest are notes issued
by banks. These notes, which are exempt from registration under federal
securities laws, are not deposits of

-4-
<PAGE>

the banks and are not insured by the Federal Deposit Insurance Corporation or
any other insurer. Holders of notes rank on a par with other unsecured and
unsubordinated creditors of the banks. Notes may be sold at par or sold on a
discount basis and may bear fixed or floating rates of interest.

Each Fund may invest in asset-backed and receivable-backed securities.
Several types of asset-backed and receivable-backed securities have been offered
to investors, including interests in pools of credit card receivables and motor
vehicle retail installment sales contracts and security interests in the
vehicles securing the contracts. Payments of principal and interest on these
securities are passed through to certificate holders. In addition, asset-backed
securities often carry credit protection in the form of extra collateral,
subordinate certificates, cash reserve accounts and other enhancements. An
investor's return on these securities may be affected by early prepayment of
principal on the underlying receivables or sales contracts. Any asset-backed or
receivable-backed securities held by the Funds must comply with the portfolio
maturity and quality requirements contained in Rule 2a-7 under the 1940 Act.
Each Fund will monitor the performance of these investments and will not acquire
any such securities unless rated in the highest rating category by at least two
nationally recognized statistical rating organizations ("NRSROs").

As stated in the Funds' Prospectuses, each Fund may invest in obligations
issued by state and local governmental entities. Municipal securities are issued
by various public entities to obtain funds for various public purposes,
including the construction of a wide range of public facilities, the refunding
of outstanding obligations, the payment of general operating expenses and the
extension of loans to public institutions and facilities. Private activity bonds
that are issued by or on behalf of public authorities to finance various
privately operated facilities are considered to be municipal securities and may
be purchased by a Fund. Dividends paid by a Fund that are derived from interest
on such municipal securities would be taxable to that Fund's investors for
federal income tax purposes.

The SEC has adopted Rule 144A under the Securities Act of 1933, as amended
(the "1933 Act"), that allows for a broader institutional trading market for
securities otherwise subject to restrictions on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
1933 Act for resales of certain securities to qualified institutional buyers.
The Adviser anticipates that the market for certain restricted securities such
as institutional commercial paper will expand further as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers.

The Adviser will monitor the liquidity of restricted and other illiquid
securities under the supervision of the Board of Trustees. In reaching liquidity
decisions with respect to Rule 144A securities, the Adviser will consider, INTER
ALIA, the following factors: (1) the unregistered nature of a Rule 144A
security; (2) the frequency of trades and quotes for a Rule 144A security;
(3) the number of dealers wishing to purchase or sell the Rule 144A security and
the number of other potential purchasers; (4) dealer undertakings to make a
market in the Rule 144A security; (5) the trading markets for the Rule 144A
security; and (6) the nature of the Rule 144A security and the nature of the
marketplace trades (E.G., the time needed to dispose of the Rule 144A security,
the method of soliciting offers and the mechanics of the transfer).

-5-
<PAGE>

The Appendix to this Statement of Additional Information contains a
description of the relevant rating symbols used by NRSROs for commercial
obligations that may be purchased by each Fund.

INVESTMENT LIMITATIONS

The Funds' Prospectuses summarize certain investment limitations that may
not be changed without the affirmative vote of the holders of a majority of a
Fund's outstanding shares (as defined below under "Miscellaneous"). Investment
limitations numbered 1 through 7 may not be changed without such a vote of
shareholders; investment limitations 8 through 13 may be changed by a vote of
the Trust's Board of Trustees at any time.

A Fund may not:

1. Purchase securities of any one issuer if as a result more than 5%
of the value of the Fund's assets would be invested in the securities of
such issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to such 5% limitation and provided that
there is no limitation with respect to investments in U.S. government
securities.

2. Borrow money, except from banks for temporary purposes and then
in amounts not exceeding 10% of the value of a Fund's total assets at the
time of such borrowing; or mortgage, pledge or hypothecate any assets
except in connection with any such borrowing and in amounts not in excess
of the lesser of the dollar amounts borrowed or 10% of the value of the
Fund's total assets at the time of such borrowing. Additional investments
will not be made when borrowings exceed 5% of the Fund's assets.

3. Purchase any securities which would cause 25% or more of the
value of its total assets at the time of such purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry, except that Prime Value Money Market Fund
will invest 25% or more of the value of its total assets in obligations of
issuers in the banking industry or in obligations, such as repurchase
agreements, secured by such obligations (unless the Fund is in a temporary
defensive position); provided that there is no limitation with respect to
investments in U.S. government securities or, in the case of Prime Money
Market Fund, in bank instruments issued by domestic banks.

4. Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities.

5. Act as an underwriter of securities, except insofar as the Fund
may be deemed an underwriter under applicable securities laws in selling
portfolio securities.

6. Purchase or sell real estate or real estate limited partnerships,
provided that the Fund may purchase securities of issuers which invest in
real estate or interests therein.

-6-
<PAGE>

7. Purchase or sell commodities contracts, or invest in oil, gas or
mineral exploration or development programs or in mineral leases.

9. Purchase securities on margin, make short sales of securities or
maintain a short position.

10. Write or sell puts, calls, straddles, spreads or combinations
thereof.

12. Purchase securities of other investment companies except as
permitted under the 1940 Act or in connection with a merger, consolidation,
acquisition or reorganization.

13. Invest in warrants.

In order to permit the sale of Fund shares in certain states, the Funds may
make commitments more restrictive than the investment policies and limitations
above. Should a Fund determine that any such commitments are no longer in its
best interests, it will revoke the commitment by terminating sales of its shares
in the state involved. Further, with respect to the above-stated third
limitation, each Fund will consider wholly owned finance companies to be in the
industries of their parents, if their activities are primarily related to
financing the activities of their parents, and will divide utility companies
according to their services; for example, gas, gas transmission, electric and
gas, electric, and telephone will each be considered a separate industry.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

IN GENERAL

Information on how to purchase and redeem each Fund's shares is included in
the Prospectuses. The issuance of shares is recorded on a Fund's books, and
share certificates are not issued.

The regulations of the Comptroller of the Currency (the "Comptroller")
provide that funds held in a fiduciary capacity by a national bank approved by
the Comptroller to exercise fiduciary powers must be invested in accordance with
the instrument establishing the fiduciary relationship and local law. The Trust
believes that the purchase of Prime Money Market Fund and Prime Value Money
Market Fund shares by such national banks acting on behalf of their fiduciary
accounts is not contrary to applicable regulations if consistent with the
particular account and proper under the law governing the administration of the
account.

Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by a Fund on fiduciary funds that are invested in a Fund's
Class B, Class C or Class E shares.

-7-
<PAGE>

Institutions, including banks regulated by the Comptroller and investment
advisers and other money managers subject to the jurisdiction of the SEC, the
Department of Labor or state securities commissions, are urged to consult their
legal advisers before investing fiduciary funds in a Fund's Class B, Class C or
Class E shares.

Under the 1940 Act, a Fund may suspend the right of redemption or postpone
the date of payment upon redemption for any period during which the New York
Stock Exchange ("NYSE") is closed, other than customary weekend and holiday
closings, or during which trading on the NYSE is restricted, or during which (as
determined by the SEC by rule or regulation) an emergency exists as a result of
which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (A Fund may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.) In addition, a Fund may redeem
shares involuntarily in certain other instances if the Board of Trustees
determines that failure to redeem may have material adverse consequences to that
Fund's investors in general. Each Fund is obligated to redeem shares solely in
cash up to $250,000 or 1% of such Fund's net asset value, whichever is less, for
any one investor within a 90-day period. Any redemption beyond this amount will
also be in cash unless the Board of Trustees determines that conditions exist
which make payment of redemption proceeds wholly in cash unwise or undesirable.
In such a case, a Fund may make payment wholly or partly in readily marketable
securities or other property, valued in the same way as that Fund determines net
asset value. See "Net Asset Value" below for an example of when such redemption
or form of payment might be appropriate. Redemption in kind is not as liquid as
a cash redemption. Investors who receive a redemption in kind may incur
transaction costs, if they sell such securities or property, and may receive
less than the redemption value of such securities or property upon sale,
particularly where such securities are sold prior to maturity.

Any institution purchasing shares on behalf of separate accounts will be
required to hold the shares in a single nominee name (a "Master Account").
Institutions investing in more than one of the Trust's portfolios, or classes or
sub-classes of shares, must maintain a separate Master Account for each Fund's
class or sub-class of shares. Sub-accounts may be established by name or number
either when the Master Account is opened or later.

NET ASSET VALUE

Each Fund's net asset value per share is calculated separately for each
class by dividing the total value of the assets belonging to a Fund attributable
to a class, less the value of any class-specific liabilities charged to such
Fund, by the total number of that Fund's shares of that class outstanding.
"Assets belonging to" a Fund consist of the consideration received upon the
issuance of Fund shares together with all income, earnings, profits and proceeds
derived from the investment thereof, including any proceeds from the sale of
such investments, any funds or payments derived from any reinvestment of such
proceeds, and a portion of any general assets of the Trust not belonging to a
particular portfolio. Assets belonging to a Fund are charged with the direct
liabilities of that Fund and with a share of the general liabilities of the
Trust allocated on a daily basis in proportion to the relative net assets of
such Fund and the Trust's other portfolios. Determinations made in good faith
and in accordance with generally accepted accounting principles by the Trust's
Board of Trustees as to the allocation of any assets or liabilities with respect
to a Fund are conclusive.

-8-
<PAGE>

As stated in the applicable Prospectuses, in computing the net asset value
of its shares for purposes of sales and redemptions, each Fund uses the
amortized cost method of valuation. Under this method, a Fund values each of its
portfolio securities at cost on the date of purchase and thereafter assumes a
constant proportionate amortization of any discount or premium until maturity of
the security. As a result, the value of the portfolio security for purposes of
determining net asset value normally does not change in response to fluctuating
interest rates. While the amortized cost method seems to provide certainty in
portfolio valuation, it may result in valuations of a Fund's securities which
are higher or lower than the market value of such securities.

In connection with its use of amortized cost valuation, each Fund limits
the dollar-weighted average maturity of its portfolio to not more than 90 days
and does not purchase any instrument with a remaining maturity of more than
thirteen months (397 days) (with certain exceptions). The Trust's Board of
Trustees has also established procedures, pursuant to rules promulgated by the
SEC, that are intended to stabilize each Fund's net asset value per share for
purposes of sales and redemptions at $1.00. Such procedures include the
determination, at such intervals as the Board deems appropriate, of the extent,
if any, to which a Fund's net asset value per share calculated by using
available market quotations deviates from $1.00 per share. In the event such
deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if
any, should be initiated. If the Board believes that the amount of any deviation
from a Fund's $1.00 amortized cost price per share may result in material
dilution or other unfair results to investors, it will take such steps as it
considers appropriate to eliminate or reduce to the extent reasonably
practicable any such dilution or unfair results. These steps may include selling
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten a Fund's average portfolio maturity, redeeming shares in kind, reducing
or withholding dividends, or utilizing a net asset value per share determined by
using available market quotations.

MANAGEMENT OF THE FUNDS

TRUSTEES AND OFFICERS

The Trust's Trustees and Executive Officers, their addresses, principal
occupations during the past five years and other affiliations are as follows:

NAME AND ADDRESS POSTION WITH THE TRUST PRINCIPAL OCCUPATIONS DURING PAST 5
YEARS AND OTHER AFFILIATIONS
----------------- ---------------------- ------------------------------------
<S> <C> <C>

ANDREW GORDON (1) Co-Chairman of the Board, Managing Director, Lehman Brothers.
3 World Financial Center Trustee and President
New York, NY 10285
Age:

KIRK HARTMAN (1) Co-Chairman of the Board, Managing Director, Lehman Brothers.
3 World Financial Center Trustee, Executive Vice President
New York, NY 10285 and Investment Officer
Age:

</TABLE>

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<PAGE>

<TABLE>

CHARLES BARBER (2)(3) Trustee Consultant; formerly Chairman of the Board, ASARCO
66 Glenwood Drive Incorporated.
Greenwich, CT 06830
Age:

BURT N. DORSETT (2)(3) Trustee Managing Partner, Dorsett McCabe Capital
201 East 62nd Street Management, Inc., an investment counselling firm;
New York, NY 10022 Director, Research Corporation Technologies, a
Age: non-profit patent-clearing and licensing operation;
formerly President, Westinghouse Pension
Investments Corporation; formerly Executive Vice
President and Trustee, College Retirement Equities
Fund, Inc., a variable annuity fund; and formerly
Investment Officer, University of Rochester.

EDWARD J. KAIER (2)(3) Trustee Partner with the law firm of Hepburn Willcox
1100 One Penn Center Hamilton & Putnam.
Philadelphia, PA 19103
Age:

S. DONALD WILEY (2)(3) Trustee Vice Chairman and Trustee, H.J. Heinz Company
USX Tower Foundation; prior to October 1990, Senior Vice
Pittsburgh, PA 15219 President, General Counsel and Secretary,
Age: H.J. Heinz Company.

</TABLE>

-10-
<PAGE>

<TABLE>

JOHN M. WINTERS Vice President and Senior Vice President and Senior Money Market
3 World Financial Center Investment Officer Portfolio Manager, Lehman Brothers Global Asset
New York, NY 10285 Management Inc.; formerly Product Manager with
Age: Lehman Brothers Capital Markets Group.

NICHOLAS RABIECKI, III Vice President and Vice President and Senior Portfolio Manager, Lehman
3 World Financial Center Investment Officer Brothers Global Asset Management, Inc.; formerly
New York, NY 10285 Senior Fixed-Income Portfolio Manager with Chase
Age: Private Banking.

MICHAEL C. KARDOK Treasurer Vice President, The Shareholder Services Group,
One Exchange Place Inc.; prior to May 1994, Vice President, The Boston
Boston, MA 02109 Company Advisors, Inc.
Age:

<FN>
------------

1. Considered by the Trust to be "interested persons" of the Trust as
defined in the 1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.

</TABLE>

Messrs. Gordon, Hartman and Dorsett serves as Trustees or Directors of
other investment companies for which Lehman Brothers,

-11-
<PAGE>

the Adviser or one of their affiliates serve as distributor or investment
adviser.

No employee of Lehman Brothers, the Adviser, or The Shareholder Services
Group, Inc. ("TSSG"), the Trust's Administrator and Transfer Agent, 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, the Adviser, or TSSG or any of their affiliates, a fee of $20,000 per
annum plus $1,250 per meeting attended and reimburses them for travel and
out-of-pocket expenses.

For the fiscal year ended January 31, 1995, such fees and expenses totalled
$48,947 for the Prime Money Market Fund and $38,868 for the Prime Value Money
Market Fund and $104,841 in the aggregate for the Trust. [As of May 15, 1995,
Trustees and Officers of the Trust as a group beneficially owned less than 1% of
the outstanding shares of each of the Funds.]

By virtue of the responsibilities assumed by Lehman Brothers, LBGAM, TSSG
and their affiliates under their respective agreements with the Trust, the Trust
itself requires no employees in addition to its officers.

COMPENSATION TABLE

Total
Compensation
Name of Aggregate Pension or Retirement Estimated From the Trust
Person and Compensation Benefits Accrued as Annual Benefits and Fund Complex
Position From the Trust Part of Trust Expenses Upon Retirement Paid to Trustees*
---------- -------------- ---------------------- --------------- -----------------
<S> <C> <C> <C> <C>

Andrew Gordon, $0 $0 N/A $0 (2)
Co-Chairman of the Board,
Trustee and President

Kirk Hartman, $0 $0 N/A $0 (3)
Co-Chairman of the
Board,Trustee, Executive
Vice President and
Investment Officer

Charles Barber, $ $0 N/A $ (1)
Trustee

</TABLE>

-12-
<PAGE>

<TABLE>

Burt N. Dorsett, $ $0 N/A $ (2)
Trustee

Edward J. Kaier, $ $0 N/A $ (1)
Trustee

S. Donald Wiley, $ $0 N/A $ (1)
Trustee

<FN>
---------------
* Represents the total compensation paid to such persons by all investment
companies (including the Trust) from which such person received compensation
during the fiscal year ended January 31, 1995 that are considered part of the
same "fund complex" as the Trust because they have common or affiliated
investment advisers. The parenthetical number represents the number of such
investment companies, including the Trust.

</TABLE>

DISTRIBUTOR

Lehman Brothers acts as the Distributor of each Fund's shares. Lehman
Brothers, located at 3 World Financial Center, New York, New York 10285, is a
wholly-owned subsidiary of Lehman Brothers Holdings Inc. ("Holdings"). As of
December 31, 1994, FMR Corp. beneficially owned approximately 12.3%, Nippon Life
Insurance Company beneficially owned approximately 8.7% and Heine Securities
Corporation beneficially owned approximately 5.1% of the outstanding voting
securities of Holdings. Each Fund's shares are sold on a continuous basis by
Lehman Brothers. The Distributor pays the cost of printing and distributing
prospectuses to persons who are not investors of a Fund (excluding preparation
and printing expenses necessary for the continued registration of a Fund's
shares) and of preparing, printing and distributing all sales literature. No
compensation is payable by a Fund to Lehman Brothers for its distribution
services.

INVESTMENT ADVISER

Lehman Brothers Global Asset Management Inc. serves as the Investment
Adviser to each of the Funds. The Adviser, located at 3 World Financial Center,
New York, New York 10285, is a wholly-owned subsidiary of Holdings. The
investment advisory agreements provide that the Adviser is responsible for all
investment activities of the Funds, including executing portfolio strategy,
effecting Fund purchase and sale transactions and employing professional
portfolio managers and security analysts who provide research for the Funds.

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<PAGE>

The Investment Advisory Agreement with respect to each of the Funds was
approved by the Trust's Board of Trustees, including a majority of the Trust's
"non-interested" Trustees, on November 2, 1994 to continue until February 5,
1996 unless terminated or amended prior to that date according to its terms.
The Investment Advisory Agreements will continue in effect from year to year
provided the continuance is approved annually (i) by the Trust's Board of
Trustees or (ii) by a vote of a "majority" (as defined in the 1940 Act) of a
Fund's outstanding voting securities, except that in either event the
continuance is also approved by a majority of the Trustees of the Trust who are
not "interested persons" (as defined in the 1940 Act). Each Investment Advisory
Agreement may be terminated (i) on 60 days' written notice by the Trustees of
the Trust, (ii) by vote of holders of a majority of a Fund's outstanding voting
securities, or upon 90 days' written notice by Lehman Brothers, or (iii)
automatically in the event of its assignment (as defined in the 1940 Act).

As compensation for the Adviser's services rendered to the Fund, the
Adviser is entitled to a fee, computed daily and paid monthly, at the annual
rate of .10% of the average daily net assets of the Fund. For the fiscal period
ended January 31, 1994 and the fiscal year ended January 31, 1995 the Adviser
was entitled to receive advisory fees in the following amounts: the Prime Money
Market Fund, $1,165,899 and $2,386,734, respectively, and the Prime Value Money
Market Fund, $1,106,003 and $1,858,719, respectively. Waivers by the Adviser of
advisory fees and reimbursement of expenses to maintain the Funds' operating
expenses ratios at certain levels amounted to: the Prime Money Market Fund,
$1,165,899 and $0, respectively, for the fiscal period ended January 31, 1994
and $1,171,734 and $0, respectively, for the fiscal year ended January 31, 1995,
and the Prime Value Money Market Fund $1,106,003 and $757,799, respectively for
the fiscal period ended January 31, 1994, and $1,388,554 and $0, respectively,
for the fiscal year ended January 31, 1995. In order to maintain competitive
expense ratios during 1995 and thereafter, the Investment Adviser and
Administrator have agreed to voluntary fee waivers and expense reimbursements
for each of the Funds if total operating expenses exceed certain levels. See
"Background and Expense Information" in the Prospectuses.

PRINCIPAL HOLDERS

At May 15, 1995, the principal holders of Class A Shares of Prime Money
Market Fund were as follows: ________. Principal holders of Class B Shares of
Prime Money Market Fund as of May 15, 1995 were as follows: _________.
Principal holders of Class C Shares of Prime Money Market Fund as of May 15,
1995 were as follows: _________. Principal holders of Class E Shares of Prime
Money Market Fund as of May 15, 1995 were as follows ___________.

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<PAGE>

Principal holders of Class A Shares of Prime Value Money Market Fund as of
May 15, 1995, were as follows: _________. At May 15, 1995, the principal
holders of Class B Shares of Prime Value Money Market Fund were as follows:
________. Principal holders of Class C Shares of Prime Value Money Market Fund
as of May 15, 1995, were as follows: __________. At May 15, 1995, the
principal holders of Class E Shares of Prime Value Money Market Fund were as
follows: _____________.

ADMINISTRATOR AND TRANSFER AGENT

TSSG, a subsidiary of First Data Corporation, is located at One Exchange
Place, Boston, Massachusetts 02109, and serves as the Trust's Administrator and
Transfer Agent. As the Trust's Administrator, TSSG has agreed to provide the
following services: (i) assist generally in supervising a Fund's operations,
providing and supervising the operation of an automated data processing system
to process purchase and redemption orders, providing information concerning a
Fund to its shareholders of record, handling investor problems, supervising the
services of employees and monitoring the arrangements pertaining to the Funds'
agreements with Service Organizations; (ii) prepare reports to a Fund's
investors and prepare tax returns and reports to and filings with the SEC;
(iii) compute the respective net asset value per share of each Fund;
(iv) provide the services of certain persons who may be elected as trustees or
appointed as officers of the Trust by the Board of Trustees; and (v) maintain
the registration or qualification of a Fund's shares for sale under state
securities laws. TSSG is entitled to receive, as compensation for its services
rendered under an administration agreement, an administrative fee, computed
daily and paid monthly, at the annual rate of .10% of the average daily net
assets of each Fund. TSSG pays Boston Safe, the Fund's Custodian, a portion of
its monthly administration fee for custody services rendered to the Funds.

-15-
<PAGE>

$1,165,899 and $2,386,734, respectively, and the Prime Value Money Market Fund
$1,106,003 and $1,858,719, respectively. Waviers by the Administrator of
administration fees and reimbursement of expenses to maintain the Funds'
operating expense ratios at certain levels amounted to: the Prime Money Market
Fund, $1,165,899 and $115,300, respectively, for the fiscal period ended January
31, 1994, and $1,815,227 and $0, respectively, for the fiscal year ended January
31, 1995, and the Prime Value Money Market Fund, $1,106,003 and $192,939,
respectively, for the fiscal period ended January 31, 1994, and $1,414,970 and
$0, respectively, for the fiscal period ended January 31, 1995. In order to
maintain competitive expense ratios during 1995 and thereafter, the Investment
Adviser and Administrator have agreed to reimburse the Funds if total operating
expenses exceed certain levels. See "Background and Expense Information" in
each Fund's Prospectus.

Under the transfer agency agreement, TSSG maintains the shareholder account
records for the Trust, handles certain communications between investors and the
Trust, distributes dividends and distributions payable by the Trust and produces
statements with respect to account activity for the Trust and its investors. For
these services, TSSG receives a monthly fee based on average net assets and is
reimbursed for out-of-pocket expenses.

CUSTODIAN

Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly owned
subsidiary of Mellon, is located at One Boston Place, Boston, Massachusetts
02108, and serves as the Custodian of the Trust pursuant to a custody agreement.
Under the custody agreement, Boston Safe holds each Fund's portfolio securities
and keeps all necessary accounts and records. For its services, Boston Safe
receives a monthly fee from TSSG based upon the month-end market value of
securities held in custody and also receives securities transaction charges,
including out-of-pocket expenses. The assets of the Trust are held under bank
custodianship in compliance with the 1940 Act.

SERVICE ORGANIZATIONS

As stated in the Funds' Prospectuses, a Fund will enter into an agreement
with each financial institution which may purchase Class B, Class C shares or
Class E The Fund will enter into an agreement with each Service Organization
whose customers ("Customers") are the beneficial owners of Class B, Class C or
Class E shares that requires the Service Organization to provide certain
services to Customers in consideration of such Fund's payment of .25%, .35% or
.15% respectively, of the average daily net asset value of the respective Class
beneficially owned by the Customers. Such services with respect to the Class C
shares include: (i) aggregating and processing purchase and redemption requests
from Customers and placing net purchase and redemption orders with a Fund's
Distributor; (ii) processing dividend payments from a Fund on behalf of
Customers; (iii ) providing information periodically to Customers showing their
positions in a Fund's shares; (iv) arranging for bank wires; (v) responding to
Customer inquiries relating to the services performed by the Service
Organization and handling correspondence; (vi) forwarding investor
communications from a Fund (such as proxies, investor reports, annual and
semi-annual financial statements, and dividend, distribution and tax notices) to
Customers; (vii) acting as shareholder of record or nominee; and (viii) other
similar account administrative services. In addition, a Service Organization at
its option, may also provide to its Customers of Class C shares (a) a service
that invests the assets of their accounts in shares pursuant to specific or pre-
authorized instructions; (b) provide sub-accounting with respect to shares
beneficially owned by Customers or the information necessary for sub-accounting;
and (c) provide checkwriting services.

-16-
<PAGE>

Service Organizations that purchase Class C shares will also provide assistance
in connection with the support of the distribution of Class C shares to its
Customers, including marketing assistance and the forwarding to Customers of
sales literature and advertising provided by the Distributor of the shares.
Holders of Class B shares of a Fund will receive the services set forth in (i)
and (v) and may receive one or more of the services set forth in (ii), (iii),
(iv), (vi), (vii) and (viii) above. A Service Organization, at its option, may
also provide to its Customers of Class B shares services including:
(a) providing Customers with a service that invests the assets of their accounts
in shares pursuant to specific or pre-authorized instruction; (b) providing sub-
accounting with respect to shares beneficially owned by Customers or the
information necessary for sub-accounting; (c) providing reasonable assistance in
connection with the distribution of shares to Customers; and (d) providing such
other similar services as the Fund may reasonably request to the extent the
Service Organization is permitted to do so under applicable statutes, rules, or
regulations. Holders of Class E Shares of a Fund will receive the services set
forth in (i) and (v), above. A Service Organization, at its option, may also
provide to its Customers of Class E shares share servicing including those
services set forth in (ii), (iii), (iv), (vi), (vii) and (viii) above and the
optional services set forth in (a), (b) and (c) above.

Each Fund's agreements with Service Organizations are governed by a
Shareholder Services Plan (the "Plan") that has been adopted by the Trust's
Board of Trustees under Rule 12b-1 of the 1940 Act. Under this Plan, the Board
of Trustees reviews, at least quarterly, a written report of the amounts
expended under each Fund's agreements with Service Organizations and the
purposes for which the expenditures were made. In addition, a Fund's
arrangements with Service Organizations must be approved annually by a majority
of the Trust's Trustees, including a majority of the Trustees who are not
"interested persons" of the Trust as defined in the 1940 Act and have no direct
or indirect financial interest in such arrangements (the "Disinterested
Trustees").

The Board of Trustees has approved each Fund's arrangements with Service
Organizations based on information provided by the Trust's service contractors
that there is a reasonable likelihood that the arrangements will benefit such
Fund and its investors by affording the Fund greater flexibility in connection
with the servicing of the accounts of the beneficial owners of its shares in an
efficient manner. Any material amendment to a Fund's arrangements with Service
Organizations must be approved by a majority of the Trust's Board of Trustees
(including a majority of the Disinterested Trustees). So long as a Fund's
arrangements with Service Organizations are in effect, the selection and
nomination of the members of the Trust's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust will be committed
to the discretion of such non-interested Trustees.

For the fiscal year ended January 31, 1995, the following service fees were
paid by the Prime Money Market Fund: Class B shares, $726,035, Class C shares,
$60,810, and Class E shares, $5,834. For the period February 8, 1993
(commencement of operations) to January 31, 1994, the following service fees
were paid by the Prime Money Market Fund: Class B shares, $127,731 and Class C
shares, $161. For the fiscal year ended January 31, 1995, the following service
fees were paid by the Prime Value Money Market Fund: Class B shares, $40,846;
no service fees were paid with respect to Class C or Class E shares. For the
period February 8, 1993 (commencement of operations) to January 31, 1994, the
following service fees were paid by the Prime Value Money Market Fund: Class B
shares, $21,438; no service fees were paid with respect to Class C shares.
Class E shares were not offered by the Funds during the fiscal period ended
January 31, 1994.

-17-
<PAGE>

EXPENSES

The Funds' expenses include taxes, interest, fees and salaries of the
Trust's Trustees and Officers who are not directors, officers or employees of
the Trust's service contractors, SEC fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to investors, advisory and administration fees, charges of the
custodian and of the transfer and dividend disbursing agent, Service
Organization fees, certain insurance premiums, outside auditing and legal
expenses, costs of investor reports and shareholder meetings and any
extraordinary expenses. The Funds also pay for brokerage fees and commissions
(if any) in connection with the purchase and sale of portfolio securities. The
Adviser and TSSG have agreed that if, in any fiscal year, the expenses borne by
a Fund exceed the applicable expense limitations imposed by the securities
regulations of any state in which shares of that Fund are registered or
qualified for sale to the public, it will reimburse that Fund for any excess to
the extent required by such regulations in the same proportion that each of
their fees bears to the Fund's aggregate fees for investment advice and
administrative services. Unless otherwise required by law, such reimbursement
would be accrued and paid on the same basis that the advisory and administration
fees are accrued and paid by that Fund. To each Fund's knowledge, of the expense
limitations in effect on the date of this Statement of Additional Information,
none is more restrictive than two and one-half percent (2 1/2%) of the first
$30 million of a Fund's average annual net assets, two percent (2%) of the next
$70 million of the average annual net assets and one and one-half percent (1
1/2%) of the remaining average annual net assets.

ADDITIONAL INFORMATION CONCERNING TAXES

The following summarizes certain additional tax considerations generally
affecting a Fund and its investors that are not described in the Funds'
Prospectuses. No attempt is made to present a detailed explanation of the tax
treatment of a Fund or its investors or possible legislative changes, and the
discussion here and in the applicable Prospectuses is not intended as a
substitute for careful tax planning. Investors should consult their tax
advisers with specific reference to their own tax situation.

As stated in each Prospectus, each Fund is treated as a separate corporate
entity under the Code and qualified as a regulated investment company under the
Code and intends to so qualify in future years. In order to so qualify under the
Code for a taxable year, a Fund must satisfy the distribution requirement
described in the Prospectuses, derive at least 90% of its gross income for the
year from certain qualifying sources, comply with certain diversification tests
and derive less than 30% of its gross income for the year from the sale or other
disposition of securities and certain other investments held for less than three
months. Interest (including original issue plus accrued market discount)
received by a Fund at maturity or disposition of a security held for less than
three months will not be treated as gross income derived from the sale or other
disposition of such security within the meaning of the 30% requirement. However,
any income in excess of such interest will be treated as gross income from the
sale or other disposition of securities for this purpose.

A 4% non-deductible excise tax is imposed on regulated investment companies
that fail currently to distribute an amount equal to specified percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). Each Fund intends to make sufficient distributions
or deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.

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<PAGE>

If for any taxable year a Fund does not qualify for tax treatment as a
regulated investment company, all of that Fund's taxable income will be subject
to tax at regular corporate rates without any deduction for distributions to
Fund investors. In such event, dividend distributions to investors would be
taxable as ordinary income to the extent of that Fund's earnings and profits,
and would be eligible for the dividends received deduction in the case of
corporate shareholders.

Each Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of taxable dividends or 31% of gross proceeds realized upon
sale paid to its investors who have failed to provide a correct tax
identification number in the manner required, or who are subject to withholding
by the Internal Revenue Service for failure properly to include on their return
payments of taxable interest or dividends, or who have failed to certify to a
Fund that they are not subject to backup withholding when required to do so or
that they are "exempt recipients."

Although each Fund expects to qualify each year as a "regulated investment
company" and to be relieved of all or substantially all federal income tax,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, a Fund may
be subject to the tax laws of such states or localities. In addition, in those
states and localities which have income tax laws, the treatment of the Fund and
its investors under such laws may differ from the treatment under federal income
tax laws. Investors are advised to consult their tax advisers concerning the
application of state and local taxes.

DIVIDENDS

Each Fund's net investment income for dividend purposes consists of
(i) interest accrued and original issue discount earned on that Fund's assets,
(ii) plus the amortization of market discount and minus the amortization of
market premium on such assets, (iii) less accrued expenses directly attributable
to that Fund and the general expenses (E.G., legal, accounting and trustees'
fees) of the Trust prorated to such Fund on the basis of its relative net
assets. Any realized short-term capital gains may also be distributed as
dividends to Fund investors. In addition, a Fund's Class B, Class C and Class E
shares bear exclusively the expense of fees paid to Service Organizations with
respect to the relevant Class of shares. See "Management of the Funds - Service
Organizations."

The Trust uses its best efforts to maintain the net asset value per share
of each Fund at $1.00. As a result of a significant expense or realized or
unrealized loss incurred by a Fund, it is possible that a Fund's net asset value
per share may fall below $1.00.

ADDITIONAL YIELD INFORMATION

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<PAGE>

additional shares, net of all fees charged to all shareholder accounts in
proportion to the length of the base period and the Fund's average account size,
but does not include gains and losses or unrealized appreciation and
depreciation. In addition, the effective annualized yield may be computed on a
compounded basis (calculated as described above) with respect to each class of a
Fund's shares by adding 1 to the base period return, raising the sum to a power
equal to 365/7, and subtracting 1 from the result. Similarly, based on the
calculations described above, 30-day (or one-month) yields and effective yields
may also be calculated.

Based on the fiscal year ended January 31, 1995, the yields and effective
yields for each of the Funds were as follows:

7-DAY 30-DAY
7-DAY EFFECTIVE 30-DAY EFFECTIVE
YIELD YIELD YIELD YIELD
<S> <C> <C> <C> <C>

PRIME MONEY MARKET FUND

Class A Shares ____% ____% ____% ____%
Class B Shares ____% ____% ____% ____%
Class C Shares ____% ____% ____% ____%
Class E Shares ____% ____% ____% ____%

Class A Shares* ____% _____% ____% ____%
Class B Shares* ____% _____% ____% ____%
Class C Shares* ____% _____% ____% ____%
Class E Shares* ____% _____% ____% ____%

PRIME VALUE MONEY MARKET FUND

Class A Shares ____% _____% ____% ____%

</TABLE>

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<PAGE>

<TABLE>

Class B Shares ____% _____% ____% ____%
Class C Shares ____% _____% ____% ____%
Class E Shares ____% _____% ____% ____%

Class A Shares* ____% _____% ____% ____%
Class B Shares* ____% _____% ____% ____%
Class C Shares* ____% _____% ____% ____%
Class E Shares* ____% _____% ____% ____%

<FN>
*without fee waivers and/or expense reimbursements

</TABLE>

Class B, Class C and Class E Shares bear the expenses of fees paid to
Service Organizations. As a result, at any given time, the net yield of Class B,
Class C and Class E Shares could be up to .25%, .35% and .15% lower than the net
yield of Class A Shares, respectively.

From time to time, in advertisements or in reports to investors, a Fund's
yield may be quoted and compared to that of other money market funds or accounts
with similar investment objectives and to stock or other relevant indices. For
example, the yield of the Fund may be compared to the IBC/Donoghue's MONEY FUND
AVERAGE, which is an average compiled by IBC/Donoghue's MONEY FUND
REPORT[REGISTRATED TRADEMARK] of Holliston, MA 01746, a widely recognized
independent publication that monitors the performance of money market funds, or
to the average yields reported by the BANK RATE MONITOR from money market
deposit accounts offered by the 50 leading banks and thrift institutions in the
top five standard metropolitan statistical areas.

The Funds' yields will fluctuate, and any quotation of yield should not be
considered as representative of the future performance of the Funds. Since
yields fluctuate, yield data cannot necessarily be used to compare an investment
in a Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Investors should remember that performance and yield are
generally functions of the kind and quality of the investments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by banks with respect to Customer

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<PAGE>

accounts investing in shares of a Fund will not be included in yield
calculations; such fees, if charged, would reduce the actual yield from that
quoted.

ADDITIONAL DESCRIPTION CONCERNING FUND SHARES

As stated in the Funds' Prospectuses, holders of shares in a Fund in the
Trust will vote in the aggregate and not by class on all matters, except where
otherwise required by law and except that only a Fund's Class B, Class C and
Class E shares, as the case may be, will be entitled to vote on matters
submitted to a vote of shareholders pertaining to that Fund's arrangements with
Service Organizations with respect to the relevant Class of shares. (See
"Management of the Funds - Service Organizations.") Further, shareholders of
each of the Trust's portfolios will vote in the aggregate and not by portfolio
except as otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular portfolio. Rule 18f-2 under the 1940 Act provides that any
matter required to be submitted by the provisions of such Act or applicable
state law, or otherwise, to the holders of the outstanding securities of an
investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each portfolio affected by the matter. Rule 18f-2 further
provides that a portfolio shall be deemed to be affected by a matter unless it
is clear that the interests of each portfolio in the matter are identical or
that the matter does not affect any interest of the portfolio. Under the Rule,
the approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a portfolio
only if approved by the holders of a majority of the outstanding voting
securities of such portfolio. However, the Rule also provides that the
ratification of the selection of independent auditors, the approval of principal
underwriting contracts and the election of Trustees are not subject to the
separate voting requirements and may be effectively acted upon by shareholders
of the investment company voting without regard to portfolio.

COUNSEL

Willkie Farr & Gallagher, 153 East 53rd Street, New York, New York 10022,
serves as counsel to the Trust and will pass upon the legality of the shares
offered hereby. Willkie Farr & Gallagher also acts as counsel to Lehman
Brothers.

AUDITORS

Ernst & Young, LLP, independent auditors, serve as auditors to each Fund
and render an opinion on the Fund's financial statements. Ernst & Young has
offices at 200 Clarendon Street, Boston, Massachusetts 02116-5072.

FINANCIAL STATEMENTS

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<PAGE>

The Trust's Annual Report for the fiscal year ended January 31, 1995 is
incorporated into this Statement of Additional Information by reference in its
entirety.

MISCELLANEOUS

SHAREHOLDER VOTE

As used in this Statement of Additional Information and the Funds'
Prospectuses, a "majority of the outstanding shares" of a Fund or of any other
portfolio means the lesser of (1) 67% of that Fund's shares (irrespective of
class) or of the portfolio represented at a meeting at which the holders of more
than 50% of the outstanding shares of that Fund or portfolio are present in
person or by proxy, or (2) more than 50% of the outstanding shares of a Fund
(irrespective of class) or of the portfolio.

SHAREHOLDER AND TRUSTEE LIABILITY

The Trust is organized as a "business trust" under the laws of the
Commonwealth of Massachusetts. Shareholders of such a trust may, under certain
circumstances, be held personally liable (as if they were partners) for the
obligations of the trust. The Declaration of Trust of the Trust provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Trust and that every note, bond, contract, order or other
undertaking made by the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of a Fund of any
shareholder of the Fund held personally liable solely by reason of being or
having been a shareholder and not because of any acts or omissions or some other
reason. The Declaration of Trust also provides that the Trust shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Trust and satisfy any judgment thereon. Thus, the risk
of a shareholder incurring financial loss beyond the amount invested in a Fund
on account of shareholder liability is limited to circumstances in which the
Fund itself would be unable to meet its obligations.

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<PAGE>

APPENDIX

DESCRIPTION OF RATINGS

COMMERCIAL PAPER AND BANK MONEY MARKET INSTRUMENTS

S&P. Commercial paper with the greatest capacity for timely payment is rated A
by Standard & Poor's Corporation ("S&P"). Issues within this category are
further redefined with designations 1, 2 and 3 to indicate the relative degree
of safety; A-1, the highest of the three, indicates the degree of safety is
either overwhelming or very strong; A-2 indicates that capacity for timely
repayment is strong.

MOODY'S. Moody's Investors Service, Inc. ("Moody's") employs the designations
of Prime-1, Prime-2 and Prime-3 to indicate the relative capacity of the rated
issuers to repay punctually. Prime-1 issues have a superior capacity for
repayment. Prime-2 issues have a strong capacity for repayment, but to a lesser
degree than Prime-1.

IBCA. Commercial paper rated A.1+ by IBCA Limited or its affiliate IBCA Inc.
(together, "IBCA") are obligations supported by the highest capacity for timely
repayment. Commercial paper rated A.1 has a very strong capacity for timely
repayment. Commercial paper rated A.2 has a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.

FITCH. Fitch Investors Services, Inc. ("Fitch") employs the rating F-1+ to
indicate issues regarded as having the strongest degree of assurance for timely
payment. The rating F-1 reflects an assurance of timely payment only slightly
less in degree than issues rated F-1+, while the rating F-2 indicates a
satisfactory degree of assurance for timely payment, although the margin of
safety is not as great as indicated by the F-1+ and F-1 categories.

DUFF & PHELPS. Duff & Phelps, Inc. ("Duff & Phelps") employs the designation
of Duff 1 with respect to top grade commercial paper and bank money-market
instruments. Duff 1+ indicates the highest certainty of timely payment:
short-term liquidity is clearly outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations. Duff 1+ indicates high certainty of timely
payment. Duff 2 indicates good certainty of timely payment: liquidity factors
and company fundamentals are sound.

THOMSON BANKWATCH. The TBW Short-Term Ratings apply to commercial paper, other
senior short-term obligations and deposit obligations of the entities to which
the rating has been assigned.

The TBW Short-Term Ratings apply only to unsecured instruments that have a
maturity of one year or less.

The TBW Short-Term Ratings specifically assess the likelihood of an
untimely payment of principal or interest.

TBW- 1 The highest category indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.

TBW- 2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."

A-1
<PAGE>

TBW- 3 The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate.

TBW- 4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

NOTE: VARIOUS NRSROS UTILIZE RANKINGS WITHIN RATING CATEGORIES INDICATED BY
A + OR -. THE FUNDS, IN ACCORDANCE WITH INDUSTRY PRACTICE, RECOGNIZE SUCH
RANKINGS WITHIN CATEGORIES AS GRADATIONS, VIEWING THE EXAMPLE S&P'S RATINGS OF
A-1+ AND A-1 AS BEING IN S&P'S HIGHEST RATING CATEGORY.

CORPORATE BONDS

S&P. Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
Bonds rated AA have a strong capacity to pay interest and repay principal and
differ from the highest rated issues only in a small degree.

MOODY'S. Bonds rated Aaa by Moody's are judged to be of the best quality.
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. Bonds rated Aa are judged to be of high quality by all
standards. They are rated lower than the best bonds because the margins of
protection may not be as large or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities. Moody's applies
numerical modifiers 1, 2 and 3 in each generic rating classification from Aa
through B in its corporate bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.

IBCA. Bonds rated AAA by IBCA are obligations for which there is the lowest
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk significantly.
Bonds rated AA are obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk, albeit not very significantly.

FITCH. Bonds rated AAA by Fitch are considered to be investment grade and of
the highest quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA.

DUFF & PHELPS. Bonds rated AAA by Duff & Phelps are deemed to be of the
highest credit quality: the risk factors are negligible, being only slightly
more than for risk-free U.S. Treasury debt. AA indicates high credit quality:
protection factors are strong, and risk is modest but may vary slightly from
time to time because of economic conditions.

A-2

<PAGE>

100% TREASURY INSTRUMENTS MONEY MARKET FUND

INVESTMENT PORTFOLIOS OFFERED BY LEHMAN BROTHERS
INSTITUTIONAL FUNDS GROUP TRUST

STATEMENT OF ADDITIONAL INFORMATION

MAY ___, 1995

This Statement of Additional Information is meant to be read in conjunction
with the Prospectus for 100% Treasury Instruments Money Market Fund (the "Fund")
dated May ___, 1995, as amended or supplemented from time to time, and is
incorporated by reference in its entirety into the Prospectus. Because this
Statement of Additional Information is not itself a prospectus, no investment in
shares of 100% Treasury Instruments Money Market Fund should be made solely upon
the information contained herein. Copies of the Prospectus for the 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
----
<S> <C>
The Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Objective and Policies. . . . . . . . . . . . . . . . 2
Additional Purchase and Redemption Information . . . . . . . . . 5
Management of the Fund . . . . . . . . . . . . . . . . . . . . . 6
Additional Information Concerning Taxes. . . . . . . . . . . . . 15
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Additional Yield Information . . . . . . . . . . . . . . . . . . 16
Additional Description Concerning Shares . . . . . . . . . . . . 18
Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Financial Statements . . . . . . . . . . . . . . . . . . . . . . 19
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 19

</TABLE>

<PAGE>

THE TRUST

Lehman Brothers Institutional Funds Group Trust (the "Trust") is an
open-end management investment company. The Trust currently includes a family of
portfolios, one of which is the 100% Treasury Instruments Money Market Fund.

The obligations held by the Fund are limited to U.S. Treasury bills, notes
and other direct obligations of the U.S. Treasury. Although the Fund and the
Trust's other portfolios have the same Investment Adviser, Lehman Brothers
Global Asset Management, Inc. (the "Adviser"), and have comparable investment
objectives, the Fund differs in that it may not engage in repurchase agreement
and its yields normally will differ due to its differing cash flows and
differences in the specific portfolio securities held.

INVESTMENT OBJECTIVE AND POLICIES

As stated in the Fund's Prospectus, the investment objective of the Fund is
to provide current income with liquidity and security of principal. The
following policies supplement the description in the Prospectus of the
investment objectives and policies of the Fund.

The Fund is managed to provide stability of capital while achieving
competitive yields. The Adviser intends to follow a value-oriented,
research-driven and risk-averse investment strategy, engaging in a full range of
economic, strategic, credit and market-specific analyses in researching
potential investment opportunities.

PORTFOLIO TRANSACTIONS

Subject to the general control of the Trust's Board of Trustees, the
Adviser is responsible for, makes decisions with respect to and places orders
for all purchases and sales of portfolio securities for the Fund. Purchases and
sales of portfolio securities are usually principal transactions without
brokerage commissions. In making portfolio investments, the Adviser seeks to
obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one dealer are
comparable, the Adviser may, in its discretion, effect transactions in portfolio
securities with dealers who provide the Trust with research advice or other
services.

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<PAGE>

substantially the same time on behalf of such other investment company
portfolios, transactions are averaged as to price, and available investments
allocated as to amount, in a manner which the Adviser believes to be equitable
to each portfolio, including the Fund. In some instances, this investment
procedure may adversely affect the price paid or received by the Fund or the
size of the position obtained for the Fund. To the extent permitted by law, the
Adviser may aggregate the securities to be sold or purchased for the Fund with
those to be sold or purchased for such other investment company portfolios in
order to obtain best execution.

The Fund will not execute portfolio transactions through, acquire portfolio
securities issued by, make savings deposits in, or enter into repurchase
agreements with Lehman Brothers or the Adviser or any affiliated person (as such
term is defined in the Investment Company Act of 1940, as amended (the "1940
Act")) of any of them, except to the extent permitted by the Securities and
Exchange Commission (the "SEC"). In addition, with respect to such
transactions, securities, deposits and agreements, the Fund will not give
preference to Service Organizations with which a Fund enters into agreements.
(See the Prospectus, "Management of the Fund-Service Organizations").

The Fund may seek profits through short-term trading and engage in
short-term trading for liquidity purposes. Increased trading may provide greater
potential for capital gains and losses, and also involves correspondingly
greater trading costs which are borne by the Fund. The Adviser will consider
such costs in determining whether or not the Fund should engage in such trading.
The portfolio turnover rate for the Fund is expected to be zero for regulatory
reporting purposes.

ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS

As stated in the Fund's Prospectus, the Fund may purchase securities on a
"when-issued" basis (I.E., for delivery beyond the normal settlement date at a
stated price and yield). When the Fund agrees to purchase when-issued
securities, its Custodian will set aside cash or liquid portfolio securities
equal to the amount of the commitment in a separate account. Normally, the
Custodian will set aside portfolio securities to satisfy a purchase commitment,
and in such a case the Fund may be required subsequently to place additional
assets in the separate account in order to ensure that the value of the account
remains equal to the amount of the Fund's commitment. It may be expected that
the Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because the Fund will set aside cash or liquid assets to satisfy their
respective purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be affected in the event its commitments
to purchase when-issued securities ever exceeded 25% of the value of its assets.
The Fund does not intend to purchase when-issued securities for speculative
purposes but only in furtherance of its investment objective. The Fund reserves
the right to sell the securities before the settlement date if it is deemed
advisable.

When the Fund engages in when-issued transactions, it relies on the seller
to consummate the trade. Failure of the seller to do so may result in the Fund's
incurring a loss or missing an opportunity to obtain a price considered to be
advantageous.

INVESTMENT LIMITATIONS

The Fund's Prospectus summarizes certain investment limitations that may
not be changed without the affirmative vote of the holders of a "majority of the
outstanding

-3-
<PAGE>

shares" of the Fund (as defined below under "Miscellaneous"). Investment
limitations numbered 1 through 7 may not be changed without such a vote of
shareholders; investment limitations 8 through 13 may be changed by a vote of
the Trust's Board of Trustees at any time.

The Fund may not:

1. Purchase the securities of any issuer if as a result more than 5% of
the value of the Fund's assets would be invested in the securities of such
issuer, except that up to 25% of the value of the Fund's assets may be invested
without regard to this 5% limitation and provided that there is no limitation
with respect to investments in U.S. government securities.

2. Borrow money except from banks for temporary purposes and then in an
amount not exceeding 10% of the value of the particular Fund's total assets, or
mortgage, pledge or hypothecate its assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of the Fund's total assets at the time of such
borrowing. Additional investments will not be made when borrowings exceed 5% of
the Fund's assets.

3. Make loans except that the Fund may purchase or hold debt obligations
in accordance with its investment objective and policies.

4. Act as an underwriter, except insofar as the Fund may be deemed an
underwriter under applicable securities laws in selling portfolio securities.

5. Purchase or sell real estate or real estate limited partnerships except
that the Fund may invest in securities secured by real estate or interests
therein.

6. Purchase or sell commodity contracts, or invest in oil, gas or mineral
exploration or development programs or in mineral leases.

7. Purchase any securities which would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the securities of
issuers conducting their principal business activities in the same industry,
provided that there is no limitation with respect to investments in U.S.
government securities.

8. Knowingly invest more than 10% of the value of the Fund's assets in
securities that may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.

9. Purchase securities on margin, make short sales of securities or
maintain a short position.

10. Write or sell puts, calls, straddles, spreads or combinations thereof.

11. Invest in securities if as a result the Fund would then have more than
5% of its total assets in securities of companies (including predecessors) with
less than three years of continuous operation.

12. Purchase securities of other investment companies except as permitted
under the 1940 Act or in connection with a merger, consolidation, acquisition or
reorganization.

13. Invest in warrants.

-4-
<PAGE>

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

IN GENERAL

Information on how to purchase and redeem the Fund's shares is included in
the Prospectus. The issuance of shares is recorded on the Fund's books, and
share certificates are not issued.

Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund on fiduciary funds that are invested in their
Class B, Class C or Class E shares. Institutions, including banks regulated by
the Comptroller and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult their legal advisers before investing fiduciary
funds in Class B, Class C or Class E shares.

Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange ("NYSE") is closed, other than customary weekend and holiday
closings, or during which trading on the NYSE 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 their 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 a
Fund's investors 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 investor within a 90-day period. Any redemption beyond this amount will
also be in cash unless the Board of Trustees determines that conditions exist
which make payment of redemption proceeds wholly in cash unwise or undesirable.
In such a case, 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. Investors who receive a redemption in kind may incur
transaction costs if they sell such securities or property, and may receive less
than the redemption value of such securities or property upon sale, particularly
where such securities are sold prior to maturity.

Any institution purchasing shares on behalf of separate accounts will be
required to hold the shares in a single nominee name (a "Master Account").
Institutions investing in more than one of the Trust's portfolios or classes or
sub-classes of shares, must maintain a separate Master Account for the Fund's
class or sub-class of shares. Sub-accounts may be established by name or number
either when the Master Account is opened or later.

NET ASSET VALUE

-5-
<PAGE>

The Fund's net asset value per share is calculated separately for each
class by dividing the total value of the assets belonging to the Fund
attributable to a class, less the value of any class-specific liabilities
charged to the Fund, by the total number of the Fund's shares of that class
outstanding. "Assets belonging to" the Fund consist of the consideration
received upon the issuance of shares together with all income, earnings, profits
and proceeds derived from the investment thereof, including any proceeds from
the sale, exchange or liquidation of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of the Trust not belonging to a particular portfolio. Assets belonging to
the Fund are charged with the direct liabilities of the Fund and with a share of
the general liabilities of the Trust allocated in proportion to the relative net
assets of the Fund and the Trust's other portfolios. Determinations made in good
faith and in accordance with generally accepted accounting principles by the
Board of Trustees as to the allocations of any assets or liabilities with
respect to the Fund are conclusive.

As stated in the Fund's Prospectus, in computing the net asset value of
shares of the Fund for purposes of sales and redemptions, the Fund uses the
amortized cost method of valuation. Under this method, the Fund values each of
its portfolio securities at cost on the date of purchase and thereafter assume a
constant proportionate amortization of any discount or premium until maturity of
the security. As a result, the value of a portfolio security for purposes of
determining net asset value normally does not change in response to fluctuating
interest rates. While the amortized cost method provides certainty in portfolio
valuation, it may result in valuations for the Fund's securities which are
higher or lower than the market value of such securities.

In connection with their use of amortized cost valuation, the Fund limits
the dollar-weighted average maturity of its portfolio to not more than 90 days.
The Fund does not purchase any instrument with a remaining maturity of more than
one year (with certain exceptions). In determining the average weighted
portfolio maturity of the Fund, a variable rate obligation that is issued or
guaranteed by the U.S. government, or an agency or instrumentality thereof, is
deemed to have a maturity equal to the period remaining until the obligation's
next interest rate adjustment. The Trust's Board of Trustees has also
established procedures, pursuant to rules promulgated by the SEC, that are
intended to stabilize the net asset value per share of the Fund for purposes of
sales and redemptions at $1.00. Such procedures include the determination at
such intervals, as the Board deems appropriate, of the extent, if any, to which
the Fund's net asset value per share calculated by using available market
quotations deviates from $1.00 per share. In the event such deviation exceeds
1/2 of 1% with respect to the Fund, the Board will promptly consider what
action, if any, should be initiated. If the Board believes that the amount of
any deviation from the $1.00 amortized cost price per share of the Fund may
result in material dilution or other unfair results to investors, it will take
such steps as it considers appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity; shortening the Fund's
average portfolio maturity; withholding or reducing dividends; redeeming shares
in kind; or utilizing a net asset value per share determined by using available
market quotations.

MANAGEMENT OF THE 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:

-6-
<PAGE>

NAME AND ADDRESS POSITION WITH THE TRUST PRINCIPAL OCCUPATIONS DURING PAST 5
YEARS AND OTHER AFFILIATIONS
---------------- ------------------------ -----------------------------------
<S> <C> <C>

ANDREW GORDON (1) Co-Chairman of the Board, Trustee Managing Director, Lehman Brothers.
3 World Financial Center and President
New York, NY 10285
Age:

KIRK HARTMAN (1) Co-Chairman of the Board, Trustee, Managing Director, Lehman Brothers.
3 World Financial Center Executive Vice President and
New York, NY 10285 Investment Officer
Age:

CHARLES F. BARBER (2)(3) Trustee Consultant; formerly Chairman of the Board, ASARCO
66 Glenwood Drive Incorporated.
Greenwich, CT 06830
Age:

BURT N. DORSETT (2)(3) Trustee Managing Partner, Dorsett McCabe Capital
201 East 62nd Street Management, Inc., an investment counseling firm;
New York, NY 10022 Director, Research Corporation Technologies, a
Age: 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.
</TABLE>

-7-
<PAGE>

<TABLE>

EDWARD J. KAIER (2)(3) Trustee Partner with the law firm of Hepburn Willcox
1100 One Penn Center Hamilton & Putnam.
Philadelphia, PA 19103
Age:

NICHOLAS RABIECKI, III Vice President and Investment Vice President and Senior Portfolio Manager,
3 World Financial Center Officer Lehman Brothers Global Asset Management, Inc.;
New York, NY 10285 formerly Senior Fixed-Income Portfolio Manager
Age: with Chase Private Banking.

MICHAEL C. KARDOK Treasurer Vice President, The Shareholder Services Group,
One Exchange Place Inc.; prior to May 1994, Vice President, The
Boston, MA 02109 Boston Company Advisors, Inc.
Age:

</TABLE>

-8-
<PAGE>

<TABLE>

<FN>
----------------

1. Considered by the Trust to be "interested persons" of the Trust as
defined in the 1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.

</TABLE>

Messrs. Gordon, Hartman and Dorsett serve as Trustees or Directors of other
investment companies for which Lehman Brothers, the Adviser or one of their
Affiliates serve as distributor and investment adviser.

No employee of Lehman Brothers, the Adviser, or The Shareholder Services
Group, Inc. ("TSSG"), the Trust's Administrator and Transfer Agent, 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, the Adviser or TSSG or any of their affiliates, a fee of $20,000 per
annum plus $1,250 per meeting attended and reimburses them for travel and
out-of-pocket expenses.

For the fiscal period ended January 31, 1995, such fees and expenses
totaled $1,517 for the Fund, $104,841 for the Trust in the aggregate. [As of
May 15, 1995, Trustees and Officers of the Trust as a group beneficially owned
less than 1% of the outstanding shares of the Fund.]

-9-
<PAGE>

COMPENSATION TABLE

Total Compensation From
Name of Aggregate Pension or Retirement Estimated the Trust and Fund
Person and Compensation Benefits Accrued as Part of Annual Benefits Upon Complex Paid to
Position from the Trust Trust Expenses Retirement Trustees*
-------- -------------- --------------------------- -------------------- ---------------------
<S> <C> <C> <C> <C>

Andrew Gordon $0 $0 N/A $0 (2)
Co-Chairman of the
Board, Trustee and
President

Kirk Hartman $0 $0 N/A $0 (3)
Co-Chairman of the
Board, Trustee,
Executive Vice
President and
Investment Officer

Charles Barber, Trustee $_____ $0 N/A $____(1)

Burt N. Dorsett, $_____ $0 N/A $____(2)
Trustee

Edward J. Kaier, $_____ $0 N/A $____(1)
Trustee

S. Donald Wiley, $_____ $0 N/A $____(1)
Trustee

</TABLE>

DISTRIBUTOR

-10-
<PAGE>

As of December 31, 1994, FMR Corp. beneficially owned approximately 12.3%,
Nippon Life Insurance Company beneficially owned approximately 8.7% and Heine
Securities Corporation beneficially owned approximately 5.1% of the outstanding
voting securities of Holdings. The Fund's shares are sold on a continuous basis
by Lehman Brothers. The Distributor pays the cost of printing and distributing
prospectuses to persons who are not investors of the Funds (excluding
preparation and printing expenses necessary for the continued registration of
Fund shares) and of preparing, printing and distributing all sales literature.
No compensation is payable by the Fund to Lehman Brothers for its distribution
services.

INVESTMENT ADVISER

Lehman Brothers Global Asset Management, Inc. serves as the Investment
Adviser to the Fund. The Adviser, located at 3 World Financial Center, New
York, New York 10285, is a wholly-owned subsidiary of Holdings. The investment
advisory agreements provide that the Adviser is responsible for investment
activities of the Fund, including executing portfolio strategy, effecting Fund
purchase and sale transactions and employing professional portfolio managers and
security analysts who provide research for the Fund.

The Investment Advisory Agreement with respect to the Fund was approved by
the Trust's Board of Trustees, including a majority of the "non-interested"
Trustees, on November 2, 1994 to continue until February 5, 1996 unless
terminated or amended prior to that date according to its terms. The Investment
Advisory Agreement will continue in effect from year to year provided the
continuance is approved annually (i) by the Trust's Board of Trustees or (ii) by
a vote of a "majority" (as defined in the 1940 Act) of a Fund's outstanding
voting securities, except that in either event the continuance is also approved
by a majority of the Trustees of the Trust who are not "interested persons" (as
defined in the 1940 Act). Each Investment Advisory Agreement may be terminated
(i) on 60 days' written notice by the Trustees of the Trust, (ii) by vote of
holders of a majority of a Fund's outstanding voting securities, or upon 90
days' written notice by Lehman Brothers, or (iii) automatically in the event of
its assignment (as defined in the 1940 Act).

-11-
<PAGE>

respectively, for the fiscal period ended January 31, 1994 and $54,308 and $0,
respectively, for the fiscal year ended January 31, 1995. In order to maintain
competitive expense ratios during 1995 and thereafter, the Adviser and
Administrator have agreed to voluntary fee waivers and expense reimbursements
for the Fund if total operating expenses exceed certain levels. See "Background
and Expense Information" in the Fund's Prospectus.

PRINCIPAL HOLDERS

At May 15, 1995, principal holders of Class A Shares of the Fund were as
follows: __________.

As of May 15, 1995, there were no investors in the Class B, Class C and
Class E Shares of the Fund and all outstanding shares were held by Lehman
Brothers.

The investors described above have indicated that they each hold their
shares on behalf of various accounts and not as beneficial owners. To the extent
that any investor is the beneficial owner of more than 25% of the outstanding
shares of the Fund, such investor may be deemed to be a "control person" of the
Fund for purposes of the 1940 Act.

ADMINISTRATOR AND TRANSFER AGENT

TSSG, a subsidiary of First Data Corporation, is located at One Exchange
Place, Boston, Massachusetts 02109, and serves as the Trust's Administrator and
Transfer Agent. As the Trust's Administrator, TSSG has agreed to provide the
following services: (i) assist generally in supervising the Funds' operations,
providing and supervising the operation of an automated data processing system
to process purchase and redemption orders, providing information concerning the
Funds to their shareholders of record, handling investor problems, supervising
the services of employees and monitoring the arrangements pertaining to the
Funds' agreements with Service Organizations; (ii) prepare reports to the Funds'
investors and prepare tax returns and reports to and filings with the SEC;
(iii) compute the respective net asset value per share of each Fund;
(iv) provide the services of certain persons who may be elected as trustees or
appointed as officers of the Trust by the Board of Trustees; and (v) maintain
the registration or qualification of the Fund's shares for sale under state
securities laws. TSSG is entitled to receive, as compensation for its services
rendered under an administration agreement, an administrative fee, computed
daily and paid monthly, at the annual rate of .10% of the average daily net
assets of the Fund. TSSG pays Boston Safe, the Fund's Custodian, a portion of
its monthly administration fee for custody services rendered to the Fund.

-12-
<PAGE>

Fund's administration agreement with TBCA was assigned to TSSG. For the
fiscal period ended January 31, 1994 and the fiscal year ended January 31, 1995,
the Administrator, was entitled to receive $70,084 and $75,538, respectively, in
administration fees. Waivers by the Administrator of administration fees and
reimbursement of expenses to maintain the Fund's operating expense ratios at
certain levels amounted to $70,084 and $21,978, respectively, for the fiscal
period ended January 31, 1994 and $56,601 and $0, respectively, for the fiscal
year ended January 31, 1995. In order to maintain competitive expense ratios
during 1995 and thereafter, the Adviser and Administrator have agreed to
reimburse the Fund if total operating expenses exceed certain levels. See
"Background and Expense Information" in the Fund's Prospectus.

CUSTODIAN

Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly owned
subsidiary of Mellon, is located at One Boston Place, Boston, Massachusetts
02108, and serves as the Custodian of the Trust pursuant to a custody agreement.
Under the custody agreement, Boston Safe holds the Fund's portfolio securities
and keeps all necessary accounts and records. For its services, Boston Safe
receives a monthly fee from TSSG based upon the month-end market value of
securities held in custody and also receives securities transaction charges,
including out-of-pocket expenses. The assets of the Trust are held under bank
custodianship in compliance with the 1940 Act.

SERVICE ORGANIZATIONS

-13-
<PAGE>

accounts in shares pursuant to specific or pre-authorized instructions;
(b) provide sub-accounting with respect to shares beneficially owned by
Customers or the information necessary for sub-accounting; and (c) provide check
writing services. Service Organizations that purchase Class C shares will also
provide assistance in connection with the support of the distribution of Class C
shares to its Customers, including marketing assistance and the forwarding to
Customers of sales literature and advertising provided by a Distributor of the
shares. Holders of Class B shares of the Fund will receive the services set
forth in (i) and (v) and may receive one or more of the services set forth in
(ii), (iii), (iv), (vi), (vii) and (viii) above. A Service Organization, at its
option, may also provide to its Customers of Class B shares services including:
(a) providing Customers with a service that invests the assets of their accounts
in shares pursuant to specific or pre-authorized instruction; (b) providing
sub-accounting with respect to shares beneficially owned by Customers or the
information necessary for sub-accounting; (c) providing reasonable assistance in
connection with the distribution of shares to Customers; and (d) providing such
other similar services as the Fund may reasonably request to the extent the
Service Organization is permitted to do so under applicable statutes, rules, or
regulations. Holders of Class E shares of a Fund will receive the services set
forth in (i) and (v) above. A Service Organization, and at its option, may also
provide to its Customers of Class E shares share servicing including those
services set forth in (ii), (iii), (iv), (vi), (vii) and (viii) above and the
optional services set forth in (a), (b) and (c) above.

The Fund's agreements with Service Organizations are governed by a
Shareholder Services Plan (the "Plan") that has been adopted by the Trust's
Board of Trustees under Rule 12b-1 of the 1940 Act. Under this Plan, the Board
of Trustees reviews, at least quarterly, a written report of the amounts
expended under the Fund's agreements with Service Organizations and the purposes
for which the expenditures were made. In addition, the Fund's arrangements with
Service Organizations must be approved annually by a majority of the Trust's
Trustees, including a majority of the Trustees who are not "interested persons"
of the Trust as defined in the 1940 Act and have no direct or indirect financial
interest in such arrangements (the "Disinterested Trustees").

The Board of Trustees has approved the Fund's arrangements with Service
Organizations based on information provided by the Fund's service contractors
that there is a reasonable likelihood that the arrangements will benefit the
Fund and their investors by affording the Fund greater flexibility in connection
with the servicing of the accounts of the beneficial owners of their shares in
an efficient manner. Any material amendment to the Fund's arrangements with
Service Organizations must be approved by a majority of the Trust's Board of
Trustees (including a majority of the Disinterested Trustees). So long as the
Fund's arrangements with Service Organizations are in effect, the selection and
nomination of the members of the Trust's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust will be committed
to the discretion of such non-interested trustees.

For the fiscal year ended January 31, 1995, no service fees were paid by
the Fund. For the period February 8, 1993 (commencement of operations) to
January 31, 1994, the Class B shares of the Fund paid $923 in service fees.

EXPENSES

The Fund's expenses include taxes, interest, fees and salaries of the
Trust's Trustees and Officers who are not directors, officers or employees of
the Trust's service contractors, SEC fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to investors, advisory, sub-advisory and administration fees,
charges of the Administrator, Custodian, Transfer Agent and dividend disbursing
agent, Service Organization fees, certain insurance

-14-
<PAGE>

premiums, outside auditing and legal expenses, costs of investor reports and
shareholder meetings and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions (if any) in connection with the purchase and sale
of portfolio securities. The Adviser and TSSG have agreed that if, in any
fiscal year, the expenses borne by a Fund exceed the applicable expense
limitations imposed by the securities regulations of any state in which shares
of the particular Fund are registered or qualified for sale to the public, it
will reimburse such Fund for any excess to the extent required by such
regulations in the same proportion that each of their fees bears to the Fund's
aggregate fees for investment advice, sub-investment advice and administrative
services. Unless otherwise required by law, such reimbursement would be accrued
and paid on the same basis that the advisory and administration fees are accrued
and paid by the Fund. To the Fund's knowledge, of the expense limitations in
effect on the date of this Statement of Additional Information, none is more
restrictive than two and one-half percent (2 1/2%) of the first $30 million of a
Fund's average annual net assets, two percent (2%) of the next $70 million of
the average annual net assets and one and one-half percent (1 1/2%) of the
remaining average annual net assets.

ADDITIONAL INFORMATION CONCERNING TAXES

The following summarizes certain additional tax considerations generally
affecting the Fund and its investors that are not described in the Fund's
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its investors or possible legislative changes, and the
discussion here and in the Fund's Prospectus is not intended as a substitute for
careful tax planning. Investors should consult their tax advisers with specific
reference to their own tax situation.

As stated in the Prospectus, the Fund is treated as a separate corporate
entity under the Code and qualified as a regulated investment company under the
Code and intends to so qualify in future years. In order to so qualify for a
taxable year, the Fund must satisfy the distribution requirement described in
its Prospectus, derive at least 90% of its gross income for the year from
certain qualifying sources, comply with certain diversification tests and derive
less than 30% of its gross income from the sale or other disposition of
securities and certain other investments held for less than three months.
Interest (including original issue discount and accrued market discount)
received by the Fund upon maturity or disposition of a security held for less
than three months will not be treated as gross income derived from the sale or
other disposition of such securities within the meaning of this requirement.
However, any other income which is attributable to realized market appreciation
will be treated as gross income from the sale or other disposition of securities
for this purpose.

A 4% nondeductible excise tax is imposed on regulated investment companies
that fail to distribute currently an amount equal to specified percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). The Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income each calendar year to avoid liability for this excise tax.

If for any taxable year the Fund does not qualify for tax treatment as a
regulated investment company, all of its taxable income will be subject to
federal income tax at regular corporate rates without any deduction for
distributions to Fund investors. In such event, dividend distributions would be
taxable as ordinary income to the Fund's investors to the extent of its current
and accumulated earnings and profits, and would be eligible for the dividends
received deduction in the case of corporate shareholders.

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 any investor who has failed to

-15-
<PAGE>

provide a correct tax identification number in the manner required, or who is
subject to withholding by the Internal Revenue Service for failure to properly
include on his return payments of taxable interest or dividends, or who has
failed to certify to the Fund that he is not subject to backup withholding when
required to do so or that he is an "exempt recipient."

Depending upon the extent of the Fund's activities in states and localities
in which their offices are maintained, in which their agents or independent
contractors are located or in which they are otherwise deemed to be conducting
business, the Fund may be subject to the tax laws of such states or localities.
In addition, in those states and localities which have income tax laws, the
treatment of the Fund and its investors under such laws may differ from their
treatment under federal income tax laws. Investors are advised to consult their
tax advisers concerning the application of state and local taxes.

DIVIDENDS

Net income of the Fund for dividend purposes consists of (i) interest
accrued and original issue discount earned on the Fund's assets, (ii) plus the
amortization of market discount and minus the amortization of market premium on
such assets, (iii) less accrued expenses directly attributable to the Fund and
the general expenses (E.G., legal, accounting and trustees' fees) of the Trust
prorated to the Fund on the basis of its relative net assets. In addition,
Class B, Class C and Class E shares bear exclusively the expense of fees paid to
Service Organizations with respect to the relevant Class of shares. See
"Management of the Fund-Service Organizations."

As stated, the Trust uses its best efforts to maintain the net asset value
per share of the Fund at $1.00. As a result of a significant expense or realized
or unrealized loss incurred by the Fund, it is possible that the Fund's net
asset value per share may fall below $1.00.

ADDITIONAL YIELD INFORMATION

The "yields," "effective yields" and "tax-equivalent yields" are calculated
separately for each class of shares of the Fund and in accordance with the
formulas prescribed by the SEC. The seven-day yield for each class of shares is
calculated by determining the net change in the value of a hypothetical
pre-existing account in the Fund which has a balance of one share of the class
involved at the beginning of the period, dividing the net change by the value of
the account at the beginning of the period to obtain the base period return, and
multiplying the base period return by 365/7. The net change in the value of an
account in the Fund includes the value of additional shares purchased with
dividends from the original share and dividends declared on the original share
and any such additional shares, net of all fees charged to all investor accounts
in proportion to the length of the base period and the Fund's average account
size, but does not include gains and losses or unrealized appreciation and
depreciation. In addition, an effective annualized yield quotation may be
computed on a compounded basis with respect to each class of its shares by
adding 1 to the base period return for the class involved (calculated as
described above), raising that sum to a power equal to 365/7, and subtracting 1
from the result. A tax-equivalent yield for each class of the Fund's shares is
computed by dividing the portion of the yield (calculated as above) that is
exempt from federal income tax by one minus a stated federal income tax rate and
adding that figure to that portion, if any, of the yield that is not exempt from
federal income tax.

-16-
<PAGE>

Based on the fiscal year ended January 31, 1995, the yields, effective
yields and tax-equivalent yields for the Fund were as follows:

7-DAY 7-DAY TAX- 30-DAY 30-DAY TAX-
7-DAY EFFECTIVE EQUIVALENT 30-DAY EFFECTIVE EQUIVALENT YIELD
YIELD YIELD YIELD YIELD YIELD
<S> <C> <C> <C> <C> <C> <C>

Class A Shares ____% _____% _____% _____% ______% _____%
Class B Shares ____% _____% _____% _____% ______% _____%
Class C Shares ____% _____% _____% _____% ______% _____%
Class E Shares ____% _____% _____% _____% ______% _____%

Class A Shares* ____% _____% _____% _____% ______% _____%
Class B Shares* ____% _____% _____% _____% ______% _____%
Class C Shares* ____% _____% _____% _____% ______% _____%
Class E Shares* ____% _____% _____% _____% ______% _____%

<FN>
*without fee waivers and/or expense reimbursements
</TABLE>

-17-
<PAGE>

<TABLE>
<S> <C>
Note: Tax-equivalent yields assume a maximum Federal Tax Rate of 31%.

</TABLE>

Class B, Class C and Class E Shares bear the expenses of fees paid to
Service Organizations. As a result, at any given time, the net yield of Class B
and Class C Shares could be up to .25%, .35% and .15% lower than the net yield
of Class A Shares, respectively.

Similarly, based on the calculations described above, the Fund's 30-day (or
one-month) yields, effective yields and tax-equivalent yields may also be
calculated. Such yields refer to the average daily income generated over a
30-day (or one-month) period, as appropriate.

From time to time, in advertisements or in reports to investors, the
performance of the Fund may be quoted and compared to that of other money market
funds or accounts with similar investment objectives and to stock or other
relevant indices. For example, the yields of the Fund may be compared to the
Donoghue's MONEY FUND AVERAGE, which is an average compiled by IBC/Donoghue's
MONEY FUND REPORT[REGISTRATED TRADEMARK] of Holliston, MA 01746, a widely
recognized independent publication that monitors the performance of money market
funds, or to the average yields reported by the BANK RATE MONITOR from money
market deposit accounts offered by the 50 leading banks and thrift institutions
in the top five standard metropolitan statistical areas.

The Fund's yields will fluctuate and any quotation of yield should not be
considered as representative of the future performance of the Fund. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in the
Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Investors should remember that performance and yield are
generally functions of the kind and quality of the investments held in a
portfolio, portfolio maturity, operating expenses net of waivers and expense
reimbursements, and market conditions. Any fees charged by Service Organizations
or other institutional investors with respect to customer accounts in investing
in shares of the Fund will not be included in yield calculations; such fees, if
charged, would reduce the actual yield from that quoted.

ADDITIONAL DESCRIPTION CONCERNING FUND SHARES

As stated in the Prospectus for the Fund, holders of the shares of the Fund
will vote in the aggregate and not by class on all matters, except where
otherwise required by law and except that only the Fund's Class B, Class C and
Class E shares, as the case may be, will be entitled to vote on matters
submitted to a vote of shareholders pertaining to the Fund's arrangements with
Service

-18-
<PAGE>

Organizations with respect to the relevant Class of shares. (See "Management of
the Fund-Service Organizations.") Further, shareholders of all of the Trust's
portfolios will vote in the aggregate and not by portfolio except as otherwise
required by law or when the Board of Trustees determines that the matter to be
voted upon affects only the interests of the shareholders of a particular
portfolio. Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted by the provisions of such Act or applicable state law, or otherwise,
to the holders of the outstanding securities of an investment company such as
the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each
portfolio affected by the matter. Rule 18f-2 further provides that a portfolio
shall be deemed to be affected by a matter unless it is clear that the interests
of each portfolio in the matter are identical or that the matter does not affect
any interest of the portfolio. Under the Rule the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a portfolio only if approved by the
holders of a majority of the outstanding voting securities of such portfolio.
However, the Rule also provides that the ratification of the selection of
independent auditors, the approval of principal underwriting contracts and the
election of trustees are not subject to the separate voting requirements and may
be effectively acted upon by shareholders of the investment company voting
without regard to portfolio.

COUNSEL

Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York, New York 10022, serves as counsel to the Trust and will pass on the
legality of the shares offered hereby. Willkie Farr & Gallagher also acts as
counsel to Lehman Brothers.

AUDITORS

Ernst & Young, LLP, independent auditors, serve as auditors to the Fund and
render an opinion on the Fund's financial statements annually. Ernst & Young has
offices at 200 Clarendon Street, Boston, Massachusetts 02116-5072.

FINANCIAL STATEMENTS

The Trust's Annual Report for the fiscal year ended January 31, 1995 is
incorporated into this Statement of Additional Information by reference in its
entirety.

MISCELLANEOUS

SHAREHOLDER VOTE

As used in this Statement of Additional Information and the Prospectus for
the Fund, a "majority of the outstanding shares" of the Fund or of any other
portfolio means the lesser of (1) 67% of the shares of the Fund (irrespective of
class) or of the portfolio represented at a meeting at which the holders of more
than 50% of the outstanding shares of such Fund or portfolio are present in
person or by proxy, or (2) more than 50% of the outstanding shares of such Fund
(irrespective of class) or of the portfolio.

SHAREHOLDER AND TRUSTEE LIABILITY

The Trust is organized as a "business trust" under the laws of the
Commonwealth of Massachusetts. Shareholders of such a trust may, under certain
circumstances, be held personally liable (as

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<PAGE>

if they were partners) for the obligations of the trust. The Declaration of
Trust of the Trust provides that shareholders of the Fund shall not be subject
to any personal liability for the acts or obligations of the Trust and that
every note, bond, contract, order or other undertaking made by the Trust shall
contain a provision to the effect that the shareholders are not personally
liable thereunder. The Declaration of Trust provides for indemnification out of
the trust property of a Fund of any shareholder of the Fund held personally
liable solely by reason of his being or having been a shareholder and not
because of his acts or omissions or some other reason. The Declaration of Trust
also provides that the Trust shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of the Trust and
satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss beyond its investment in a Fund on account of shareholder
liability is limited to circumstances in which the Fund itself would be unable
to meet its obligations.

-20-

<PAGE>

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
SHORT DURATION MUNICIPAL FUND

STATEMENT OF ADDITIONAL INFORMATION

May __, 1995

This Statement of Additional Information is meant to be read in conjunction
with the Prospectuses for the Short Duration Municipal Fund, each dated May ___,
1995, as amended or supplemented from time to time (the "Prospectuses"), and is
incorporated by reference in its entirety into the Prospectuses. Because this
Statement of Additional Information is not itself a prospectus, no investment in
shares of the Short Duration Municipal Fund should be made solely upon the
information contained herein. Copies of the Prospectuses may be obtained by
calling Lehman Brothers Inc. ("Lehman Brothers") at 1-800-368-5556. Capitalized
terms used but not defined herein have the same meanings as in the Prospectuses.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Trust........................................................ 2
Investment Objective and Policies................................ 2
Additional Purchase, Redemption and Exchange Information......... 12
Management of the Fund........................................... 13
Additional Information Concerning Taxes.......................... 20
Dividends........................................................ 22
Additional Performance Information............................... 22
Additional Description Concerning Shares......................... 24
Counsel.......................................................... 24
Auditors......................................................... 25
Miscellaneous.................................................... 25
Appendix......................................................... A-1
</TABLE>

<PAGE>

THE TRUST

Lehman Brothers Institutional Funds Group Trust (the "Trust") is an
open-end management investment company. The Trust is a diversified investment
portfolio and currently includes a family of portfolios, one of which is the
Short Duration Municipal Fund (the "Fund"). The Fund 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 Class
B Shares bear fees payable by the Fund to Lehman Brothers or institutional
investors for services they provide to the beneficial owners of such shares and
Retail Shares bear fees payable by the Fund to Lehman Brothers for advertising,
marketing and distributing such shares. In addition, Retail Shares bear certain
class specific expenses, such as transfer agency and printing costs, which are
not borne by the Fund's other classes of shares.

THIS STATEMENT OF ADDITIONAL INFORMATION AND THE FUND'S PROSPECTUSES RELATE
PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUND. INVESTORS WISHING
TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER PORTFOLIOS MAY OBTAIN
INFORMATION DESCRIBING THEM BY CONTACTING LEHMAN BROTHERS AT 800-368-5556.

INVESTMENT OBJECTIVE AND POLICIES

As stated in the Fund's Prospectuses, the investment objective of the Fund
is to provide a high level of current income consistent with minimal fluctuation
of net asset value. The Fund is not a money market fund and its net asset value
will fluctuate. The Fund invests primarily in a portfolio consisting of tax-
exempt obligations issued by state and local governments. The following
policies supplement the description of the Fund's investment objective and
policies as contained in the Prospectuses.

PORTFOLIO TRANSACTIONS

Subject to the general control of the Trust's Board of Trustees, Lehman
Brothers Global Asset Management Inc. (the "Adviser"), the Fund's Investment
Adviser, is responsible for, makes decisions with respect to and places orders
for all purchases and sales of portfolio securities for the Fund. Purchases and
sales of portfolio securities are usually principal transactions without
brokerage commissions. In making portfolio investments, the Adviser seeks to
obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one dealer are
comparable, the Adviser may, in its discretion, effect transactions in portfolio
securities with dealers who provide the Trust with research advice or other
services. Although the Fund will not seek profits through short-term trading,
the Adviser may, on behalf of the Fund, dispose of any portfolio security prior
to its maturity if it believes such disposition is advisable.

Transactions in the over-the-counter market are generally principal
transactions with dealers, and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, the Fund, where possible, will deal directly with the dealers who
make a market in the securities involved except in those circumstances where
better prices and execution are available elsewhere.

-2-
<PAGE>

Investment decisions for the Fund are made independently from those for
other investment company portfolios advised by the Adviser. Such other
investment company portfolios may invest in the same securities as the Fund.
When purchases or sales of the same security are made at substantially the same
time on behalf of such other investment company portfolios, transactions are
averaged as to price, and available investments allocated as to amount, in a
manner which the Adviser believes to be equitable to each portfolio, including
the Fund. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained for the
Fund. To the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for the Fund with those to be sold or purchased for such
other investment company portfolios in order to obtain best execution.

Portfolio securities will not be purchased from or sold to and the Fund
will not enter into repurchase agreements or reverse repurchase agreements with
Lehman Brothers, the Adviser or any affiliated person (as such term is defined
in the Investment Company Act of 1940, as amended (the "1940 Act")) or any of
them, except to the extent permitted by the Securities and Exchange Commission
(the "SEC"). Subject to the above considerations, Lehman Brothers may act as a
main broker for the Fund. For it to effect any portfolio transactions for the
Fund, the commissions, fees or other remuneration received by it must be
reasonable and fair compared to the commissions, fees or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. Furthermore, with respect to such transactions,
securities, deposits and repurchase agreements, the Fund will not give
preference to Service Organizations with which the Fund enters into agreements.
(See the Prospectuses, "Management of the Fund - Service Organizations.")

The Fund may participate, if and when practicable, in bidding for the
purchase of Municipal Obligations directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Fund will engage in this practice, however, only when the Adviser, in its
sole discretion, believes such practice to be in the Fund's interest.

TYPES OF INVESTMENTS

The Fund pursues its investment objective by investing at least 80% of its
net assets in fixed income securities issued by or on behalf of states,
territories and possessions of the United States (including the District of
Columbia) and their political subdivisions, agencies and instrumentalities, the
interest on which is exempt from regular federal income tax ("Municipal
Obligations"). The Fund's investments in Municipal Obligations will at the time
of investment be rated within the three highest rating categories for municipal
securities by Standard & Poor's Corporation ("Standard & Poor's") (AAA, AA, or
A) or by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, or A) or any
other comparable nationally recognized rating agency, or their equivalent
ratings or, if unrated, determined by the Adviser to be of comparable credit
quality.

Municipal Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses and the extension of loans to public
institutions and facilities. Private activity bonds that are or were issued by
or on behalf of public authorities to finance various privately operated
facilities are included within the term Municipal Obligations if the interest
paid thereon is exempt from federal income tax. Opinions relating to the
validity of Municipal Obligations and to the exemption of interest thereon from
federal income taxes are rendered by counsel to

-3-
<PAGE>

the issuers or bond counsel to the respective issuing authorities at the time of
issuance. Neither the Fund nor the Adviser will review independently the
underlying proceedings relating to the issuance of Municipal Obligations or the
bases for such opinions.

As described in the Fund's Prospectuses, the two principal classifications
of Municipal Obligations consist of "general obligation" and "revenue" issues,
and the Fund's portfolio may include "moral obligation" issues, which are
normally issued by special purpose authorities. There are, of course, variations
in the quality of Municipal Obligations both within a particular classification
and between classifications, and the yields on Municipal Obligations depend upon
a variety of factors, including general money market conditions, the financial
condition of the issuer, general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation and the rating of
the issue. The ratings of NRSROs represent their opinions as to the quality of
Municipal Obligations. It should be recognized, however, that ratings are
general and are not absolute standards of quality, and Municipal Obligations
with the same maturity, interest rate and rating may have different yields while
Municipal Obligations of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by the Fund, an
issue of Municipal Obligations may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Fund. The Adviser
will consider such an event in determining whether the Fund should continue to
hold the obligation.

An issuer's obligations under its Municipal Obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Code, and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest on and principal of its Municipal Obligations may be materially
adversely affected by litigation or other conditions.

Among other instruments, the Fund may purchase short-term General
Obligation Notes, Tax Anticipation Notes, Bond Anticipation Notes, Revenue
Anticipation Notes, Tax-Exempt Commercial Paper, Construction Loan Notes and
other forms of short-term loans. Such notes are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, the Fund may invest in other types of
tax-exempt instruments such as municipal bonds, private activity bonds and
pollution control bonds.

The Fund may hold tax-exempt derivatives which may be in the form of tender
option bonds, participations, beneficial interests in a trust, partnership
interests or other forms. A number of different structures have been used. For
example, interests in long-term fixed rate Municipal Obligations held by a bank
as trustee or custodian are coupled with tender option, demand and other
features when tax-exempt derivatives are created. Together, these features
entitle the holder of the interest to tender (or put) the underlying Municipal
Obligation to a third party at periodic intervals and to receive the principal
amount thereof. In some cases, Municipal Obligations are represented by
custodial receipts evidencing rights to receive specific future interest
payments, principal payments or both, on the underlying municipal securities
held by the custodian. Under such arrangements, the holder of the custodial
receipt has the option to tender the underlying municipal securities at its face
value to the sponsor (usually a bank or broker-dealer or other financial
institution), which is paid periodic fees equal to the difference between the
bond's fixed coupon rate and the rate that would cause the bond, coupled with
the tender option, to trade at par on the date of a rate adjustment. The Fund
may hold tax-exempt derivatives, such as participation interests and custodial

-4-
<PAGE>

receipts, for Municipal Obligations which give the holder the right to receive
payment of principal subject to the conditions described above. The Internal
Revenue Service has not ruled on whether the interest received on tax-exempt
derivatives in the form of participation interests or custodial receipts is
tax-exempt, and accordingly, purchases of any such interests or receipts are
based on the opinion of counsel to the sponsors of such derivative securities.
Neither the Fund nor the Adviser will review independently the underlying
proceedings related to the creation of any tax-exempt derivatives or the bases
for such opinions.

The payment of principal and interest on most securities purchased by the
Fund will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities, and authorities and each multi-state agency of
which a state is a member is a separate "issuer" as that term is used in this
Statement of Additional Information and the Fund's Prospectuses. The
non-governmental user of facilities financed by private activity bonds is also
considered to be an "issuer."

ADDITIONAL INFORMATION ON INVESTMENT PRACTICES

REPURCHASE AGREEMENTS. The repurchase price under the repurchase
agreements described in the Prospectuses with respect to the Fund generally
equals the price paid by the Fund plus interest negotiated on the basis of
current short-term rates (which may be more or less than the rate on the
securities underlying the repurchase agreement). The collateral underlying each
repurchase agreement entered into by the Fund will consist entirely of direct
obligations of the U.S. Government and obligations issued or guaranteed by
certain U.S. Government agencies or instrumentalities. Securities subject to
repurchase agreements will be held by the Trust's Custodian, sub-custodian or in
the Federal Reserve/Treasury book-entry system.

REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse
repurchase agreements. These transactions are similar to borrowing cash. In a
reverse repurchase agreement the Fund transfers possession of a portfolio
instrument to another person, such as a financial institution, broker or dealer,
in return for a percentage of the instrument's market value in cash, and agrees
that on a stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable the Fund to
avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time. When effecting reverse repurchase
agreements, liquid assets of the Fund, in a dollar amount sufficient to make
payment for the obligations to be purchased, are segregated at the trade date.
These assets are marked to market daily and are maintained until the transaction
is settled.

-5-
<PAGE>

and ability to manage its portfolio might be affected in the event its
commitments to purchase when-issued securities exceed 25% of the value of its
assets. When the Fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a price considered
to be advantageous. The Fund does not intend to purchase when-issued securities
for speculative purposes but only in furtherance of its investment objective.
The Fund reserves the right to sell the securities before the settlement date if
it is deemed advisable.

LENDING OF PORTFOLIO SECURITIES. The Fund has the ability to lend
securities in an amount up to one-third of the value of their respective total
assets from their respective portfolios to brokers, dealers and other financial
organizations. The Fund may not lend its portfolio securities to Lehman Brothers
or its affiliates without specific authorization from the SEC. Loans of
portfolio securities by the Fund will be collateralized by cash, letters of
credit or securities issued or guaranteed by the U.S. Government or its agencies
which will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities and will be marked to market
daily. From time to time, the Fund may return a part of the interest earned from
the investment of collateral received for securities loaned to the borrower
and/or a third party, which is unaffiliated with the Fund or with Lehman
Brothers, and which is acting as a "finder." With respect to loans by the Fund
of its portfolio securities, the Fund would continue to accrue interest on
loaned securities and would also earn income on loans. Any cash collateral
received by the Fund in connection with such loans would be invested in
short-term U.S. Government obligations.

OPTIONS TRANSACTIONS. The Fund is authorized to engage in transactions
involving put and call options in amounts not to exceed 5% of its total assets.
A put option embodies the right of its purchaser to compel the writer of the
option to purchase from the option holder an underlying security or its
equivalent at a specified price at any time during the option period. In
contrast, a call option gives the purchaser the right to buy the underlying
security or its equivalent covered by the option from the writer of the option
at the stated exercise price. Under interpretations of the SEC currently in
effect, which may change from time to time, a "covered" call option means that
so long as the Fund is obligated as writer of the option, it will own (1) the
underlying instruments subject to the option, (2) instruments convertible of
exchangeable into the instruments subject to the option or (3) a call option of
the relevant instruments with the exercise price no higher than the exercise
price on the call option written. Similarly, the SEC currently requires that,
to support its obligation to purchase the underlying instruments if a put option
written by the Fund is exercised, the Fund either (a) deposit with the Custodian
in a segregated account cash, U.S. Government securities or other high grade
liquid debt obligations having a value of least equal to the exercise price of
the underlying securities, (b) continue to own an equivalent number of puts of
the same "series" (that is, puts on the underlying security having the same
exercise prices and expiration dates as those written by the Fund), or an
equivalent number of puts of the same "class" (that is, puts on the same
underlying security) with exercise prices greater than those it has written (or,
if the exercise prices of the puts it holds are less than the exercise prices of
those it has written, it will deposit the difference with the Custodian in a
segregated account) or (c) sell short the securities underlying the put option
at the same or a higher price than the exercise price on the put options
written. The Fund will receive a premium when it writes put and call options,
which increases the Fund's return on the underlying security in the event the
option expires unexercised or is closed out at a profit.

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

-6-
<PAGE>

defensive posture is warranted for a portion of the Fund's portfolio. In
addition, in seeking to protect certain portfolio securities against a decline
in market value at a time when put options on those particular securities are
not available for purchase, the Fund may purchase a put option on securities it
does not hold. Although changes in the value of the put option should generally
offset changes in the value of the securities being hedged, the correlation
between the two values may not be as close in the latter type of transaction as
in a transaction in which the Fund purchases a put option on an underlying
security it owns.

The Fund may purchase call options on securities it intends to acquire to
hedge against an anticipated market appreciation in the price of the underlying
securities. If the market price does rise as anticipated in such a situation,
the Fund will benefit from that rise only to the extent that the rise exceeds
the premiums paid. If the anticipated rise does not occur or if it does not
exceed the premium, the Fund will bear the expense of the option premiums and
transaction costs without gaining an offsetting benefit. The Fund's ability to
purchase put and call options may be limited by the tax and regulatory
requirements which apply to a regulated investment company.

The Fund may purchase and write options on securities that are listed on
national securities exchanges or are traded over the counter, although it
expects, under normal circumstances, to effect such transactions on national
securities exchanges.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may enter
into interest rate futures contracts on Municipal Obligations. The Fund will
enter into such transactions for hedging purposes, in accordance with the rules
and regulations of the Commodity Futures Trading Commission ("CFTC") and the
SEC. A futures contract on securities, is an agreement to purchase or sell an
agreed amount of securities at a set price for delivery on an agreed future
date. The Fund may purchase a futures contract as a hedge against an
anticipated decline in interest rates, and resulting increase in market price,
of securities the Fund intends to acquire. The Fund may sell a futures contract
as a hedge against an anticipated increase in interest rates, and resulting
decline in market price, of securities the Fund owns.

The Fund may purchase call and put options on futures contracts on
Municipal Obligations that are traded on U.S. commodity exchanges. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract (a long position if the option
is a call and short position if the option is a put) at a specified exercise
price at any time during the option put exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon the exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account that
represents the amount by which the market price of the futures contract at
exercise exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract.

-7-
<PAGE>

for "bona fide hedging" purposes or for other purposes, provided that aggregate
initial margin and premiums required to establish positions other than those
considered by the CFTC to be "bona fide hedging" will not exceed 5% of the
Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. The Fund reserves the right to engage
in transactions involving futures and options thereon to the extent allowed by
CFTC regulations in effect from time to time and in accordance with the Fund's
policies. In the event the Fund enters into short positions in futures
contracts as a hedge against a decline in the value of the Fund's portfolio
securities, the value of such futures contracts may not exceed the total market
value of the Fund's portfolio securities. In addition, certain provisions of
the Code may limit the extent to which the Fund may enter into futures contracts
or engage in options transactions.

Under regulations of the CFTC currently in effect, which may change from
time to time, with respect to futures contracts to purchase securities or stock
indices, call options on futures contracts purchased by the Fund and put options
on futures contracts written by the Fund, the Fund will set aside in a
segregated account cash, U.S. Government securities or other U.S. dollar-
denominated high quality short-term or other money market instruments at least
equal to the value of the instruments underlying such futures contracts less the
amount of initial margin on deposit for such contracts. The current view of the
staff of the SEC is that the Fund's long and short positions in futures
contracts as well as put and call options on futures written by it must be
collateralized with cash or certain liquid assets held in a segregated account
or "covered" in a manner similar to that described above for covered option on
securities in order to eliminate any potential leveraging.

The Fund may either accept or make delivery of cash or the underlying
instrument specified at the expiration of an interest rate futures contract or
cash at the expiration of a stock index futures contract or, prior to
expiration, enter into a closing transaction involving the purchase or sale of
an offsetting contract. Closing transactions with respect to futures contracts
are effected on the exchange on which the contract was entered into (or a linked
exchange).

The Fund will purchase put options on futures contracts primarily to hedge
its portfolio of Municipal Obligations against the risk of rising interest
rates, and the consequential decline in the prices of Municipal Obligations it
owns. The Fund will purchase call options on futures contracts to hedge the
Fund's portfolio against a possible market advance at a time when the Fund is
not fully invested in Municipal Obligations. The Fund will not enter into
futures contracts and related options on commodities.

While the Fund may enter into futures contracts and options on futures
contracts for hedging purposes, the use of futures contracts and option on
futures contracts might result in a poorer overall performance for the Fund than
if it had not engaged in any such transactions. If, for example, the Fund had
insufficient cash, it may have to sell a portion of its underlying portfolio of
securities in order to meet daily variation margin requirements on its futures
contracts or option on futures contracts at a time when it may be
disadvantageous to do so. There may be an imperfect correlation between the
Fund's portfolio holdings and futures contracts entered into by the Fund, which
may prevent the Fund from achieving the intended hedge or expose the Fund to
risk of loss. Further, the Fund's use of futures contracts or options on
futures contracts to reduce risk involves costs and will be subject to the
Adviser's ability to predict correctly changes in interest rate relationships or
other factors. No assurance can be given that the Adviser's judgment in this
respect will be correct.

-8-
<PAGE>

SHORT SALES. The Fund may make short sales of only those securities which
are listed on a national securities exchange. A short sale is a transaction in
which the Fund sells a security it does not own in anticipation that the market
price of that security will decline. The Fund expects to make short sales as a
form of hedging to offset potential declines in securities positions it holds.

To complete a short sale, the Fund must arrange through a broker to borrow
the securities to be delivered to the buyer. The proceeds received by the Fund
from the short sale are retained by the broker until the Fund replaces the
borrowed securities. In borrowing the securities to be delivered to the buyer,
the Fund becomes obligated to replace the securities borrowed at their market
price at the time of replacement, whatever that price may be. The Fund may have
to pay a premium to borrow the securities and must pay any dividends or interest
payable on the securities until they are replaced.

The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by collateral deposited with the broker, which
collateral consists of cash or U.S. Government securities. In addition, the
Fund will place in a segregated account with the Custodian an amount of cash, or
U.S. Government securities or other liquid high grade debt obligations equal to
the difference, if any, between (a) the market value of the securities sold at
the time they were sold short and (b) any cash or U.S. Government securities
deposited as collateral with the broker in connection with the short sale (not
including the proceeds of the short sale). Until it replaces the borrowed
securities, the 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 frequency of short sales will vary substantially in different periods,
and it is not intended that any specified portion of the Fund's assets will as a
matter of practice be invested in short sales. However, the Fund will not enter
into a short sale of securities if, as a result of the sale, the total market
value of all securities sold short by the Fund would exceed 25% of the value of
the Fund's assets. In addition, the Fund may not sell short the securities of
any single issuer to the extent the value of the securities of such issuer
exceeds the lesser of 2% of the value of the Fund's net assets or 2% of the
securities of any class of any issuer.

The Fund may make short sales "against the box" without complying with the
limitations described above. In a short sale against the box transaction, the
Fund, at the time of the sale, owns or has the immediate and unconditional right
to acquire at no additional cost the identical security sold.

ILLIQUID SECURITIES. The Fund may not invest more than 15% of its
respective total net assets in illiquid securities, including securities that
are illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale. Securities that have legal or contractual
restrictions on resale but have a readily available market are not considered
illiquid for purposes of this limitation. The Adviser will monitor on an
ongoing basis the liquidity of such restricted securities under the supervision
of the Board of Trustees.

-9-
<PAGE>

anticipates that the market for certain restricted securities will expand
further as a result of this regulation and the development of automated systems
for the trading, clearance and settlement of unregistered securities of domestic
and foreign issuers, such as the PORTAL system sponsored by the National
Association of Securities Dealers.

The 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.

SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
securities of other investment companies to the extent permitted by the 1940
Act. Presently, under the 1940 Act, a fund is permitted to hold securities of
another investment company in amounts which (a) do not exceed 3% of the total
outstanding voting stock of such company, (b) do not exceed 5% of the value of a
fund's total assets and (c) when added to all other investment company
securities held by such fund, do not exceed 10% of the value of the fund's total
assets. Investors should note that investment by the Fund in the securities of
other investment companies would involve the payment of duplicative fees (once
with the Fund and again with the investment company in which the Fund invests).
The Fund does not intend to invest more than 5% of its total assets in the
securities of other investment companies.

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.

-10-
<PAGE>

2. Borrow money, except that the Fund may (i) borrow money from banks for
temporary or emergency purposes (not for leveraging or investment) and (ii)
engage in reverse repurchase agreements or dollar roll transactions; provided
that (i) and (ii) in combination do not exceed one-third of the value of the
Fund's total assets (including the amount borrowed) less liabilities (other than
borrowings). For purposes of this investment restriction, short sales, swap
transactions, options, futures contracts and options on futures contracts, and
forward commitment transactions shall not constitute borrowings.

3. Make loans except that the Fund may purchase or hold debt obligations
in accordance with its investment objective and policies, may enter into
repurchase agreements for securities and may lend portfolio securities.

4. Act as an underwriter, except insofar as the Fund may be deemed an
underwriter under applicable securities laws in selling portfolio securities.

5. Purchase or sell real estate or real estate limited partnerships
except that the Fund may invest in securities secured by real estate or
interests therein.

6. Purchase or sell commodities or commodity contracts, or invest in oil,
gas or mineral exploration or development programs or in mineral leases.

7. Purchase any securities which would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the securities of
issuers conducting their principal business activities in the same industry,
provided that there is no limitation with respect to investments in U.S.
Government securities.

8. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but the Fund may make margin
deposits in connection with transactions in options, futures and options on
futures.

9. Knowingly invest more than 15% of the value of the Fund's assets in
securities that may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.

10. Write or sell puts, calls, straddles, spreads or combinations thereof
in excess of 5% of its total assets.

11. Invest in securities if as a result the Fund would then have more than
5% of its total assets in securities of companies (including predecessors) with
less than three years of continuous operation.

12. Purchase securities of other investment companies in excess of 5% of
its total assets, except as permitted under the 1940 Act or in connection with a
merger, consolidation, acquisition or reorganization.

13. Invest in warrants.

In order to permit the sale of Fund shares in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
above. Should the Fund determine that any such commitments are no longer in its
best interests, it will revoke the commitment by terminating sales of its shares
in the state involved.

-11-
<PAGE>

ADDITIONAL PURCHASE, REDEMPTION AND EXCHANGE INFORMATION

IN GENERAL

Information on how to purchase and redeem Fund shares is included in the
Prospectuses. The issuance of Fund shares is recorded on the Fund's books, and
share certificates are not issued.

Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund on fiduciary funds that are invested in the Fund's
Class B shares. Institutions, including banks regulated by the Comptroller and
investment advisers and other money managers subject to the jurisdiction of the
SEC, the Department of Labor or state securities commissions, should consult
their legal advisers before investing fiduciary funds in the Fund's Class B
shares.

Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange ("NYSE") is closed, other than customary weekend and holiday
closings, or during which trading on the NYSE 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.

-12-
<PAGE>

The Fund normally transmits payment of redemption proceeds for credit to
the shareholder's account at Lehman Brothers or the Introducing Broker on the
business day following receipt of the redemption request but, in any event,
payment will be made within seven days thereafter.

The Prospectus describes special redemption procedures for certain
shareholders who engage in purchases of Retail Shares through Lehman Brothers or
an Introducing Broker, under which Fund shares are redeemed automatically to
satisfy debit balances arising in the shareholder's account on the settlement
date of other securities transactions. A shareholder may choose not to redeem
Fund shares automatically by notifying Lehman Brothers or the Introducing
Broker, and by making payment for securities purchased by the settlement date,
which is usually five business days after the trade date.

NET ASSET VALUE

The Fund's net asset value per share is calculated separately for each
class by dividing the total value of the assets belonging to the Fund
attributable to a class, less the value of any class-specific liabilities
charged to the Fund, by the total number of the Fund's shares of that class
outstanding. "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.

EXCHANGE PRIVILEGE

Exchanges may be made on any day on which both funds determine their net
asset value. There currently is no charge for this service, and exchanges are
made on the basis of relative net asset value per share at the time of exchange.
This privilege is available to shareholders residing in any state in which the
fund shares being acquired may legally be sold. Prior to any exchange, the
shareholder should obtain and review a copy of the current prospectus of each
fund into which an exchange is to be made. Prospectuses may be obtained from
any Lehman Brothers Investment Representative.

Exercise of the exchange privilege is treated as a sale and repurchase for
federal income tax purposes and, depending on the circumstances, a short- or
long-term capital gain or loss may be realized. The price of the shares of the
fund into which shares are exchanged will be the new cost basis for tax
purposes. Lehman Brothers reserves the right to reject any exchange request.
The exchange privilege may be modified or terminated at any time after notice to
shareholders.

MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

The Trust's Trustees and Executive Officers, their addresses, principal
occupations during the past five years and other affiliations are as follows:

-13-
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5
NAME AND ADDRESS POSITION WITH THE TRUST YEARS AND OTHER AFFILIATIONS
---------------- ----------------------- -----------------------------------
<S> <C> <C>
ANDREW GORDON (1) Co-Chairman of the Board, Managing Director, Lehman Brothers.
3 World Financial Center President and Trustee
New York, NY 10285
Age:

KIRK HARTMAN (1) Co-Chairman of the Board, Managing Director, Lehman Brothers.
3 World Financial Center Trustee, Executive Vice
New York, NY 10285 President and Investment
Age: Officer

CHARLES F. BARBER (2)(3) Trustee Consultant; formerly Chairman of the
66 Glenwood Drive Board, ASARCO Incorporated.
Greenwich, CT 06830
Age:

BURT N. DORSETT (2)(3) Trustee Managing Partner, Dorsett McCabe
201 East 62nd Street Capital Management, Inc., an investment
New York, NY 10022 counseling firm; Director, Research
Age: Corporation Technologies, a non-profit
patent-clearing and licensing operation;
formerly President, Westinghouse Pension
Investments Corporation; formerly
Executive Vice President and Trustee,
College Retirement Equities Fund, Inc., a
variable annuity fund; and formerly
Investment Officer, University of
Rochester.

EDWARD J. KAIER (2)(3) Trustee Partner with the law firm of Hepburn
1100 One Penn Center Willcox Hamilton & Putnam.
Philadelphia, PA 19103
Age:

S. DONALD WILEY (2)(3) Trustee Vice Chairman and Trustee, H.J. Heinz
USX Tower Company Foundation; prior to October
Pittsburgh, PA 15219 1990, Senior Vice President, General
Age: Counsel and Secretary, H.J. Heinz
Company.

-14-
<PAGE>

JOHN M. WINTERS Vice President and Senior Vice President and Senior Money
3 World Financial Center Investment Officer Market Portfolio Manager, Lehman
New York, NY 10285 Brothers Global Asset Management, Inc.;
Age: formerly Product Manager with Lehman
Brothers Capital Markets Group.

NICHOLAS RABIECKI, III Vice President and Vice President and Senior Portfolio
3 World Financial Center Investment Officer Manager of Lehman Brothers Global Asset
New York, NY 10285 Management, Inc.; prior to July 1993,
Age: Senior Fixed-Income Portfolio Manager of
Chase Private Banking.

MICHAEL C. KARDOK Treasurer Vice President, The Shareholder Services
One Exchange Place Group, Inc.; prior to May 1994, Vice
Boston, MA 02109 President, The Boston Company Advisors
Age: Inc.

PATRICIA L. BICKIMER Secretary Vice President and Associate General
One Exchange Place Counsel, The Shareholder Services Group
Boston, MA 02109 Inc.; prior to May 1994, Vice President and
Age: Associate General Counsel, The Boston
Company Advisors, Inc.
<FN>
-------------------------
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.
</TABLE>

Messrs. Gordon, Hartman and Dorsett serve as Trustees or Directors of other
investment companies for which Lehman Brothers, the Adviser or one of their
affiliates serve as distributor and investment adviser.

No employee of Lehman Brothers, the Adviser or The Shareholder Services
Group, Inc. ("TSSG"), the Trust's Administrator and Transfer Agent, 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, the Adviser or TSSG or any of their affiliates, a fee of $20,000 per
annum plus $1,250 per meeting attended and reimburses them for travel and
out-of-pocket expenses.

-15-
<PAGE>

COMPENSATION TABLE

<TABLE>
<CAPTION>
Total Compensation
Name of Aggregate Pension or Retirement Estimated From the Trust and
Person and Compensation Benefits Accrued as Annual Benefits Fund Complex Paid
Position from the Trust Part of Trust Expenses Upon Retirement to Trustees*
-------- -------------- ---------------------- --------------- ------------
<S> <C> <C> <C> <C>
Andrew Gordon $0 $0 N/A $0 (2)
Co-Chairman of the
Board, Trustee and
President

Kirk Hartman $0 $0 N/A $0 (3)
Co-Chairman of the
Board, Trustee,
Executive Vice
President and
Investment Officer

Charles Barber, $_____ $0 N/A $____(1)
Trustee

Burt N. Dorsett, $_____ $0 N/A $____(2)
Trustee

Edward J. Kaier, $_____ $0 N/A $____(1)
Trustee

S. Donald Wiley, $_____ $0 N/A $____(1)
Trustee
<FN>
-------------------------
* Represents the total compensation paid to such persons by all investment
companies (including the Trust) from which such person received compensation
during the fiscal year ended January 31, 1995 that are considered part of the
same "fund complex" as the Trust because they have common or affiliated
investment advisers. The parenthetical number represents the number of such
investment companies, including the Trust.
</TABLE>

INVESTMENT ADVISER

-16-
<PAGE>

As of December 31, 1994, FMR Corp. beneficially owned approximately 12.3%,
Nippon Life Insurance Company beneficially owned approximately 8.7% and Heine
Securities Corporation beneficially owned approximately 5.1% of the outstanding
voting securities of Holdings. The investment advisory agreement provides that
the Adviser is responsible for all investment activities of the Fund, including
executing portfolio strategy, effecting Fund purchase and sale transactions and
employing professional portfolio managers and security analysts who provide
research for the Fund.

The Investment Advisory Agreement with respect to the Fund will continue in
effect for a period of two years from the date the Fund commences investment
operations and thereafter from year to year provided the continuance is approved
annually (i) by the Trust's Board of Trustees or (ii) by a vote of a "majority"
(as defined in the 1940 Act) of the Fund's outstanding voting securities, except
that in either event the continuance is also approved by a majority of the
Trustees of the Trust who are not "interested persons" (as defined in the 1940
Act). The Investment Advisory Agreement may be terminated (i) on 60 days'
written notice by the Trustees of the Trust, (ii) by vote of holders of a
majority of a Fund's outstanding voting securities, or upon 90 days' written
notice by Lehman Brothers, or (iii) automatically in the event of its assignment
(as defined in the 1940 Act).

As compensation for the Adviser's services rendered to the Fund, the
Adviser is entitled to a fee, computed daily and paid monthly, at the annual
rate of .30% of the average daily net assets of the Fund. In order to maintain
a competitive expense ratio during 1995 and thereafter, the Adviser and
Administrator have agreed to waive fees or reimburse the Fund if total operating
expenses exceed certain levels. See "Background and Expense Information" in the
Prospectuses.

ADMINISTRATOR AND TRANSFER AGENT

TSSG, a subsidiary of First Data Corporation, is located at One Exchange
Place, Boston, Massachusetts 02109, and serves as the Trust's Administrator and
Transfer Agent. As the Trust's Administrator, TSSG has agreed to provide the
following services: (i) assist generally in supervising the Fund's operations,
providing and supervising the operation of an automated data processing system
to process purchase and redemption orders, providing information concerning the
Fund to its shareholders of record, handling shareholder problems, supervising
the services of employees whose principal responsibility and function is to
preserve and strengthen shareholder relations and monitoring the arrangements
pertaining to the Fund's agreements with Service Organizations; (ii) prepare
reports to the Fund's shareholders and prepare tax returns and reports to and
filings with the SEC; (iii) compute the respective net asset value per share of
the Fund; (iv) provide the services of certain persons who may be elected as
trustees or appointed as officers of the Trust by the Board of Trustees; and
(v) maintain the registration or qualification of Fund shares for sale under
state securities laws.

TSSG is entitled to receive, as compensation for its services rendered
under an administration agreement, an administrative fee, computed daily and
paid monthly, at the annual rate of .10% of the average daily net assets of the
Fund. TSSG pays Boston Safe, the Fund's Custodian, a portion of its monthly
administration fee for custody services rendered to the Funds. In order to
maintain a competitive expense ratio during 1995 and thereafter, the Adviser and
Administrator have

-17-

<PAGE>

agreed to waive fees or reimburse the Fund if total operating expenses exceed
certain levels. See "Background and Expense Information" in the Prospectuses.

Under the transfer agency agreement, TSSG maintains the investor account
records for the Trust, handles certain communications between investors and the
Trust and distributes dividends and distributions payable by the Trust and
produces statements with respect to account activity for the Trust and its
investors. For these services, TSSG receives a monthly fee based on average
annual assets and is reimbursed for out-of-pocket expenses.

DISTRIBUTOR

Lehman Brothers acts as the Distributor of Fund shares. Lehman Brothers is
a wholly-owned subsidiary of Holdings. The Fund's shares are sold on a
continuous basis by Lehman Brothers as agent, although it is not obliged to sell
any particular amount of shares. The Distributor pays the cost of printing and
distributing prospectuses to persons who are not shareholders of the Fund
(excluding preparation and printing expenses necessary for the continued
registration of Fund shares) and of preparing, printing and distributing all
sales literature. No compensation is payable by the Fund to Lehman Brothers for
its distribution services except with respect to the Retail Shares.

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. Furthermore, Lehman Brothers is the creator and monitor of the Lehman
Brothers Municipal Bond Indices, has one of the largest municipal securities
research departments in the industry and is a major municipal underwriter and an
innovative leader, establishing the auction rate securities market.

PLAN OF DISTRIBUTION

The Fund is currently authorized to offer Class A Shares, Class B Shares
and one class of shares offered directly to individual investors ("Retail
Shares"). As stated in the Fund's Prospectuses, the Board of Trustees of the
Trust has adopted plans of distribution (the "Plan of Distribution" or "Plan")
applicable to Class B Shares and Retail Shares of the Fund pursuant to Rule 12b-
1 under the 1940 Act.

-18-
<PAGE>

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 Class B Shares, or
to institutions that provide certain shareholder support services to investors.
These services may include: (i) aggregating and processing purchase and
redemption requests from customers and placing net purchase and redemption
orders with the Fund's distributor; (ii) processing dividend payments from the
Fund on behalf of customers; (iii) providing information periodically to
customers showing their positions in a Fund's shares; (iv) arranging for bank
wires; (v) responding to customer inquiries relating to the services performed
by the institution and handling correspondence; (vi) forwarding shareholder
communications from a Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements, and dividend, distribution and tax notices) to
customers; (vii) acting as shareholder of record or nominee; and (viii) other
similar account administrative services. Lehman Brothers is also authorized to
offer Retail Shares 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 Retail
Shares for distribution and other services provided by Lehman Brothers to
holders of Retail Shares. Lehman Brothers has agreed to voluntarily waive Rule
12b-1 fees on Retail Shares so that such fees will equal .25% of the Fund's
average daily net assets attributable to the Retail Shares. Shares of each
class will bear all fees paid for services provided to that class under the Plan
of Distribution.

Under each Plan of Distribution, the Board of Trustees reviews, at least
quarterly, a written report of the amounts expended under the Fund's Plan and
the purposes for which the expenditures were made. In addition, the Fund's Plan
must be approved annually by a majority of the Trust's trustees, including a
majority of the trustees who are not "interested persons" of the Trust as
defined in the 1940 Act and have no direct or indirect financial interest in
such arrangements (the "Non-Interested Trustees").

In adopting the Plans, the Board of Trustees, as required by the Rule,
carefully considered all pertinent factors relating to the implementation of the
Plan prior to its approval and determined that there is a reasonable likelihood
that the arrangements will benefit the Fund and its shareholders by affording
the Fund greater flexibility in connection with the servicing of the accounts of
the beneficial owners of shares in an efficient manner. Any material amendment
to a Plan must be approved by a majority of the Trust's Board of Trustees
(including a majority of the Non-Interested Trustees). So long as the Plan is in
effect, the selection and nomination of the members of the Trust's Board of
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trust will be committed to the discretion of interested Trustees.

CUSTODIAN

Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly-owned
subsidiary of Mellon Bank Corporation, is located at One Boston Place, Boston,
Massachusetts 02108, and serves as the custodian of the Trust pursuant to a
custody agreement. Under the custody agreement, Boston Safe holds each Fund's
portfolio securities and keeps all necessary accounts and records. For its
services, Boston Safe receives a monthly fee based upon the month-end market
value of securities held in custody and also receives securities transaction
charges, including out-of-pocket expenses. The assets of the Trust are held
under bank custodianship in compliance with the 1940 Act.

EXPENSES

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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
administrator, 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. The Adviser and TSSG have
agreed that if, in any fiscal year, the expenses borne by the Fund exceed the
applicable expense limitations imposed by the securities regulations of any
state in which shares of that Fund are registered or qualified for sale to the
public, they will reimburse the Fund for any excess to the extent required by
such regulations. Unless otherwise required by law, such reimbursement would be
accrued and paid on the same basis that the advisory and administration fees are
accrued and paid by the Fund. To the Fund's knowledge, of the expense
limitations in effect on the date of this Statement of Additional Information,
none is more restrictive than two and one-half percent (2-1/2%) of the first
$30 million of a Fund's average annual net assets, two percent (2%) of the next
$70 million of the average annual net assets and one and one-half percent
(1-1/2%) of the remaining average annual net assets.

ADDITIONAL INFORMATION CONCERNING TAXES

The following summarizes certain additional tax considerations generally
affecting the Fund and its shareholders that are not described in the
Prospectuses. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders or possible legislative changes, and
the discussion here and in the Prospectuses is not intended as a substitute for
careful tax planning. Investors should consult their tax advisers with specific
reference to their own tax situation.

As stated in the Prospectuses, the Fund is treated as a separate corporate
entity under the Code and intends to qualify as a regulated investment company
under the Code. In order to so qualify for a taxable year, the Fund must satisfy
the distribution requirement described in the Prospectuses, derive at least 90%
of its gross income for the year from certain qualifying sources, comply with
certain diversification requirements and derive less than 30% of its gross
income for the year from the sale or other disposition of securities and certain
other investments held for less than three months. Interest (including original
issue discount and, with respect to taxable debt securities, accrued market
discount) received by the Fund at maturity or disposition of a security held for
less than three months will not be treated as gross income derived from the sale
or other disposition of such security within the meaning of the 30% requirement.
However, any other income which is attributable to realized market appreciation
will be treated as gross income from the sale or other disposition of securities
for this purpose.

As described above and in the Fund's Prospectuses, the Fund is designed to
provide institutions with current tax-exempt interest income. The Fund is not
intended to constitute a balanced investment program and is not designed for
investors seeking capital appreciation or maximum tax-exempt income irrespective
of fluctuations in principal. Shares of the Fund would not be suitable for
tax-exempt institutions and may not be suitable for retirement plans qualified
under Section 401 of the Code, H.R. 10 plans and individual retirement accounts
since such plans and accounts are generally tax-exempt and, therefore, not only
would not gain any additional benefit from the Fund's dividends being tax-exempt
but also such dividends would be taxable when distributed to the beneficiary. In
addition, the Fund may not be an appropriate investment for entities which are
"substantial users" of facilities financed by private activity bonds or "related
persons" thereof. "Substantial user" is defined under U.S. Treasury Regulations
to include a non-exempt person who regularly uses a part of such facilities in
his or her trade or business and

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<PAGE>

whose gross revenues derived with respect to the facilities financed by the
issuance of bonds are more than 5% of the total revenues derived by all users of
such facilities, or who occupies more than 5% of the usable area of such
facilities or for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
related natural persons, affiliated corporations, a partnership and its partners
and an S Corporation and its shareholders.

In order for the Fund to pay exempt-interest dividends for any taxable
year, at the close of each quarter of its taxable year at least 50% of the
aggregate value of the Fund's assets must consist of exempt-interest
obligations. After the close of its taxable year, the Fund will notify its
investors of the portion of the dividends paid by the Fund which constitutes an
exempt-interest dividend with respect to such taxable year. However, the
aggregate amount of dividends so designated by the Fund cannot exceed the excess
of the amount of interest exempt from tax under Section 103 of the Code received
by the Fund for the taxable year over any amounts disallowed as deductions under
Sections 265 and 171(a)(2) of the Code. The percentage of total dividends paid
by the Fund with respect to any taxable year which qualifies as federal
exempt-interest dividends will be the same for all investors of the Fund
receiving dividends for such year.

Interest on indebtedness incurred by an investor to purchase or carry the
Fund's shares is not deductible for federal income tax purposes if the Fund
distributes exempt-interest dividends during the investor's taxable year.

While the Fund does not expect to realize long-term capital gains, any net
realized long-term capital gains will be distributed at least annually. The Fund
will generally have no tax liability with respect to such gains, and the
distributions will be taxable to the Fund's investors as long-term capital
gains, regardless of how long a investor has held the Fund's shares. Such
distributions will be designated as a capital gain dividend in a written notice
mailed by the Fund to its investors not later than 60 days after the close of
the Fund's taxable year.

Similarly, while the Fund does not expect to earn any investment company
taxable income, taxable income earned by the Fund will be distributed to its
investors. In general, the Fund's investment company taxable income will be its
taxable income (for example, any short-term capital gains) subject to certain
adjustments and excluding the excess of any net long-term capital gain for the
taxable year over the net short-term capital loss, if any, for such year. The
Fund will be taxed on any undistributed investment company taxable income of the
Fund. To the extent such income is distributed by the Fund (whether in cash or
additional shares), it will be taxable to the Fund's investors as ordinary
income.

A 4% nondeductible excise tax is imposed on regulated investment companies
that fail to distribute currently an amount equal to specified percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). The Fund intends to make sufficient distributions
or deemed distributions of any ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this
excise tax.

If for any taxable year the Fund does not qualify for tax treatment as a
regulated investment company, all of the Fund's taxable income will be subject
to tax at regular corporate rates without any deduction for distributions to
Fund shareholders. In such event, dividend distributions to shareholders would
be taxable to shareholders to the extent of the Fund's earnings and profits, and
would be eligible for the dividends received deduction for corporations.

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<PAGE>

The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of taxable dividends or 31% of gross proceeds realized upon
sale paid to its shareholders who have failed to provide a correct tax
identification number in the manner required, or who are subject to withholding
by the Internal Revenue Service for failure properly to include on their return
payments of taxable interest or dividends, or who have failed to certify to a
Fund that they are not subject to backup withholding when required to do so or
that they are "exempt recipients."

Although the Fund expects to qualify as a "regulated investment company"
and to be relieved of all or substantially all federal income taxes, depending
upon the extent of its activities in states and localities in which its offices
are maintained, in which its agents or independent contractors are located or in
which they are otherwise deemed to be conducting business, a Fund may be subject
to the tax laws of such states or localities. In addition, in those states and
localities which have income tax laws, the treatment of the Fund and its
shareholders under such laws may differ from the treatment under federal income
tax laws. Shareholders are advised to consult their tax advisers concerning the
application of state and local taxes.

* * * * * * * * * * * * * * * * * * * * * * * *

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, Class B Shares and Retail Shares bear exclusively the
expense of fees paid to Lehman Brothers or other institutions with respect to
the relevant class of shares. See "Management of the Fund-Plan of Distribution".
In addition, Retail Shares bear certain class specific expenses, such as
transfer agency and printing costs, which are not borne by the Fund's other
classes of shares.

ADDITIONAL PERFORMANCE INFORMATION

The "total return", "yields," "effective yields," "tax equivalent yields"
and "distribution rates" are calculated separately for each class of shares of
the Fund and in accordance with the formulas prescribed by the SEC. "Total
return" for a particular class of shares represents the change, over specified
period of time, in the value of an investment in the shares after reinvesting
all income and capital gain distributions. It is calculated by dividing that
change by the initial investment and is expressed as a percentage. The "yield"
quoted in advertisements for a particular class of shares refers to the income
generated by an investment in such shares over a specified period (such as a
thirty-day period) identified in the advertisement. This income is then
"annualized;" that is, the amount of income generated by the investment during
that period is assumed to be generated each such period over a 52-week or
one-year period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly but, when annualized, the income earned by an
investment in a particular class is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. A

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<PAGE>

"tax equivalent yield" for each Class of the Fund's shares is computed by
dividing the portion of the yield (calculated as described above) that is exempt
from federal income tax by one minus a stated federal income tax rate and adding
that figure to that portion, if any, of the yield that is not exempt from
federal income tax. The distribution rate for a specified period is calculated
by annualizing distributions of net investment income for such period and
dividing this amount by the ending net asset value for such period.

From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other funds or
accounts with similar investment objectives and to stock or other relevant
indices. For example, the yields of the Fund may be compared to various
independent sources, including, but not limited to, LIPPER ANALYTICAL SERVICES,
INC., MORNINGSTAR, INC., BARRON'S, THE WALL STREET JOURNAl, WEISENBERGER
INVESTMENT COMPANIES SERVICE, IBC/DONOGHUE'S INC. BOND FUND REPORT, BUSINESS
WEEK, FINANCIAL WORLD, FORTUNE, MONEY and FORBES. In addition, the Fund's
performance as compared to certain indices and benchmark investments may
include: [(a) the Lehman Brothers Government/Corporate (Total) Index, (b) Lehman
Brothers Government Index, (c) Merrill Lynch 1-3 Year Treasury Index, (d)
Merrill Lynch 2-Year Treasury Curve Index, (e) the Salomon Brothers Treasury
Yield Curve Rate of Return Index, (f) the Payden & Rygel 2 year Treasury Note
Index, (g) 1 through 3 year U.S. Treasury Notes, (h) constant maturity U.S.
Treasury yield indices, (i) the Consumer Price Index, (j) the London Interbank
Offered Rate, (k) other taxable investments such as certificates of deposit,
money market deposit accounts, checking accounts, savings accounts, money market
mutual funds, repurchase agreements, commercial paper, and (l) historical data
concerning the performance of adjustable and fixed-rate mortgage loans. In
addition, the Lehman Brothers' Fixed Income Research Department was recognized
by INSTITUTIONAL INVESTOR'S "All-American Research Team" poll in 1993 as a
leader in fixed-income research.

The composition of the securities in such indices and the characteristics
of such benchmark investments are not identical to, and in some cases are very
different from, those of the Fund's portfolios. These indices and averages are
generally unmanaged and the items included in the calculations of such indices
and averages may not be identical to the formulas used by the Fund to calculate
its performance figures.

From time to time, advertisements or communications to shareholders may
summarize the substance of information contained in shareholder reports
(including the investment composition of the Fund), as well as the views of
Lehman Brothers as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to the Fund (such as the supply and
demand of mortgage-related securities and the relative performance of different
types of mortgage loans and mortgage-related securities as affected by
prepayment rates and other factors).

The Fund may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish the Adviser's
views as to markets, the rationale for the Fund's investments and discussions of
the Fund's current asset allocation.

In addition, advertisements or shareholder communications may include a
discussion of certain attributes of the Fund such as average portfolio maturity
or benefits to be derived by an investment in the Fund. Such advertisements or
communications may include symbols, headlines or other material which highlight
or summarize the information discussed in more detail therein. Advertisements
or communications to shareholders may also include current ratings of the Fund
by independent organizations such as Moody's and Standard & Poor's.

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<PAGE>

The Fund's total return and yield figures for a class of shares will
fluctuate, and any quotation of total return or yield should not be considered
as representative of the future performance of the Fund. Since total return and
yields fluctuate, yield and total return data for the Fund cannot necessarily be
used to compare an investment in Fund shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should remember
that performance of any investment is generally a function of the kind and
quality of the investments held in a portfolio, portfolio maturity, operating
expenses and market conditions. Since holders of Class B and Retail Shares bear
the Rule 12b-1 distribution or shareholder servicing fee, the net yield on such
shares can be expected at any given time to be lower than the net yield on
Premier Shares. Any fee charged by institutions with respect to customer
accounts investing in shares of a Fund will not be included in total return or
yield calculations; such fees, if charged, would reduce the actual total return
and yield from that quoted.

ADDITIONAL DESCRIPTION CONCERNING SHARES

The Trust does not presently intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more trustees. To the extent
required by law, the Trust will assist in shareholder communication in such
matters.

Fund shares represent an equal, proportionate interest in assets belonging
to the Fund. Each share, which has a par value of $.001, has no preemptive or
conversion rights. When issued for payment as described in the Prospectuses,
Fund shares will be fully paid and non-assessable. As stated in the
Prospectuses, holders of shares in the Fund will vote in the aggregate and not
by class or series on all matters, except where otherwise required by law. (See
"Management of the Fund-Plan of Distribution.") Further, shareholders of all of
the Trust's portfolios will vote in the aggregate and not by portfolio except as
otherwise required by law or when the Board of Trustees determines that the
matter to be voted upon affects only the interests of the shareholders of a
particular portfolio. Rule 18f-2 under the 1940 Act provides that any matter
required to be submitted by the provisions of such Act or applicable state law,
or otherwise, to the holders of the outstanding securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each portfolio affected by the matter. Rule 18f-2 further provides that a
portfolio shall be deemed to be affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical or that the matter does
not affect any interest of the portfolio. Under the Rule the approval of an
investment advisory agreement or any change in a fundamental investment policy
would be effectively acted upon with respect to a portfolio only if approved by
the holders of a majority of the outstanding voting securities of such
portfolio. However, the Rule also provides that the ratification of the
selection of independent certified public accountants, the approval of principal
underwriting contracts and the election of trustees are not subject to the
separate voting requirements and may be effectively acted upon by shareholders
of the investment company voting without regard to portfolio.

Voting rights are not cumulative; and, accordingly, the holders of more
than 50% of the aggregate shares of the Trust may elect all of the trustees.

COUNSEL

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<PAGE>

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, LLP, 200 Clarendon Street, Boston, Massachusetts 02116-5072
serves as independent auditors of the Trust and will issue reports on the
statement of assets and liabilities of the Fund.

MISCELLANEOUS

SHAREHOLDER VOTE

As used in this Statement of Additional Information and the Fund's
Prospectuses, a "majority of the outstanding shares" of the Fund or of any other
portfolio means the lesser of (1) 67% of shares (irrespective of class) or of
the portfolio represented at a meeting at which the holders of more than 50% of
the outstanding shares of the Fund or such portfolio are present in person or by
proxy, or (2) more than 50% of the outstanding shares of the Fund (irrespective
of class) or of the portfolio.

SHAREHOLDER AND TRUSTEE LIABILITY

The Trust is organized as a "business trust" under the laws of the
Commonwealth of Massachusetts. Shareholders of such a trust may, under certain
circumstances, be held personally liable (as if they were partners) for the
obligations of the trust. The Declaration of Trust of the Trust provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Trust and that every note, bond, contract, order or other
undertaking made by the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of a Fund of any
shareholder of the Fund held personally liable solely by reason of being or
having been a shareholder and not because of any acts or omissions or some other
reason. The Declaration of Trust also provides that the Trust shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Trust and satisfy any judgment thereon. Thus, the risk
of a shareholder incurring financial loss beyond the amount invested in a Fund
on account of shareholder liability is limited to circumstances in which the
Fund itself would be unable to meet its obligations.

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<PAGE>

DESCRIPTION OF RATINGS

COMMERCIAL PAPER RATINGS

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The following summarizes the two highest rating categories used by
Standard & Poor's for commercial paper:

"A-1" - Issue's degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are denoted
"A-1+."

"A-2" - Issue's capacity for timely payment is satisfactory. However, the
relative degree of safety is not as high as for issues designated "A-1."

Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 9 months. The following summarizes the two highest rating categories
used by Moody's for commercial paper:

"Prime-1" - Issuer or related supporting institutions are considered to
have a superior capacity for repayment of short-term promissory obligations.
Principal repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.

"Prime-2" - Issuer or related supporting institutions are considered to
have a strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.

A-1
<PAGE>

A-2
<PAGE>

MUNICIPAL LONG-TERM DEBT RATINGS

The following summarizes the three highest ratings used by Standard &
Poor's for municipal long-term debt:

"AAA" - This designation represents the highest rating assigned by Standard
& Poor's to a debt obligation and indicates an extremely strong capacity to pay
interest and repay principal.

A-3

<PAGE>

"AA" - Debt is considered to have a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.

PLUS (+) or MINUS (-) - The rating of "AA" and "A" may be modified by the
addition of a plus or minus sign to show relative standing within this rating
category.

The following summarizes the three highest ratings used by Moody's for
municipal long-term debt:

"Aaa" - Bonds are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.

"Aa" - Bonds are judged to be of high quality by all standards. Together
with the "Aaa" group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.

Moody's applies numerical modifiers 1, 2 and 3 in generic classification of
"Aa" and "A" in its bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
at the lower end of its generic rating category.

The following summarizes the three highest ratings used by Duff & Phelps
for municipal long-term debt:

"AAA" - Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.

"AA" - Debt is considered of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.

To provide more detailed indications of credit quality, the "AA" and "A"
rating may be modified by the addition of a plus (+) or minus (-) sign to show
relative standing within this rating category.

A-4
<PAGE>

Con. (---) - Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.

The following summarizes the three highest ratings used by Fitch for
municipal bonds:

"AAA" - Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.

"A" - Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

To provide more detailed indications of credit quality, the Fitch rating of
"AA" and "A" may be modified by the addition of a plus (+) or minus (-) sign to
show relative standing within this rating category.

Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long-term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes the
three highest rating categories used by Thomson BankWatch for long-term debt
ratings:

"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.

"AA" - This designation indicates a superior ability to repay principal and
interest on a timely basis with limited incremental risk versus issues rated in
the highest category.

"A" - This designation indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.

PLUS (+) or MINUS (-) - The ratings may include a plus or minus sign
designation which indicates where within the respective category the issue is
placed.

A-5
<PAGE>

IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the three highest
rating categories used by IBCA for long-term debt ratings:

"AAA" - Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly.

"AA" - Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk albeit not very significantly.

"A" - Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business economic or financial conditions may lead to
increased investment risk.

IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within these rating categories.

MUNICIPAL NOTE RATINGS

A Standard & Poor's rating reflects the liquidity concerns and market
access risks unique to notes due in three years or less. The following
summarizes the two highest rating categories used by Standard & Poor's
Corporation for municipal notes:

"SP-1" - The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a plus (+) designation.

"SP-2" - The issuers of these municipal notes exhibit satisfactory capacity
to pay principal and interest.

Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the two highest ratings used by Moody's Investors
Service, Inc. for short-term notes:

"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best quality,
enjoying strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.

"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality, with
margins of protection ample although not so large as in the preceding group.

Duff & Phelps and Fitch use the short-term ratings described under
Commercial Paper Ratings for municipal notes.

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MUNICIPAL MONEY MARKET FUND
TAX-FREE MONEY MARKET FUND

INVESTMENT PORTFOLIOS OFFERED BY
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

STATEMENT OF ADDITIONAL INFORMATION

MAY ___, 1995

This Statement of Additional Information is meant to be read in conjunction
with the Prospectuses for the Municipal Money Market Fund and Tax-Free Money
Market Fund portfolios, each dated May ___, 1995 as amended or supplemented from
time to time, and is incorporated by reference in its entirety into each
Prospectus. Because this Statement of Additional Information is not itself a
prospectus, no investment in shares of the Municipal Money Market Fund or
Tax-Free Money Market Fund portfolios should be made solely upon the information
contained herein. Copies of the Prospectuses for Municipal Money Market Fund and
Tax-Free Money Market Fund may be obtained by calling Lehman Brothers Inc.
("Lehman Brothers") at 1-800-368-5556. Capitalized terms used but not defined
herein have the same meanings as in the Prospectuses.

TABLE OF CONTENTS

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The Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Objective and Policies. . . . . . . . . . . . . . . . 2
Municipal Obligations. . . . . . . . . . . . . . . . . . . . . . 8
Additional Purchase and Redemption Information . . . . . . . . . 9
Management of the Funds. . . . . . . . . . . . . . . . . . . . . 11
Additional Information Concerning Taxes. . . . . . . . . . . . . 20
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Additional Yield Information . . . . . . . . . . . . . . . . . . 22
Additional Description Concerning Shares . . . . . . . . . . . . 24
Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Financial Statements . . . . . . . . . . . . . . . . . . . . . . 25
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 25
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

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THE TRUST

Lehman Brothers Institutional Funds Group Trust (the "Trust") is an
open-end management investment company. The Trust currently includes a family of
portfolios, two of which are Municipal Money Market Fund and Tax-Free Money
Market Fund (individually, a "Fund", collectively, the "Funds").

Although the Funds have the same Investment Adviser, Lehman Brothers Global
Asset Management, Inc. (the "Adviser"), and have comparable investment
objectives, their yields will normally vary due to their differing cash flows
and their differing types of portfolio securities (for example, the Tax-Free
Money Market Fund invests only in First Tier Eligible Securities whereas the
Municipal Money Market Fund may invest in Eligible Securities that are not First
Tier).

THIS STATEMENT OF ADDITIONAL INFORMATION AND FUNDS' PROSPECTUSES RELATE
PRIMARILY TO THE FUNDS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVES AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE FUNDS. INVESTORS WISHING
TO OBTAIN SIMILAR INFORMATION REGARDING THE TRUST'S OTHER PORTFOLIOS MAY OBTAIN
INFORMATION DESCRIBING THEM BY CONTACTING LEHMAN BROTHERS AT 800-368-5556.

INVESTMENT OBJECTIVE AND POLICIES

As stated in the Funds' Prospectuses, the investment objective of each Fund
is to provide as high a level of current income exempt from federal income tax
as is consistent with relative stability of principal. The following policies
supplement the description of each Fund's investment objective and policies as
contained in the applicable Prospectus.

PORTFOLIO TRANSACTIONS

Subject to the general control of the Trust's Board of Trustees, the
Adviser is responsible for, makes decisions with respect to, and places orders
for all purchases and sales of portfolio securities for the Funds. Purchases of
portfolio securities are usually principal transactions without brokerage
commissions. In making portfolio investments, the Adviser seeks to obtain the
best net price and the most favorable execution of orders. To the extent that
the execution and price offered by more than one dealer are comparable, the
Adviser may, in its discretion, effect transactions in portfolio securities with
dealers who provide the Trust with research advice or other services.

Transactions in the over-the-counter market are generally principal
transactions with dealers, and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, the Funds, where possible, will deal directly with the dealers who
make a

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market in the securities involved except in those circumstances where better
prices and execution are available elsewhere.

Investment decisions for each Fund are made independently from those for
the Trust's other portfolios or other investment company portfolios or accounts
managed by the Adviser. Such other portfolios may invest in the same securities
as the Funds. When purchases or sales of the same security are made at
substantially the same time on behalf of such other portfolios, transactions are
averaged as to price, and available investments allocated as to amount, in a
manner which the Adviser believes to be equitable to each portfolio, including
the Funds. In some instances, this investment procedure may adversely affect the
price paid or received by the Funds or the size of the position obtained for the
Funds. To the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for the Funds with those to be sold or purchased for
such other portfolios in order to obtain best execution.

The Funds will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase agreements with Lehman Brothers or the Adviser or any affiliated
person (as such term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of any of them, except to the extent permitted by the
Securities and Exchange Commission (the "SEC"). In addition, the Funds will not
purchase "Municipal Obligations" during the existence of any underwriting or
selling group relating thereto of which Lehman Brothers or any affiliate thereof
is a member, except to the extent permitted by the SEC. "Municipal Obligations"
consist of municipal obligations (as defined in each Fund's Prospectus) and
tax-exempt derivatives such as tender option bonds, participations, beneficial
interests in trusts and partnership interests. Under certain circumstances, the
Funds may be at a disadvantage because of these limitations in comparison with
other investment company portfolios which have a similar investment objective
but are not subject to such limitations. Furthermore, with respect to such
transactions, securities, deposits and agreements a Fund will not give
preference to Service Organizations with which a Fund enters into agreements.
(See the applicable Prospectus, "Management of the Fund-Service Organizations").

The Funds may participate, if and when practicable, in bidding for the
purchase of Municipal Obligations directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group. A
Fund will engage in this practice, however, only when the Adviser, in its sole
discretion, believes such practice to be in a Fund's interest.

The Funds may to seek profits through short-term trading. Each Fund's
annual portfolio turnover will be relatively high, but a Fund's portfolio
turnover is not expected to have a material effect on its net income. Each
Fund's portfolio turnover rate is expected to be zero for regulatory reporting
purposes.

ADDITIONAL INFORMATION ON INVESTMENT PRACTICES

VARIABLE AND FLOATING RATE INSTRUMENTS. Municipal Obligations purchased by
the Funds may include variable and floating rate instruments, which provide for
adjustments in the interest rate on certain reset dates or whenever a specified
interest rate index changes, respectively. Variable and floating rate
instruments are subject to the credit quality standards described in the
Prospectuses. In some cases the Funds may require that the obligation to pay
the principal of the instrument be backed by a letter or line of credit or
guarantee. Such instruments may carry stated maturities in excess of 397 days
provided that the maturity-shortening provisions stated in Rule 2a-7 under the
1940 Act are satisfied. Although a particular variable or floating rate demand
instrument may not be actively traded in a secondary market, in some

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cases, the Funds may be entitled to principal on demand and may be able to
resell such notes in the dealer market.

Variable and floating rate demand instruments held by a Fund may have
maturities of more than thirteen months provided: (i) the Fund is entitled to
the payment of principal at any time, or during specified intervals not
exceeding 13 months, upon giving the prescribed notice (which may not exceed 30
days), and (ii) the rate of interest on such instruments is adjusted at periodic
intervals which may extend up to 13 months (397 days). Variable and floating
rate notes that do not provide for payment within seven days may be deemed
illiquid and subject to the 10% limitation on such investments.

In determining a Fund's average weighted portfolio maturity and whether a
variable or floating rate demand instrument has a remaining maturity of thirteen
months or less, each instrument will be deemed by a Fund to have a maturity
equal to the longer of the period remaining until its next interest rate
adjustment or the period remaining until the principal amount can be recovered
through demand. In determining whether an unrated variable or floating rate
demand instrument is of comparable quality at the time of purchase to securities
in which a Fund may invest, the Adviser will follow guidelines adopted by the
Trust's Board of Trustees.

TENDER OPTION BONDS. Each Fund may invest up to 10% of the value of its
assets in tender option bonds. A Fund will not purchase tender option bonds
unless (a) the demand feature applicable thereto is exercisable by the Fund
within 13 months of the date of such purchase upon no more than 30 days' notice
and thereafter is exercisable by the Fund no less frequently than annually upon
no more than 30 days' notice and (b) at the time of such purchase, the Adviser
reasonably expects that, (i) based upon its assessment of current and historical
interest rate trends, prevailing short-term tax-exempt rates will not exceed the
stated interest rate on the underlying Municipal Obligations at the time of the
next tender fee adjustment and (ii) the circumstances which might entitle the
grantor of a tender option to terminate the tender option would not occur prior
to the time of the next tender opportunity. At the time of each tender
opportunity, a Fund will exercise the tender option with respect to any tender
option bonds unless the Adviser reasonably expects that, (a) based upon its
assessment of current and historical interest rate trends, prevailing short-term
tax-exempt rates will not exceed the stated interest rate on the underlying
Municipal Obligations at the time of the next tender fee adjustment and (b) the
circumstances which might entitle the grantor of a tender option to terminate
the tender option would not occur prior to the time of the next tender
opportunity. The Funds will exercise the tender feature with respect to tender
option bonds, or otherwise dispose of their tender option bonds, prior to the
time the tender option is scheduled to expire pursuant to the terms of the
agreement under which the tender option is granted. The Funds otherwise will
comply with the provisions of Rule 2a-7 under the 1940 Act in connection with
the purchase of tender option bonds, including, without limitation, the
requisite determination by the Board of Trustees that the tender option bonds in
question meet the quality standards described in Rule 2a-7. In the event of a
default of the Municipal Obligation underlying a tender option bond, or the
termination of the tender option agreement, a Fund would look to the maturity
date of the underlying security for purposes of compliance with Rule 2a-7 and,
if its remaining maturity was greater than 13 months, the Fund would sell the
security as soon as would be practicable. Each Fund will purchase tender option
bonds only when it is satisfied that (a) the custodial and tender option
arrangements, including the fee payment arrangements, will not adversely affect
the tax-exempt status of the underlying Municipal Obligations and (b) payment of
any tender fees will not have the effect of creating taxable income for the
Fund. Based on the tender option bond arrangement, each Fund expects to value
the tender option bond at par; however, the value of the instrument will be
monitored to assure that it is valued at fair value.

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WHEN-ISSUED SECURITIES. As stated in the Funds' Prospectuses, the Funds
may purchase Municipal Obligations on a "when-issued" basis (I.E., for delivery
beyond the normal settlement date at a stated price and yield). When a Fund
agrees to purchase when-issued securities, the Custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. Normally, the Custodian will set aside portfolio securities to satisfy
a purchase commitment, and in such a case that Fund may be required subsequently
to place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of such Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. Because that Fund will set aside cash or liquid assets to
satisfy its purchase commitments in the manner described, such Fund's liquidity
and ability to manage its portfolio might be affected in the event its
commitments to purchase when-issued securities ever exceeded 25% of the value of
its assets. When a Fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in
such Fund's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous. The Funds do not intend to purchase when-issued
securities for speculative purposes but only in furtherance of their investment
objective. Each Fund reserves the right to sell the securities before the
settlement date if it is deemed advisable.

STAND-BY COMMITMENTS. Each Fund may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at a Fund's option specified
Municipal Obligations at their amortized cost value to the Fund plus accrued
interest, if any. (Stand-by commitments acquired by a Fund may also be referred
to as "put" options.) Stand-by commitments may be exercisable by a Fund at any
time before the maturity of the underlying Municipal Obligations and may be
sold, transferred or assigned only with the instruments involved. A Fund's right
to exercise stand-by commitments will be unconditional and unqualified.

The amount payable to a Fund upon its exercise of a stand-by commitment
will normally be (i) the Fund's acquisition cost of the Municipal Obligations
(excluding any accrued interest which the Fund paid on their acquisition), less
any amortized market premium or plus any amortized market or original issue
discount during the period the Fund owned the securities, plus (ii) all interest
accrued on the securities since the last interest payment date during that
period.

Each Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by a Fund will not exceed 1/2
of 1% of the value of that Fund's total assets calculated immediately after each
stand-by commitment is acquired.

Each Fund intends to enter into stand-by commitments only with dealers,
banks and broker-dealers which, in the opinion of the Adviser, present minimal
credit risks. A Fund's reliance upon the credit of these dealers, banks and
broker-dealers will be secured by the value of the underlying Municipal
Obligations that are subject to the commitment.

Each Fund would acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The acquisition of a stand-by commitment would not affect the
valuation or assumed maturity of the underlying Municipal Obligations, which
would continue to be valued in accordance with the amortized cost method.
Stand-by commitments acquired by a

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Fund would be valued at zero in determining net asset value. Where a Fund paid
any consideration directly or indirectly for a stand-by commitment, its cost
would be reflected as unrealized depreciation for the period during which the
commitment was held by that Fund.

PARTICIPATIONS. Each Fund may purchase from financial institutions
tax-exempt participation interests in Municipal Obligations. A participation
interest gives a Fund an undivided interest in the Municipal Obligation in the
proportion that the Fund's participation interest bears to the total amount of
the Municipal Obligation. These instruments may have floating or variable rates
of interest. If the participation interest is unrated, it will be backed by an
irrevocable letter of credit or guarantee of a bank that the Trust's Board of
Trustees has determined meets certain quality standards or the payment
obligation otherwise will be collateralized by obligations of the U.S.
government and its agencies and instrumentalities ("U.S. government securities")
Each Fund will have the right, with respect to certain participation interests,
to demand payment, on a specified number of days' notice, for all or any part of
the Fund's interest in the Municipal Obligations, plus accrued interest. Each
Fund will invest no more than 5% of its total assets in participation interests.

ILLIQUID SECURITIES. A Fund may not invest more than 10% of its total net
assets in illiquid securities, including securities that are illiquid by virtue
of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation.

The Adviser will monitor on an ongoing basis 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 nationally recognized
statistical rating organizations ("NRSROs") for Municipal Obligations that may
be purchased by the Funds.

INVESTMENT LIMITATIONS

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A Fund may not:

1. Purchase the securities of any issuer if as a result more than 5% of
the value of the Fund's assets would be invested in the securities of such
issuer except that up to 25% of the value of the Fund's assets may be invested
without regard to this 5% limitation and provided that there is no limitation
with respect to investments in U.S. government securities.

2. Borrow money, except from banks for temporary purposes and then in
amounts not exceeding 10% of the value of the Fund's total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the Fund's total assets at
the time of such borrowing. Additional investments will not be made when
borrowings exceed 5% of the Fund's assets.

3. Make loans, except that the Fund may purchase or hold debt instruments
in accordance with its investment objective and policies.

4. Act as an underwriter of securities, except insofar as the Fund may be
deemed an underwriter under applicable securities laws in selling portfolio
securities.

5. Purchase or sell real estate or real estate limited partnerships,
provided that the Fund may purchase securities of issuers which invest in real
estate or interests therein.

6. Purchase or sell commodities or commodity contracts, or invest in oil,
gas or mineral exploration or development programs or in mineral leases.

7. Purchase any securities which would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the securities of
issuers conducting their principal business activities in the same industry,
provided that there is no limitation with respect to investments in U.S.
government securities.

8. Knowingly invest more than 10% of the value of the Fund's assets in
securities that may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.

9. Purchase securities on margin, make short sales of securities or
maintain a short position.

10. Write or sell puts, calls, straddles, spreads or combinations thereof.

11. Invest in securities if as a result the Fund would then have more than
5% of its total assets in securities of companies (including predecessors) with
less than three years of continuous operation.

12. Purchase securities of other investment companies except as permitted
under the 1940 Act or in connection with a merger, consolidation, acquisition or
reorganization.

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13. Invest in warrants.

In addition, without the affirmative vote of the holders of a majority of a
Fund's outstanding shares, such Fund may not change its policy of investing at
least 80% of its total assets (except during temporary defensive periods) in
Municipal Obligations in the case of Municipal Money Market Fund, and in
obligations the interest on which is exempt from federal income tax in the case
of the Tax-Free Money Market Fund.

MUNICIPAL OBLIGATIONS

IN GENERAL

Municipal Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses and the extension of loans to public
institutions and facilities. Private activity bonds that are or were issued by
or on behalf of public authorities to finance various privately operated
facilities are included within the term Municipal Obligations if the interest
paid thereon is exempt from federal income tax. Opinions relating to the
validity of Municipal Obligations and to the exemption of interest thereon from
federal income taxes are rendered by counsel to the issuers or bond counsel to
the respective issuing authorities at the time of issuance. Neither the Funds
nor the Adviser will review independently the underlying proceedings relating to
the issuance of Municipal Obligations or the bases for such opinions.

The Funds may hold tax-exempt derivatives which may be in the form of
tender option bonds, participations, beneficial interests in a trust,
partnership interests or other forms. A number of different structures have been
used. For example, interests in long-term fixed rate Municipal Obligations held
by a bank as trustee or custodian are coupled with tender option, demand and
other features when tax-exempt derivatives are created. Together, these features
entitle the holder of the interest to tender (or put) the underlying Municipal
Obligation to a third party at periodic intervals and to receive the principal
amount thereof. In some cases, Municipal Obligations are represented by
custodial receipts evidencing rights to receive specific future interest
payments, principal payments or both, on the underlying municipal securities
held by the custodian. Under such arrangements, the holder of the custodial
receipt has the option to tender the underlying municipal securities at its face
value to the sponsor (usually a bank or broker-dealer or other financial
institution), which is paid periodic fees equal to the difference between the
bond's fixed coupon rate and the rate that would cause the bond, coupled with
the tender option, to trade at par on the date of a rate adjustment. The Funds
may hold tax-exempt derivatives, such as participation interests and custodial
receipts, for Municipal Obligations which give the holder the right to receive
payment of principal subject to the conditions described above. The Internal
Revenue Service has not ruled on whether the interest received on tax-exempt
derivatives in the form of participation interests or custodial receipts is
tax-exempt, and accordingly, purchases of any such interests or receipts are
based on the opinion of counsel to the sponsors of such derivative securities.
Neither the Funds nor the Adviser will review independently the underlying
proceedings related to the creation of any tax-exempt derivatives or the bases
for such opinions.

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As described in the Funds' Prospectuses, the two principal classifications
of Municipal Obligations consist of "general obligation" and "revenue" issues,
and each Fund's portfolio may include "moral obligation" issues, which are
normally issued by special purpose authorities. There are, of course, variations
in the quality of Municipal Obligations both within a particular classification
and between classifications, and the yields on Municipal Obligations depend upon
a variety of factors, including general money market conditions, the financial
condition of the issuer, general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation and the rating of
the issue. The ratings of NRSROs represent their opinions as to the quality of
Municipal Obligations. It should be recognized, however, that ratings are
general and are not absolute standards of quality, and Municipal Obligations
with the same maturity, interest rate and rating may have different yields while
Municipal Obligations of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by a Fund, an issue
of Municipal Obligations may cease to be rated or its rating may be reduced
below the minimum rating required for purchase by the Fund. The Adviser will
consider such an event in determining whether a Fund should continue to hold the
obligation.

An issuer's obligations under its Municipal Obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Code, and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest on and principal of its Municipal Obligations may be materially
adversely affected by litigation or other conditions.

Among other instruments, each Fund may purchase short-term General
Obligation Notes, Tax Anticipation Notes, Bond Anticipation Notes, Revenue
Anticipation Notes, Tax-Exempt Commercial Paper, Construction Loan Notes and
other forms of short-term loans. Such notes are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, each Fund may invest in other types
of tax-exempt instruments such as municipal bonds, private activity bonds and
pollution control bonds, provided they have remaining maturities of 13 months or
less at the time of purchase.

The payment of principal and interest on most securities purchased by a
Fund will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities, and authorities and each multi-state agency of
which a state is a member is a separate "issuer" as that term is used in this
Statement of Additional Information and the Funds' Prospectuses. The
non-governmental user of facilities financed by private activity bonds is also
considered to be an "issuer."

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

IN GENERAL

Information on how to purchase and redeem each Fund's shares is included in
the applicable Prospectus. The issuance of a Fund's shares is recorded on a
Fund's books, and share certificates are not issued.

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invested in accordance with the instrument establishing the fiduciary
relationship and local law. The Trust believes that the purchase of Municipal
Money Market Fund or Tax-Free Money Market Fund shares by such national banks
acting on behalf of their fiduciary accounts is not contrary to applicable
regulations if consistent with the particular account and proper under the law
governing the administration of the account.

Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by a Fund on fiduciary funds that are invested in a Fund's
Class B, or Class C or Class E shares. Institutions, including banks regulated
by the Comptroller and investment advisers and other money managers subject to
the jurisdiction of the SEC, the Department of Labor or state securities
commissions, are urged to consult their legal advisers before investing
fiduciary funds in a Fund's Class B, Class C or Class E shares.

Under the 1940 Act, a Fund may suspend the right of redemption or postpone
the date of payment upon redemption for any period during which the New York
Stock Exchange ("NYSE") is closed, other than customary weekend and holiday
closings, or during which trading on the NYSE is restricted, or during which (as
determined by the SEC by rule or regulation) an emergency exists as a result of
which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (A Fund may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.) In addition, a Fund may redeem
shares involuntarily in certain other instances if the Board of Trustees
determines that failure to redeem may have material adverse consequences to that
Fund's investors in general. Each Fund is obligated to redeem shares solely in
cash up to $250,000 or 1% of such Fund's net asset value, whichever is less, for
any one investor within a 90-day period. Any redemption beyond this amount will
also be in cash unless the Board of Trustees determines that conditions exist
which make payment of redemption proceeds wholly in cash unwise or undesirable.
In such a case, a Fund may make payment wholly or partly in readily marketable
securities or other property, valued in the same way as that Fund determines net
asset value. See "Net Asset Value" below for an example of when such redemption
or form of payment might be appropriate. Redemption in kind is not as liquid as
a cash redemption. Shareholders who receive a redemption in kind may incur
transaction costs, if they sell such securities or property, and may receive
less than the redemption value of such securities or property upon sale,
particularly where such securities are sold prior to maturity.

Any institution purchasing shares on behalf of separate accounts will be
required to hold the shares in a single nominee name (a "Master Account").
Institutions investing in more than one of the Trust's portfolios or classes of
shares must maintain a separate Master Account for each portfolio or class of
shares. Sub-accounts may be established by name or number either when the Master
Account is opened or later.

NET ASSET VALUE

Each Fund's net asset value per share is calculated separately for each
class by dividing the total value of the assets belonging to such Fund
attributable to a class, less the value of any class-specific liabilities
charged to such Fund, by the total number of that Fund's shares of that class
outstanding. "Assets belonging to" a Fund consist of the consideration received
upon the issuance of Fund shares together with all income, earnings, profits and
proceeds derived from the investment thereof, including any proceeds from the
sale, exchange or liquidation of such investments, any funds or payments derived
from any reinvestment of such proceeds and a portion of any general assets of
the Trust not belonging to a particular portfolio. Assets belonging to a Fund
are charged with the direct liabilities of that Fund and with a share of the
general liabilities of the Trust allocated on a daily basis in

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proportion to the relative net assets of that Fund and the Trust's other
portfolios. Determinations made in good faith and in accordance with generally
accepted accounting principles by the Trust's Board of Trustees as to the
allocation of any assets or liabilities with respect to a Fund are conclusive.

As stated in the applicable Prospectus, in computing the net asset value of
its shares for purposes of sales and redemptions, each Fund uses the amortized
cost method of valuation. Under this method, a Fund values each of its portfolio
securities at cost on the date of purchase and thereafter assumes a constant
proportionate amortization of any discount or premium until maturity of the
security. As a result, the value of a portfolio security for purposes of
determining net asset value normally does not change in response to fluctuating
interest rates. While the amortized cost method provides certainty in portfolio
valuation, it may result in valuations of a Fund's securities which are higher
or lower than the market value of such securities.

In connection with its use of amortized cost valuation, each Fund limits
the dollar-weighted average maturity of its portfolio to not more than 90 days
and does not purchase any instrument with a remaining maturity of more than 13
months (397 days) (with certain exceptions). The Trust's Board of Trustees has
also established, pursuant to rules promulgated by the SEC, procedures that are
intended to stabilize each Fund's net asset value per share for purposes of
sales and redemptions at $1.00. Such procedures include the determination at
such intervals as the Board deems appropriate, of the extent, if any, to which a
Fund's net asset value per share calculated by using available market quotations
deviates from $1.00 per share. In the event such deviation exceeds 1/2 of 1%,
the Board will promptly consider what action, if any, should be initiated. If
the Board believes that the amount of any deviation from a Fund's $1.00
amortized cost price per share may result in material dilution or other unfair
results to investors or existing shareholders, it will take such steps as its
considers appropriate to eliminate or reduce to the extent reasonably
practicable any such dilution or unfair results. These steps may include selling
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten a Fund's average portfolio maturity, redeeming shares in kind, reducing
or withholding dividends, or utilizing a net asset value per share determined by
using available market quotations.

MANAGEMENT OF THE FUNDS

TRUSTEES AND OFFICERS

The Trust's Trustees and Executive Officers, their addresses, principal
occupations during the past five years and other affiliations are as follows:

NAME AND ADDRESS POSITION WITH THE TRUST PRINCIPAL OCCUPATIONS DURING PAST 5
YEARS AND OTHER AFFILIATIONS
---------------- ----------------------- -----------------------------------
<S> <C> <C>

ANDREW GORDON (1) Co-Chairman of the Board, Managing Director, Lehman Brothers.
3 World Financial Center Trustee and President
New York, NY 10285
Age:

</TABLE>

-11-
<PAGE>

<TABLE>

KIRK HARTMAN (1) Co-Chairman of the Board, Managing Director, Lehman Brothers.
3 World Financial Center Trustee, Executive Vice
New York, NY 10285 President and
Age: Investment Officer

CHARLES F. BARBER (2)(3) Trustee Consultant; formerly Chairman of the Board, ASARCO
66 Glenwood Drive Incorporated.
Greenwich, CT 06830
Age:

BURT N. DORSETT (2)(3) Trustee Managing Partner, Dorsett McCabe Capital
201 East 62nd Street Management, Inc., an investment counseling firm;
New York, NY 10022 Director, Research Corporation Technologies, a
Age: non-profit patent-clearing and licensing operation;
formerly President, Westinghouse Pension
Investments Corporation; formerly Executive Vice
President and Trustee, College Retirement Equities
Fund, Inc., a variable annuity fund; and formerly
Investment Officer, University of Rochester.

EDWARD J. KAIER (2)(3) Trustee Partner with the law firm of Hepburn Willcox
1100 One Penn Center Hamilton & Putnam.
Philadelphia, PA 19103
Age:

</TABLE>

-12-
<PAGE>

<TABLE>

NICHOLAS RABIECKI, III Vice President and Vice President and Senior Portfolio Manager, Lehman
3 World Financial Center Investment Officer Brothers Global Asset Management, Inc.; formerly
New York, NY 10285 Senior Fixed Income Portfolio Manager with Chase
Age: Private Banking.

MICHAEL C. KARDOK Treasurer Vice President, The Shareholder Services Group,
One Exchange Place Inc.; prior to May 1994, Vice President, The Boston
Boston, MA 02109 Company Advisors, Inc.
Age:

</TABLE>

-13-
<PAGE>

<TABLE>

<FN>
------------

1. Considered by the Trust to be "interested persons" of the Trust as defined
in the 1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.

</TABLE>

No employee of Lehman Brothers, the Adviser or TSSG receives any
compensation from the Trust for acting as an Officer or Trustee of the Trust.
The Trust pays each Trustee who is not a director, officer or employee of Lehman
Brothers, the Adviser or TSSG or any of their affiliates, a fee of $20,000 per
annum plus $1,250 per meeting attended and reimburses them for travel and
out-of-pocket expenses.

For the fiscal year ended January 31, 1995, such fees and expenses totaled
$5,087 for the Municipal Money Market Fund and $1,122 for the Tax-Free Money
Market Fund and $104,841 for the Trust in the aggregate. [As of May 15, 1995,
Trustees and Officers of the Trust as a group beneficially owned less than 1% of
the outstanding shares of each Fund.]

COMPENSATION TABLE

</TABLE>

-14-
<PAGE>

<TABLE>

Andrew Gordon $0 $0 N/A $0 (2)
Co-Chairman of the
Board, Trustee and
President

Kirk Hartman $0 $0 N/A $0 (3)
Co-Chairman of the
Board, Trustee,
Executive Vice
President and
Investment Officer

Charles Barber, $_____ $0 N/A $____(1)
Trustee

Burt N. Dorsett, $_____ $0 N/A $____(2)
Trustee

Edward J. Kaier, $_____ $0 N/A $____(1)
Trustee

S. Donald Wiley, $_____ $0 N/A $____(1)
Trustee

<FN>
------------
* Represents the total compensation paid to such persons by all investment
companies (including the Trust) from which such person received compensation
during the fiscal year ended January 31, 1995 that are considered part of the
same "fund complex" as the Trust because they have common or affiliated
investment advisers. The parenthetical number represents the number of such
investment companies, including the Trust.

</TABLE>

DISTRIBUTOR

-15-
<PAGE>

INVESTMENT ADVISER

Lehman Brothers Global Asset Management, Inc. serves as the Investment
Adviser to each of the Funds. The Adviser, located at 3 World Financial Center,
New York, New York 10285, is a wholly-owned subsidiary of Holdings. The
investment advisory agreements provide that the Adviser is responsible for all
investment activities of the Fund, including executing portfolio strategy,
effecting Fund purchase and sale transactions and employing professional
portfolio managers and security analysts who provide research for the Funds.

As compensation for the Adviser's services rendered to the Fund, the
Adviser is entitled to a fee, computed daily and paid monthly, at the annual
rate of .10% of the average daily net assets of the Fund. For the fiscal period
ended January 31, 1994 and the fiscal year ended January 31, 1995, the Adviser
was entitled to receive advisory fees in the following amounts: the Municipal
Money Market Fund, $103,318 and $223,512, respectively, and the Tax-Free Money
Market Fund, $15,640 and $59,392, respectively. Waivers by the Adviser of
advisory fees and reimbursement of expenses to maintain the Funds' operating
expense ratios at certain levels amounted to: the Municipal Money Market Fund,
$103,318 and $133,212, respectively, for the fiscal period ended January 31,
1994, and $150,715 and $0, respectively, for the fiscal year ended January 31,
1995, and the Tax-Free Money Market Fund $15,640 and $139,234, respectively for
the fiscal period ended January 31, 1994, and $59,392 and $9,042, respectively,
for the fiscal year ended January 31, 1995. In order to maintain competitive
expense ratios during 1995 and thereafter, the Adviser and Administrator have
agreed to voluntary fee waivers and expense reimbursements for each of the Funds
if total operating expenses exceed certain levels. See "Background and Expense
Information" in each Fund's Prospectus.

PRINCIPAL HOLDERS

At May 15, 1995, the principal holders of Class A Shares of Municipal Money
Market Fund were as follows: ____________.

-16-
<PAGE>

Principal holders of Class A Shares of Tax-Free Money Market Fund as of May 15,
1995, were as follows: ___________________.

As of May 15, 1995, there were no investors in the Class B Class C and
Class E shares of the Funds and all outstanding shares were held by Lehman
Brothers.

ADMINISTRATOR AND TRANSFER AGENT

TSSG, a subsidiary of First Data Corporation, is located at One Exchange
Place, Boston, Massachusetts 02109, and serves as the Trust's Administrator and
Transfer Agent. As the Trust's Administrator, TSSG has agreed to provide the
following services: (i) assist generally in supervising a Fund's operations,
providing and supervising the operation of an automated data processing system
to process purchase and redemption orders, providing information concerning a
Fund to its investors of record, handling investor problems, supervising the
services of employees and monitoring the arrangements pertaining to a Fund's
agreements with Service Organizations; (ii) prepare reports to the Funds'
investors and prepare tax returns and reports to and filings with the SEC;
(iii) compute the respective net asset value per share of each Fund;
(iv) provide the services of certain persons who may be elected as trustees or
appointed as officers of the Trust by the Board of Trustees; and (v) maintain
the registration or qualification of a Fund's shares for sale under state
securities laws. TSSG is entitled to receive, as compensation for its services
rendered under an administration agreement, an administrative fee, computed
daily and paid monthly, at the annual rate of .10% of the average daily net
assets of each Fund. TSSG pays Boston Safe, the Fund's Custodian, a portion of
its monthly administration fee for custody services rendered to the Funds.

Prior to May 6, 1994, The Boston Company Advisors, Inc. ("TBCA"), a wholly-
owned subsidiary of Mellon Bank Corporation ("Mellon"), served as Administrator
of the Funds. On May 6, 1994, TSSG acquired TBCA's third party mutual fund
administration business from Mellon, and each Fund's administration agreement
with TBCA was assigned to TSSG. For the fiscal period ended January 31, 1994
and the fiscal year ended January 31, 1995, the Administrator was entitled to
receive administration fees in the following amounts: the Municipal Money
Market Fund, $103,318 and $223,512, respectively, and the Tax-Free Money Market
Fund, $15,640 and $59,392, respectively. Waivers by the Administrator of
administration fees and reimbursement of expenses to maintain the Funds'
operating expense ratios at certain levels amounted to: the Municipal Money
Market Fund, $103,318 and $28,669, respectively, for the fiscal period ended
January 31, 1994, and $171,438 and $0, respectively, for the fiscal year ended
January 31, 1995, and the Tax-Free Money Market Fund, $15,640 and $10,485,
respectively, for the fiscal

-17-
<PAGE>

period ended January 31, 1994, and $44,947 and $0, respectively, for the fiscal
year ended January 31, 1995. In order to maintain competitive expense ratios
during 1994 and thereafter, the Adviser and Administrator have agreed to
reimburse the Funds if total operating expenses exceed certain levels. See
"Background and Expense Information" in each Fund's Prospectus.

Under the transfer agency agreement, TSSG maintains the investor account
records for the Trust, handles certain communications between investors and the
Trust and distributes dividends and distributions payable by the Trust and
produces statements with respect to account activity for the Trust and its
investors. For these services, TSSG receives a monthly fee based on average net
assets and is reimbursed for out-of-pocket expenses.

CUSTODIAN

SERVICE ORGANIZATIONS

As stated in the Funds' Prospectuses, a Fund will enter into an agreement
with each financial institution which may purchase Class B, or Class C or Class
E shares. The Funds will enter into an agreement with each Service Organization
whose customers ("Customers") are the beneficial owners of Class B, Class C or
Class E shares and that requires the Service Organization to provide certain
services to Customers in consideration of such Fund's payment of .25%, .35 or
.15%, respectively, of the average daily net asset value of the respective class
held by the Service Organization for the benefit of Customers. Such services
with respect to the Class C shares include: (i) aggregating and processing
purchase and redemption requests from Customers and placing net purchase and
redemption orders with a Fund's Distributor; (ii) processing dividend payments
from a Fund on behalf of Customers; (iii) providing information periodically to
Customers showing their positions in a Fund's shares; (iv) arranging for bank
wires; (v) responding to Customer inquiries relating to the services performed
by the Service Organization and handling correspondence; (vi) forwarding
investor communications from a Fund (such as proxies, investor reports, annual
and semi-annual financial statements, and dividend, distribution and tax
notices) to Customers; (vii) acting as shareholder of record or nominee; and
(viii) other similar account administrative services. In addition, a Service
Organization at its option, may also provide to its Customers of Class C shares
(a) a service that invests the assets of their accounts in shares pursuant to
specific or pre-authorized instructions; (b) provide sub-accounting with respect
to shares beneficially owned by Customers or the information necessary for sub-
accounting; and (c) provide checkwriting services. Service Organizations that
purchase Class C shares will also provide assistance in connection with the
support of the distribution of Class C shares to its Customers, including
marketing assistance and the forwarding to Customers of sales literature and
advertising provided by the Distributor of the shares. Holders of Class B
shares of a Fund will receive the services set forth in (i) and (v) and may
receive one or more of the services set forth in (ii), (iii), (iv), (vi), (vii)
and (viii) above. A Service Organization, at its option, may also provide to
its Customers of Class B shares services including: (a) providing Customers
with a service that invests the assets of their accounts in shares pursuant to
specific or pre-authorized instruction; (b) providing sub-accounting with
respect to shares beneficially owned by Customers or the information necessary
for sub-

-19-

<PAGE>

accounting; (c) providing reasonable assistance in connection with the
distribution of shares to Customers; and (d) providing such other similar
services as the Fund may reasonably request to the extent the Service
Organization is permitted to do so under applicable statutes, rules, or
regulations. Holders of Class E shares of a Fund will receive the services set
forth in (i) and (v), above. A Service Organization, at its option, may also
provide to its Customers of Class E shares share servicing including those
services set forth in (ii), (iii), (iv), (vi), (vii) and (viii) above and the
optional services set forth in (a), (b) and (c), above.

Each Fund's agreements with Service Organizations are governed by a
Shareholder Services Plan (the "Plan") that has been adopted by the Trust's
Board of Trustees pursuant to an exemptive order granted by the SEC. Under this
Plan, the Board of Trustees reviews, at least quarterly, a written report of the
amounts expended under each Fund's agreements with Service Organizations and the
purposes for which the expenditures were made. In addition, a Fund's
arrangements with Service Organizations must be approved annually by a majority
of the Trust's Trustees, including a majority of the Trustees who are not
"interested persons" of the Trust as defined in the 1940 Act and have no direct
or indirect financial interest in such arrangements (the "Disinterested
Trustees").

For the fiscal year ended January 31, 1995, the Tax-Free Money Market Fund
paid $29 in service fees with respect to its Class B shares; no service fees
were paid by the Fund with respect to Class C or Class E shares. For the fiscal
year ended January 31, 1995, the Municipal Money Market Fund did not pay any
service fees. For the fiscal period ended January 31, 1994, neither Fund paid
any service fees.

EXPENSES

The Funds' expenses include taxes, interest, fees and salaries of the
Trust's Trustees and Officers who are not directors, officers or employees of
the Trust's service contractors, SEC fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to investors, advisory, sub-advisory and administration fees,
charges of the Administrator, Custodian and of the transfer and dividend
disbursing agent, Service Organization fees, certain insurance premiums, outside
auditing and legal expenses, costs of investor reports and shareholder meetings
and any extraordinary expenses. The Funds also pay for brokerage fees and
commissions (if any) in connection with the purchase and sale of portfolio
securities. The Adviser, and TSSG have agreed that if, in any fiscal year, the
expenses borne by a Fund exceed the applicable expense limitations imposed by
the securities regulations of any state in which shares of that Fund are
registered or qualified for sale to the public, they will reimburse the Fund for
any excess to the extent required by such regulations. Unless otherwise required
by law, such reimbursement would be accrued and paid on the same basis that the
advisory and administration fees are accrued and paid by that Fund. To each
Fund's knowledge, of the expense limitations in effect on the date of this
Statement of Additional Information, none is more restrictive than two and
one-half percent (2 1/2%) of the first $30 million of a Fund's average annual
net

-19-
<PAGE>

assets, two percent (2%) of the next $70 million of the average annual net
assets and one and one-half percent (1 1/2%) of the remaining average annual net
assets.

ADDITIONAL INFORMATION CONCERNING TAXES

The following summarizes certain additional tax considerations generally
affecting a Fund and its investors that are not described in the Funds'
Prospectuses. No attempt is made to present a detailed explanation of the tax
treatment of a Fund or its investors or possible legislative changes, and the
discussion here and in the applicable Prospectus is not intended as a substitute
for careful tax planning. Investors should consult their tax advisers with
specific reference to their own tax situation.

As stated in each Prospectus, each Fund is treated as a separate corporate
entity under the Code and qualified as a regulated investment company under the
Code and intends to so qualify in future years. In order to so qualify for a
taxable year, a Fund must satisfy the distribution requirement described in the
Prospectuses, derive at least 90% of its gross income for the year from certain
qualifying sources, comply with certain diversification requirements and derive
less than 30% of its gross income for the year from the sale or other
disposition of securities and certain other investments held for less than three
months. Interest (including original issue discount and, with respect to taxable
debt securities, accrued market discount) received by a Fund at maturity or
disposition of a security held for less than three months will not be treated as
gross income derived from the sale or other disposition of such security within
the meaning of the 30% requirement. However, any other income which is
attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.

As described above and in each Fund's Prospectus, each Fund is designed to
provide institutions with current tax-exempt interest income. A Fund is not
intended to constitute a balanced investment program and is not designed for
investors seeking capital appreciation or maximum tax-exempt income irrespective
of fluctuations in principal. Shares of a Fund would not be suitable for
tax-exempt institutions and may not be suitable for retirement plans qualified
under Section 401 of the Code, H.R. 10 plans and individual retirement accounts
since such plans and accounts are generally tax-exempt and, therefore, not only
would not gain any additional benefit from such Fund's dividends being
tax-exempt but also such dividends would be taxable when distributed to the
beneficiary. In addition, a Fund may not be an appropriate investment for
entities which are "substantial users" of facilities financed by private
activity bonds or "related persons" thereof. "Substantial user" is defined under
U.S. Treasury Regulations to include a non-exempt person who regularly uses a
part of such facilities in his or her trade or business and whose gross revenues
derived with respect to the facilities financed by the issuance of bonds are
more than 5% of the total revenues derived by all users of such facilities, or
who occupies more than 5% of the usable area of such facilities or for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S Corporation and its
shareholders.

In order for a Fund to pay exempt-interest dividends for any taxable year,
at the close of each quarter of its taxable year at least 50% of the aggregate
value of such Fund's assets must consist of exempt-interest obligations. After
the close of its taxable year, a Fund will notify its investors of the portion
of the dividends paid by such Fund which constitutes an exempt-interest dividend
with respect to such taxable year. However, the aggregate amount of dividends so
designated by a Fund cannot exceed the excess of the amount of interest exempt
from tax under Section 103 of the Code received by that Fund for the taxable
year over any amounts disallowed as deductions under Sections 265 and 171(a)(2)
of the Code. The percentage of total dividends paid by a Fund with respect to
any taxable year which qualifies as federal exempt-interest dividends will be
the same for all investors of that Fund receiving dividends for such year.

-20-
<PAGE>

Interest on indebtedness incurred by an investor to purchase or carry a
Fund's shares is not deductible for federal income tax purposes if that Fund
distributes exempt-interest dividends during the investor's taxable year.

While the Funds do not expect to realize long-term capital gains, any net
realized long-term capital gains will be distributed at least annually. Each
Fund will generally have no tax liability with respect to such gains, and the
distributions will be taxable to each Fund's investors as long-term capital
gains, regardless of how long a investor has held such Fund's shares. Such
distributions will be designated as a capital gain dividend in a written notice
mailed by the Fund to its investors not later than 60 days after the close of a
Fund's taxable year.

Similarly, while the Funds do not expect to earn any investment company
taxable income, taxable income earned by each Fund will be distributed to its
investors. In general, a Fund's investment company taxable income will be its
taxable income (for example, any short-term capital gains) subject to certain
adjustments and excluding the excess of any net long-term capital gain for the
taxable year over the net short-term capital loss, if any, for such year. A Fund
will be taxed on any undistributed investment company taxable income of such
Fund. To the extent such income is distributed by a Fund (whether in cash or
additional shares), it will be taxable to that Fund's investors as ordinary
income.

A 4% nondeductible excise tax is imposed on regulated investment companies
that fail currently to distribute an amount equal to specified percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). Each Fund intends to make sufficient distributions
or deemed distributions of any ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this
excise tax.

If for any taxable year a Fund does not qualify for tax treatment as a
regulated investment company, all of that Fund's taxable income will be subject
to tax at regular corporate rates without any deduction for distributions to
Fund investors. In such event, dividend distributions to investors would be
taxable to investors to the extent of that Fund's earnings and profits, and
would be eligible for the dividends received deduction for corporations.

Although each Fund expects to qualify each year as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which they are otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities.

DIVIDENDS

Each Fund's net investment income for dividend purposes consists of
(i) interest accrued and discount earned on that Fund's assets, (ii) less
amortization of market premium on such assets, accrued

-21-
<PAGE>

expenses directly attributable to that Fund, and the general expenses (E.G.,
legal, accounting and trustees' fees) of the Trust prorated to such Fund on the
basis of its relative net assets. The amortization of market discount on a
Fund's assets is not included in the calculation of net income.

Realized and unrealized gains and losses on portfolio securities are
reflected in net asset value. In addition, the Fund's Class B, Class C and Class
E shares bear exclusively the expense of fees paid to Service Organizations with
respect to the relevant Class of shares. See "Management of the Funds-Service
Organizations."

As stated, the Trust uses its best efforts to maintain the net asset value
per share of each Fund at $1.00. As a result of a significant expense or
realized or unrealized loss incurred by a Fund, it is possible that a Fund's net
asset value per share may fall below $1.00.

ADDITIONAL YIELD INFORMATION

The "yields," "effective yields" and "tax-equivalent yields" are
calculated separately for each class of shares of each Fund and in accordance
with the formulas prescribed by the SEC. The seven-day yield for each series of
shares in a Fund is calculated by determining the net change in the value of a
hypothetical preexisting account in such Fund which has a balance of one share
of the class involved at the beginning of the period, dividing the net change by
the value of the account at the beginning of the period to obtain the base
period return, and multiplying the base period return by 365/7. The net change
in the value of an account in a Fund includes the value of additional shares
purchased with dividends from the original share and dividends declared on the
original share and any such additional shares, net of all fees charged to all
investor accounts in proportion to the length of the base period and the Fund's
average account size, but does not include gains and losses or unrealized
appreciation and depreciation. In addition, the effective yield quotations may
be computed on a compounded basis (calculated as described above) by adding 1 to
the base period return for the class involved, raising that sum to a power equal
to 365/7, and subtracting 1 from the result. A tax-equivalent yield for each
class of a Fund's shares is computed by dividing the portion of the yield
(calculated as above) that is exempt from federal income tax by one minus a
stated federal income tax rate and adding that figure to that portion, if any,
of the yield that is not exempt from federal income tax. Similarly, based on the
calculations described above, 30-day (or one-month) yields, effective yields and
tax-equivalent yields may also be calculated.

Based on the period ended January 31, 1995, the yields, effective yields
and tax-equivalent yields for each of the Funds were as follows:

7-DAY 7-DAY TAX- 30-DAY 30-DAY TAX-
7-DAY EFFECTIVE EQUIVALENT 30-DAY EFFECTIVE EQUIVALENT YIELD
YIELD YIELD YIELD YIELD YIELD
<S> <C> <C> <C> <C> <C> <C>

MUNICIPAL MONEY MARKET FUND

Class A Shares _____% _____% _____% ____% ____% _____%
Class B Shares _____% _____% _____% ____% ____% _____%
Class C Shares _____% _____% _____% ____% ____% _____%
Class E Shares _____% _____% _____% ____% ____% _____%

Class A Shares* ____% _____% _____% ____% ____% _____%
Class B Shares* ____% _____% _____% ____% ____% _____%

</TABLE>

-22-
<PAGE>

<TABLE>

Class C Shares* ____% _____% _____% ____% ____% _____%
Class E Shares* ____% _____% _____% ____% ____% _____%

TAX-FREE MONEY MARKET FUND

Class A Shares ____% _____% _____% ____% ____% _____%
Class B Shares ____% _____% _____% ____% ____% _____%
Class C Shares ____% _____% _____% ____% ____% _____%
Class E Shares ____% _____% _____% ____% ____% _____%

Class A Shares* ____% _____% _____% ____% ____% _____%
Class B Shares* ____% _____% _____% ____% ____% _____%
Class C Shares* ____% _____% _____% ____% ____% _____%
Class E Shares* ____% _____% _____% ____% ____% _____%

<FN>
*without fee waivers and/or expense reimbursements

</TABLE>

-23-
<PAGE>

<TABLE>

<S> <C>
<FN>
Note: Tax-equivalent yields assume a maximum Federal Tax Rate of 31%.

</TABLE>

Class B, Class C and Class E Shares bear the expenses of fees paid to
Service Organizations. As a result, at any given time, the net yield of Class B,
Class C and Class E Shares could be up to .25%, .35% and .15% lower than the net
yield of Class A Shares, respectively.

Yields will fluctuate, and any quotation of yield should not be considered
as representative of the future performance of a Fund. Since yields fluctuate,
yield data for a Fund cannot necessarily be used to compare an investment in
that Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance and yield
are generally functions of the kind and quality of the investments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by banks with respect to customer accounts investing in shares of a
Fund will not be included in yield calculations; such fees, if charged, would
reduce the actual yield from that quoted.

ADDITIONAL DESCRIPTION CONCERNING SHARES

As stated in the Funds' Prospectuses, holders of shares in a Fund will vote
in the aggregate and not by class or series on all matters, except where
otherwise required by law and except that only a Fund's Class B, Class C and
Class E shares, as the case may be, will be entitled to vote on matters
submitted to a vote of shareholders pertaining to that Fund's arrangements with
Service Organizations with respect to the relevant Class of shares. (See
"Management of the Funds-Service Organizations.") Further, shareholders of all
of the Trust's portfolios will vote in the aggregate and not by portfolio except
as otherwise required by law or when the Board of Trustees determines that the
matter to be voted upon affects only the interests of the shareholders of a
particular portfolio. Rule 18f-2 under the 1940 Act provides that any matter
required to be submitted by the provisions of such Act or applicable state law,
or otherwise, to the holders of the outstanding securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each portfolio affected by the matter. Rule 18f-2 further provides that a
portfolio shall be deemed to be affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical or that the matter does
not affect any interest of the portfolio. Under the Rule the approval of an
investment advisory 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

-24-
<PAGE>

voting securities of such portfolio. However, the Rule also provides that the
ratification of the selection of independent certified public accountants, the
approval of principal underwriting contracts and the election of trustees are
not subject to the separate voting requirements and may be effectively acted
upon by shareholders of the investment company voting without regard to
portfolio.

COUNSEL

AUDITORS

FINANCIAL STATEMENTS

The Trust's Annual Report for the fiscal year ended January 31, 1995 is
incorporated into this Statement of Additional Information by reference in its
entirety.

MISCELLANEOUS

SHAREHOLDER VOTE

As used in this Statement of Additional Information and the Funds'
Prospectuses, a "majority of the outstanding shares" of a Fund or of any other
portfolio means the lesser of (1) 67% of that Fund's shares (irrespective of
class) or of the portfolio represented at a meeting at which the holders of more
than 50% of the outstanding shares of that Fund or such portfolio are present in
person or by proxy, or (2) more than 50% of the outstanding shares of a Fund
(irrespective of class) or of the portfolio.

SHAREHOLDER AND TRUSTEE LIABILITY

The Trust is organized as a "business trust" under the laws of the
Commonwealth of Massachusetts. Shareholders of such a trust may, under certain
circumstances, be held personally liable (as if they were partners) for the
obligations of the Trust. The Declaration of Trust of the Trust provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Trust and that every note, bond, contract, order or other
undertaking made by the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property 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.

-25-
<PAGE>

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<PAGE>

APPENDIX

DESCRIPTION OF MUNICIPAL OBLIGATION RATINGS

COMMERCIAL PAPER RATINGS

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The following summarizes the two highest rating categories used by
Standard & Poor's for commercial paper:

"A-1" - Issue's degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are denoted
"A-1+."

"A-2" - Issue's capacity for timely payment is satisfactory. However, the
relative degree of safety is not as high as for issues designated "A-1."

Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 9 months. The following summarizes the two highest rating categories
used by Moody's for commercial paper:

"Prime-1" - Issuer or related supporting institutions are considered to
have a superior capacity for repayment of short-term promissory obligations.
Principal repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.

"Prime-2" - Issuer or related supporting institutions are considered to
have a strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.

The two highest rating categories of Duff & Phelps for investment grade
commercial paper are "Duff 1" and "Duff 2." Duff & Phelps employs three
designations, "Duff 1+," "Duff 1" and "Duff 1+," within the highest rating
category. The following summarizes the two highest rating categories used by
Duff & Phelps for commercial paper:

"Duff 1+" - Debt possesses highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.

"Duff 1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are minor.

"Duff 1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.

A-1
<PAGE>

Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The two highest rating
categories of Fitch for short-term obligations are "F-1" and "F-2." Fitch
employs two designations, "F-1+" and "F-1," within the highest rating category.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:

"F-1+" - Securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.

"F-1" - Securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated "F-1+."

"F-2" - Securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as the "F-1+" and "F-1" categories.

Fitch may also use the symbol "LOC" with its short-term ratings to indicate
that the rating is based upon a letter of credit issued by a commercial bank.

Thomson BankWatch commercial paper ratings assess the likelihood of an
untimely payment of principal or interest of debt having a maturity of one year
or less which is issued by a bank holding company or an entity within the
holding company structure. The following summarizes the two highest ratings used
by Thomson BankWatch:

"TBW-1" - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.

"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."

IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries. The highest rating category of IBCA for
short-term debt is "A." IBCA employs two designations, "A1+" and "A1," within
the highest rating category. The following summarizes the two highest rating
categories used by IBCA for short-term debt ratings:

"A1+" - Obligations are supported by the highest capacity for timely
repayment.

"A1" - Obligations are supported by a strong capacity for timely
repayment.

"A2" - Obligations are supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.

A-2
<PAGE>

MUNICIPAL LONG-TERM DEBT RATINGS

The following summarizes the two highest ratings used by Standard & Poor's
for municipal long-term debt:

"AAA" - This designation represents the highest rating assigned by Standard
& Poor's to a debt obligation and indicates an extremely strong capacity to pay
interest and repay principal.

"AA" - Debt is considered to have a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.

PLUS (+) or MINUS (-) - The rating of "AA" may be modified by the addition
of a plus or minus sign to show relative standing within this rating category.

The following summarizes the two highest ratings used by Moody's for
municipal long-term debt:

"Aaa" - Bonds are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.

"Aa" - Bonds are judged to be of high quality by all standards. Together
with the "Aaa" group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.

Moody's applies numerical modifiers 1, 2 and 3 in generic classification of
"Aa" in its bond rating system. The modifier 1 indicates that the security ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks at the
lower end of its generic rating category.

The following summarizes the two highest ratings used by Duff & Phelps for
municipal long-term debt:

"AAA" - Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.

"AA" - Debt is considered of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

To provide more detailed indications of credit quality, the "AA" rating
may be modified by the addition of a plus (+) or minus (-) sign to show relative
standing within this rating category.

Con. (---) - Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches.

A-3
<PAGE>

Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.

The following summarizes the two highest ratings used by Fitch for
municipal bonds:

"AAA" - Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.

To provide more detailed indications of credit quality, the Fitch rating of
"AA" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standing within this rating category.

Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long-term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes the
two highest rating categories used by Thomson BankWatch for long-term debt
ratings:

"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.

"AA" - This designation indicates a superior ability to repay principal and
interest on a timely basis with limited incremental risk versus issues rated in
the highest category.

PLUS (+) or MINUS (-) - The ratings may include a plus or minus sign
designation which indicates where within the respective category the issue is
placed.

IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the two highest
rating categories used by IBCA for long-term debt ratings:

IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within these rating categories.

A-4
<PAGE>

MUNICIPAL NOTE RATINGS

"SP-1" - The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a plus (+) designation.

"SP-2" - The issuers of these municipal notes exhibit satisfactory capacity
to pay principal and interest.

Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the two highest ratings used by Moody's Investors
Service, Inc. for short-term notes:

"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best quality,
enjoying strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.

"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality, with
margins of protection ample although not so large as in the preceding group.

Duff & Phelps and Fitch use the short-term ratings described under
Commercial Paper Ratings for municipal notes.

A-5

<PAGE>

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
FLOATING RATE U.S. GOVERNMENT FUND

STATEMENT OF ADDITIONAL INFORMATION

May __, 1995

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 May
___, 1995, 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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Trust........................................................ 2
Investment Objective and Policies................................ 2
Additional Purchase and Redemption Information................... 14
Management of the Fund........................................... 15
Additional Information Concerning Taxes.......................... 24
Dividends........................................................ 25
Additional Performance Information............................... 25
Additional Description Concerning Shares......................... 27
Counsel.......................................................... 28
Auditors......................................................... 28
Financial Statements............................................. 28
Miscellaneous.................................................... 28
Appendix......................................................... A-1
</TABLE>

<PAGE>

THE TRUST

Lehman Brothers Institutional Funds Group Trust (the "Trust") is an
open-end management investment company. The Trust is a diversified investment
portfolio and currently includes a family of portfolios, one of which is the
Floating Rate U.S. Government Fund (the "Fund"). The Fund is currently
authorized to offer three classes of shares. Each class represents an equal,
PRO RATA interest in the Fund. Each share accrues daily dividends in the same
manner, except that Class B Shares bear fees payable by the Fund to Lehman
Brothers or institutional investors for services they provide to the beneficial
owners of such shares and Retail Shares bear fees payable by the Fund to Lehman
Brothers for services it provides to the beneficial owners of such shares.

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
floating rate and adjustable rate U.S. Government and agency securities,
including mortgage securities. Adjustable rate mortgage securities generally
provide higher yields than money market securities and more stable principal
than longer-term, fixed-rate mortgage securities. The following policies
supplement the description of the Fund's investment objective and policies as
contained in the Prospectuses.

PORTFOLIO TRANSACTIONS

Subject to the general control of the Trust's Board of Trustees, Lehman
Brothers Global Asset Management Inc. (the "Adviser"), the Fund's investment
adviser, is responsible for, makes decisions with respect to and places orders
for all purchases and sales of portfolio securities for the Fund. Purchases and
sales of portfolio securities are usually principal transactions without
brokerage commissions. In making portfolio investments, the Adviser seeks to
obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one dealer are
comparable, the Adviser may, in its discretion, effect transactions in portfolio
securities with dealers who provide the Trust with research advice or other
services. Although the Fund will not seek profits through short-term trading,
the Adviser may, on behalf of the Fund, dispose of any portfolio security prior
to its maturity if it believes such disposition is advisable.

-2-
<PAGE>

procedure may adversely affect the price paid or received by the Fund or the
size of the position obtained for the Fund. To the extent permitted by law, the
Adviser may aggregate the securities to be sold or purchased for the Fund with
those to be sold or purchased for such other investment company portfolios in
order to obtain best execution.

Portfolio securities will not be purchased from or sold to and the Fund
will not enter into repurchase agreements or reverse repurchase agreements with
Lehman Brothers Inc. ("Lehman Brothers"), the Adviser or any affiliated person
(as such term is defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) or any of them, except to the extent permitted by the Securities
and Exchange Commission (the "SEC"). Subject to the above considerations, Lehman
Brothers may act as a main broker for the Fund. For it to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration received
by it must be reasonable and fair compared to the commissions, fees or other
remuneration received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. Furthermore, with
respect to such transactions, securities, deposits and repurchase agreements,
the Fund will not give preference to Service Organizations with which the Fund
enters into agreements relating to Class B Shares. (See the Prospectuses,
"Management of the Fund - Service Organizations.")

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. U.S. Government mortgage-backed securities and
other U.S. Government, agency or instrumentality 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.

-3-
<PAGE>

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") in 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 indicates 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 and 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 from 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 from the
legal effect of default and have required lenders to

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<PAGE>

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 also
may reduce the monthly payments due under such mortgage loan, change the rate of
interest, reduce the principal balance of the loan to then-current appraised
value of the related mortgaged property and alter the borrower's obligation to
repay amounts otherwise due on a mortgage loan, the mortgage loan service 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. The 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.
Interest rate swaps involve the exchange by the 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. In an interest rate cap or floor transaction, the purchase
of an interest on a specified index falls below (floor) or exceeds (cap) a
predetermined interest rate.

-5-
<PAGE>

example, consider a residential mortgage loan with a rate which adjusts
annually, an initial interest rate of 10%, a 2% per annum interest rate cap, and
a 5% life of loan interest rate cap. If the index against which the underlying
interest rate on the residential mortgage loan is compared--such as the one-year
Treasury--moves up by 3%, the residential mortgage loan rate may not increase by
more than 2% to 12% the first year. As one of the underlying residential
mortgages for the securities in which the Fund invests, the residential mortgage
would depress the value of the securities and, therefore, the net asset value of
the Fund. If the index against which the interest rate on the underlying
residential mortgage loan is compared moves up no faster or farther than the cap
on the underlying mortgage loan allows, or if the index moves down as fast or
faster than the floor on the underlying mortgage loan allows, the mortgage would
maintain or improve the value of the securities in which the Fund invests and,
therefore, the net asset value of the Fund.

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 Adviser believe that such obligations do not constitute senior
securities as defined in 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 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 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

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<PAGE>

National Mortgage Association, Federal National Mortgage Association, Federal
Financing Bank, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Farm Credit Banks and Tennessee
Valley Authority.

REPURCHASE AGREEMENTS. The repurchase price under the repurchase
agreements described in the Prospectuses with respect to the Fund generally
equals the price paid by the Fund plus interest negotiated on the basis of
current short-term rates (which may be more or less than the rate on the
securities underlying the repurchase agreement). The collateral underlying each
repurchase agreement entered into by the Fund will consist entirely of direct
obligations of the U.S. Government and obligations issued or guaranteed by
certain U.S. Government agencies or instrumentalities. Securities subject to
repurchase agreements will be held by the Trust's custodian, sub-custodian or in
the Federal Reserve/Treasury book-entry system.

REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse
repurchase agreements. These transactions are similar to borrowing cash. In a
reverse repurchase agreement the Fund transfers possession of a portfolio
instrument to another person, such as a financial institution, broker, or
dealer, in return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable the Fund
to avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time. When effecting reverse repurchase
agreements, liquid assets of the Fund, in a dollar amount sufficient to make
payment for the obligations to be purchased, are segregated at the trade date.
These assets are marked to market daily and are maintained until the transaction
is settled.

WHEN-ISSUED TRANSACTIONS. As stated in the Fund's Prospectuses, the Fund
may purchase securities on a "when-issued" or "delayed delivery" basis (I.E.,
for delivery beyond the normal settlement date at a stated price and yield).
When the Fund agrees to purchase when-issued securities, the custodian will set
aside cash or liquid portfolio securities equal to the amount of the commitment
in a separate account. Normally, the custodian will set aside portfolio
securities to satisfy a purchase commitment, and in such a case the Fund may be
required subsequently to place additional assets in the separate account in
order to ensure that the value of the account remains equal to the amount of the
Fund's commitment. It may be expected that the Fund's net assets will fluctuate
to a greater degree when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash. Because the Fund will set
aside cash or liquid assets to satisfy its purchase commitments in the manner
described, the Fund's liquidity and ability to manage its portfolio might be
affected in the event its commitments to purchase when-issued securities exceed
25% of the value of its assets. When the Fund engages in when-issued
transactions, it relies on the seller to consummate the trade. Failure of the
seller to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous. The Fund does not
intend to purchase when-issued securities for speculative purposes but only in
furtherance of 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 its total assets from
its portfolio 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

-7-
<PAGE>

Fund will be collateralized by cash, letters of credit or securities issued or
guaranteed by the U.S. Government or its agencies which will be maintained at
all times in an amount equal to at least 100% of the current market value of the
loaned securities and will be marked to market daily. From time to time, the
Fund may return a part of the interest earned from the investment of collateral
received for securities loaned to the borrower and/or a third party, which is
unaffiliated with the Fund or with Lehman Brothers, and which is acting as a
"finder." With respect to loans by the Fund of its portfolio securities, the
Fund would continue to accrue interest on loaned securities and would also earn
income on loans. Any cash collateral received by the Fund in connection with
such loans would be invested in short-term U.S. Government obligations.

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, the Fund
may purchase a put option on securities it does not hold. Although changes in
the value of the put option should generally offset changes in the value of the
securities being hedged, the correlation between the two values may not be as
close in the latter type of transaction as in a transaction in which the Fund
purchases a put option on an underlying security it owns.

-8-
<PAGE>

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. The Fund will enter into such
transactions for hedging purposes in accordance with the rules and regulations
of the Commodity Futures Trading Commission ("CFTC") and the SEC. 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. The Fund may purchase a futures contract as a hedge
against an anticipated decline in interest rates, and resulting increase in
market price, of securities the Fund intends to acquire. The Fund may sell a
futures contract as a hedge against an anticipated increase in interest rates,
and resulting decline in market price, of securities the Fund owns.

The Fund may purchase call and put options on futures contracts on 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.

Parties to a futures contract must make "initial margin" deposits to secure
performance of the contract. There are also requirements to make "variation
margin" deposits from time to time as the value of the futures contract
fluctuates. The Fund is not a commodity pool and, in compliance with CFTC
regulations, may enter into futures contracts or options on futures contracts
for "bona fide hedging" purposes or for other purposes, provided that aggregate
initial margin and premiums required to establish positions other than those
considered by the CFTC to be "bona fide hedging" will not exceed 5% of the
Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. The Fund reserves the right to engage
in transactions involving futures and options thereon to the extent allowed by
CFTC regulations in effect from time to time and in accordance with the Fund's
policies. In the event the Fund enters into short positions in futures
contracts as a hedge against a decline in the value of the Fund's portfolio
securities, the value of such futures contracts may not exceed the total market
value of the Fund's

-9-
<PAGE>

portfolio securities. In addition, certain provisions of the Code may limit the
extent to which the Fund may enter into futures contracts or engage in options
transactions.

The Fund will purchase put options on futures contracts primarily to hedge
its portfolio 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 futures contracts and
related options on 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. The Fund will not enter into futures
contracts and related options on commodities.

-10-
<PAGE>

The SEC has adopted Rule 144A under the Securities Act of 1933, as amended
(the "1933 Act") which allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
1933 Act for resales of certain securities to qualified institutional buyers.
The Fund's investment Adviser anticipates that the market for certain restricted
securities will expand further as a result of this regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered

-11-
<PAGE>

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.

INVESTMENT LIMITATIONS

The Fund may not:

2. Borrow money, except that the Fund may (i) borrow money from banks for
temporary or emergency purposes (not for leveraging or investment) and (ii)
engage in reverse repurchase

-12-
<PAGE>

agreements or dollar roll transactions; provided that (i) and (ii) in
combination do not exceed one-third of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than borrowings). For
purposes of this investment restriction, short sales, swap transactions,
options, futures contracts and options on futures contracts, and forward
commitment transactions shall not constitute borrowings.

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.

10. Write or sell puts, calls, straddles, spreads or combinations thereof
in excess of 5% of its total assets.

11. Invest in securities if as a result the Fund would then have more than
5% of its total assets in securities of companies (including predecessors) with
less than three years of continuous operation.

13. Invest in warrants.

-13-
<PAGE>

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.

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
Class B 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 Class B shares.

Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange ("NYSE") is closed, other than customary weekend and holiday
closings, or during which trading on the NYSE 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.

-14-
<PAGE>

Any institution purchasing shares on behalf of separate accounts will
be required to hold the shares in a single nominee name (a "Master Account").
Institutions investing in more than one of the Funds or classes must maintain a
separate Master Account for each Fund and class of shares. Institutions may
arrange with The Shareholder Services Group, Inc. ("TSSG"), the Trust's
Administrator and Transfer Agent, 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 separately for each
class by dividing the total value of the assets belonging to the Fund
attributable to a class, less the value of any class-specific liabilities
charged to the Fund, by the total number of the Fund's shares of that class
outstanding. "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 a pricing model
or by prices 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 or under the supervision of
the Trustees.

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:

-15-
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE TRUST PRINCIPAL OCCUPATIONS DURING PAST 5
YEARS AND OTHER AFFILIATIONS
---------------- ----------------------- -----------------------------------
<S> <C> <C>
ANDREW GORDON (1) Co-Chairman of the Board, Managing Director, Lehman Brothers.
3 World Financial Center Trustee and President
New York, NY 10285
Age:

KIRK HARTMAN (1) Co-Chairman of the Board, Managing Director, Lehman Brothers.
3 World Financial Center Trustee, Executive Vice
New York, NY 10285 President and Investment
Age: Officer

CHARLES F. BARBER (2)(3) Trustee Consultant; formerly Chairman of the
66 Glenwood Drive Board, ASARCO Incorporated.
Greenwich, CT 06830
Age:

-16-
<PAGE>

<TABLE>
<S> <C> <C>
EDWARD J. KAIER (2)(3) Trustee Partner with the law firm of Hepburn
1100 One Penn Center Willcox Hamilton & Putnam.
Philadelphia, PA 19103
Age:

S. DONALD WILEY (2)(3) Trustee Vice-Chairman and Trustee, H.J. Heinz
USX Tower Company Foundation; prior to October 1990,
Pittsburgh, PA 15219 Senior Vice President, General Counsel
Age: and Secretary, H.J. Heinz Company.

JOHN M. WINTERS Vice President and Senior Vice President and Senior Money
3 World Financial Center Investment Officer Market Manager, Lehman Brothers,
New York, NY 10285 Global Asset Management Inc.; formerly
Age: Product Manager with Lehman Brothers
Capital Markets Group.
</TABLE>

-17-
<PAGE>

<TABLE>
<S> <C> <C>
NICHOLAS RABIECKI, III Vice President and Vice President and Senior Portfolio
3 World Financial Center Investment Officer Manager, Lehman Brothers Global Asset
New York, NY 10285 Management, Inc.; formerly Senior
Age: Fixed-Income Portfolio Manager with
Chase Private Banking.

MICHAEL C. KARDOK Treasurer Vice President, The Shareholder
One Exchange Place Services Group, Inc.; prior to May 1994,
Boston, MA 02109 Vice President, The Boston Company
Age: Advisors, Inc.

PATRICIA L. BICKIMER Secretary Vice President and Associate General
One Exchange Place Counsel, The Shareholder Services Group, Inc.;
Boston, MA 02109 prior to May 1994, Vice President
Age: and Associate General Counsel, The
Boston Company Advisors, Inc.
<FN>
-------------------------
1. Considered by the Trust to be "interested persons" of the Trust as
defined in the 1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.
</TABLE>

Messrs. Gordon, Hartman 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, the Adviser or TSSG receives any
compensation from the Trust for acting as an officer or trustee of the Trust.
The Trust pays each trustee who is not a director, officer or employee of Lehman
Brothers, the Adviser or TSSG or any of their affiliates, a fee of $20,000 per
annum plus $1,250 per meeting attended and reimburses them for travel and
out-of-pocket expenses.

For the fiscal period ended January 31, 1995, such fees and expenses
totaled $512 for the Fund, $104,841 for the Trust in the aggregate. [As of
May 15, 1995, Trustees and Officers of the Trust as a group beneficially owned
less than 1% of the outstanding shares of the Fund.]

-18-
<PAGE>

Officers.

COMPENSATION TABLE

-19-
<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
Kirk Hartman $0 $0 N/A $0 (3)
Co-Chairman of the
Board, Trustee,
Executive Vice
President and
Investment Officer

Charles Barber, $_____ $0 N/A $____(1)
Trustee

Burt N. Dorsett, $_____ $0 N/A $____(2)
Trustee

Edward J. Kaier, $_____ $0 N/A $____(1)
Trustee

DISTRIBUTOR

Lehman Brothers acts as Distributor of the Fund's shares. Lehman Brothers,
located at 3 World Financial Center, New York, New York 10285, is a wholly-owned
subsidiary of Lehman Brothers Holdings Inc. ("Holdings"). As of December 31,
1994, FMR Corp. beneficially owned approximately 12.3%, Nippon Life Insurance
Company beneficially owned approximately 8.7% and Heine Securities Corporation
beneficially owned approximately 5.1% of the outstanding voting securities of
Holdings. The Fund's shares are sold on a continuous basis by Lehman Brothers.
The Distributor pays the cost of printing and distributing prospectuses to
persons who are not investors of the Funds (excluding preparation and printing
expenses necessary for the continued registration of Fund shares) and of
preparing, printing and distributing all sales literature. No compensation is
payable by the Fund to Lehman Brothers for its distribution services.

-20-
<PAGE>

INVESTMENT ADVISER

Lehman Brothers Global Asset Management, Inc. serves as the Investment
Adviser to the Fund. The Adviser, located at 3 World Financial Center, New
York, New York 10285, is a wholly-owned subsidiary of Holdings. The investment
advisory agreements provide that the Adviser is responsible for investment
activities of the Fund, including executing portfolio strategy, effecting Fund
purchase and sale transactions and employing professional portfolio managers and
security analysts who provide research for the Fund.

The Investment Advisory Agreement with respect to the Fund will continue in
effect for a period of two years from the date the Fund commenced investment
operations and thereafter from year to year provided the continuance is approved
annually (i) by the Trust's Board of Trustees or (ii) by a vote of a "majority"
(as defined in the 1940 Act) of a Fund's outstanding voting securities, except
that in either event the continuance is also approved by a majority of the
Trustees of the Trust who are not "interested persons" (as defined in the 1940
Act). Each Investment Advisory Agreement may be terminated (i) on 60 days'
written notice by the Trustees of the Trust, (ii) by vote of holders of a
majority of a Fund's outstanding voting securities, or upon 90 days' written
notice by Lehman Brothers, or (iii) automatically in the event of its assignment
(as defined in the 1940 Act).

As compensation for the Adviser's services rendered to the Fund, the
Adviser is entitled to a fee, computed daily and paid monthly, at the annual
rate of .30% of the average daily net assets of the Fund. For the fiscal period
ended January 31, 1995, the Adviser was entitled to receive $114,900 for
advisory fees. Waivers by the Adviser of advisory fees and reimbursement of
expenses to maintain the Fund's operating expense ratios at certain levels
amounted to $114,900 and $61,158, respectively, for the fiscal period ended
January 31, 1995. In order to maintain competitive expense ratios during 1995
and thereafter, the Adviser and Administrator have agreed to voluntary fee
waivers and expense reimbursements for the Fund if total operating expenses
exceed certain levels. See "Background and Expense Information" in the Fund's
Prospectus.

PRINCIPAL HOLDERS

At May 15, 1995, principal holders of Class A Shares of the Fund were as
follows: __________. At May 15, 1995, principal holders of Class B Shares of
the Fund were as follows: __________.

As of May 15, 1995, there were no investors in the Retail Shares of the
Fund and all outstanding shares were held by Lehman Brothers.

The investors described above have indicated that they each hold their
shares on behalf of various accounts and not as beneficial owners. To the extent
that any investor is the beneficial owner of more than 25% of the outstanding
shares of the Fund, such investor may be deemed to be a "control person" of the
Fund for purposes of the 1940 Act.

ADMINISTRATOR AND TRANSFER AGENT

-21-
<PAGE>

process purchase and redemption orders, providing information concerning the
Funds to their shareholders of record, handling investor problems, supervising
the services of employees and monitoring the arrangements pertaining to the
Funds' agreements with Service Organizations; (ii) prepare reports to the Funds'
investors and prepare tax returns and reports to and filings with the SEC;
(iii) compute the respective net asset value per share of each Fund;
(iv) provide the services of certain persons who may be elected as trustees or
appointed as officers of the Trust by the Board of Trustees; and (v) maintain
the registration or qualification of the Fund's shares for sale under state
securities laws. TSSG is entitled to receive, as compensation for its services
rendered under an administration agreement, an administrative fee, computed
daily and paid monthly, at the annual rate of .10% of the average daily net
assets of the Fund. TSSG pays Boston Safe, the Fund's Custodian, a portion of
its monthly administration fee for custody services rendered to the Fund.

Prior to May 6, 1994, The Boston Company Advisors Inc. ("TBCA"), an
indirect, wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"), served
as Administrator of the Fund. On May 6, 1994, TSSG acquired TBCA's third party
mutual fund administration business from Mellon, and the Fund's administration
agreement with TBCA was assigned to TSSG. For the fiscal period ended January
31, 1995, the Administrator, was entitled to receive $38,300 in administration
fees. Waivers by the Administrator of administration fees to maintain the
Fund's operating expense ratios at certain levels amounted to $27,951 for the
fiscal period ended January 31, 1995. In order to maintain competitive expense
ratios during 1995 and thereafter, the Adviser and Administrator have agreed to
reimburse the Fund if total operating expenses exceed certain levels. See
"Background and Expense Information" in the Fund's Prospectus.

PLAN OF DISTRIBUTION

The Fund is currently authorized to offer Class A Shares, Class B Shares
and a class of shares offered directly to individual investors ("Retail
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 Class A Shares, Class B Shares and Retail Shares of the Fund
pursuant to Rule 12b-1 under the 1940 Act.

-22-
<PAGE>

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 Class B Shares, or
to institutions that provide certain shareholder support services to investors.
These services may include: (i) aggregating and processing purchase and
redemption requests from customers and placing net purchase and redemption
orders with the Fund's distributor; (ii) processing dividend payments from the
Fund on behalf of customers; (iii) providing information periodically to
customers showing their positions in a Fund's shares; (iv) arranging for bank
wires; (v) responding to customer inquiries relating to the services performed
by the Institution and handling correspondence; (vi) forwarding shareholder
communications from a Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements, and dividend, distribution and tax notices) to
customers; (vii) acting as shareholder of record or nominee; and (viii) other
similar account administrative services. Lehman Brothers is also authorized to
offer Retail Shares 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 Retail
Shares for distribution and other services provided by Lehman Brothers to
holders of Retail Shares. Lehman Brothers has agreed to voluntarily waive Rule
12b-1 fees on Retail Shares so that such fees will equal .25% of the Fund's
average daily net assets attributable to the Retail 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.

For the fiscal ended January 31, 1995, no service fees were paid by the
Fund.

CUSTODIAN

-23-
<PAGE>

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
administrator, 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. The Adviser and
TSSG have agreed that if, in any fiscal year, the expenses borne by the Fund
exceed the applicable expense limitations imposed by the securities regulations
of any state in which shares of that Fund are registered or qualified for sale
to the public, they will reimburse the Fund for any excess to the extent
required by such regulations. Unless otherwise required by law, such
reimbursement would be accrued and paid on the same basis that the advisory and
administration fees are accrued and paid by the Fund. To the Fund's knowledge,
of the expense limitations in effect on the date of this Statement of Additional
Information, none is more restrictive than two and one-half percent (2-1/2%) of
the first $30 million of a Fund's average annual net assets, two percent (2%) of
the next $70 million of the average annual net assets and one and one-half
percent (1-1/2%) of the remaining average annual net assets.

ADDITIONAL INFORMATION CONCERNING TAXES

The following summarizes certain additional tax considerations generally
affecting 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.

-24-
<PAGE>

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.

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 the
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, the 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.

* * * * * * * * * * * * * * * * * * * * * * * *

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 Class B 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

-25-

<PAGE>

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.

Based on the fiscal year ended January 31, 1995, the yield, effective yield
and total returns for the Fund were as follows:

<TABLE>
<CAPTION>
AVERAGE
30-DAY ANNUAL AGGREGATE
30-DAY EFFECTIVE TOTAL TOTAL
YIELD YIELD RETURN** RETURN***
------ --------- -------- ---------
<S> <C> <C> <C> <C>

Class A Shares _____% ______% _____% ______%
Class B Shares _____% ______% _____% ______%

Class A Shares* _____% ______% _____% ______%
Class B Shares* _____% ______% _____% ______%

<FN>
*without fee waivers and/or expense reimbursements
**for the period from commencement of operations (March 28, 1994) through
January 31, 1995 and assuming a $1,000 initial investment
***for the period from commencement of operations (March 28, 1994) through
January 31, 1995 and assuming a $1,000 initial investment
</TABLE>

It is important to note that the total return and yield figures set forth
above are based on historical earnings and are not intended to indicate future
performance. The Fund's total return and yield figures for a class of shares
will fluctuate, and any quotation of total return or yield should not be
considered as representative of the future performance of the Fund. Since total
return and yields fluctuate, yield and total return data for the Fund cannot
necessarily be used to compare an investment in Fund shares with bank deposits,
savings accounts and similar investment alternatives which often provide an
agreed or guaranteed fixed yield for a stated period of time. Shareholders
should remember that performance of any investment is generally a function of
the kind and quality of the investments held in a portfolio, portfolio maturity,
operating expenses and market conditions. 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.

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

-26-
<PAGE>

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 (l) historical data
concerning the performance of adjustable and fixed-rate mortgage loans.

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.

-27-
<PAGE>

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

AUDITORS

Ernst & Young, LLP, 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.

FINANCIAL STATEMENTS

The Trust's Annual Report for the fiscal year ended January 31, 1995 is
incorporated by reference into this Statement of Additional Information in its
entirety.

MISCELLANEOUS

SHAREHOLDER VOTE

-28-
<PAGE>

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.

-29-
<PAGE>

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.

A-1

<PAGE>

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
SHORT DURATION U.S. GOVERNMENT FUND

STATEMENT OF ADDITIONAL INFORMATION

May ___, 1995

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
May ___, 1995, 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
----
<S> <C>

The Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Objective and Policies. . . . . . . . . . . . . . . . 2
Additional Purchase and Redemption Information . . . . . . . . . 13
Management of the Fund . . . . . . . . . . . . . . . . . . . . . 15
Additional Information Concerning Taxes. . . . . . . . . . . . . 24
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Additional Performance Information . . . . . . . . . . . . . . . 25
Additional Description Concerning Shares . . . . . . . . . . . . 27
Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Financial Statements . . . . . . . . . . . . . . . . . . . . . . 28
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 28
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

</TABLE>

<PAGE>

THE TRUST

Lehman Brothers Institutional Funds Group Trust (the "Trust") is an
open-end management investment company. The Trust is a diversified investment
portfolio and currently includes a family of portfolios, one of which is the
Short Duration U.S. Government Fund (the "Fund"). The Fund currently is
authorized to offer three classes of shares. Each class represents an equal,
PRO RATA interest in the Fund. Each share accrues daily dividends in the same
manner, except that Class B Shares bear fees payable by the Fund to Lehman
Brothers or institutional investors for services they provide to the beneficial
owners of such shares and Retail Shares bear fees payable by the Fund to Lehman
Brothers for services it provides to the beneficial owners of such shares.

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,
agency and instrumentality 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
assets in a professionally managed portfolio of U.S. Government, agency and
instrumentality 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. U.S. Government mortgage-
backed securities and other U.S. Government, agency or instrumentality
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.

-2-
<PAGE>

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

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") in 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 indicates 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 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 mortgages 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.

-3-
<PAGE>

Further, courts in some cases have imposed general equitable
principles upon foreclosure generally designed to relieve the borrower from 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.

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 also
may reduce the monthly payments due under such mortgage loan, change the rate of
interest, reduce the principal balance of the loan to then-current appraised
value of the related mortgaged property and alter the borrower's obligation to
repay amounts 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-
<PAGE>

The value of mortgage-related securities in which the Fund invests may be
affected if interest rates rise or fall faster and farther than the allowable
caps on the underlying residential mortgage loans. For example, consider a
residential mortgage loan with a rate which adjusts annually, an initial
interest rate of 10%, a 2% per annum interest rate cap, and a 5% life of loan
interest rate cap. If the index against which the underlying interest rate on
the residential mortgage loan is compared--such as the one-year Treasury-moves
up by 3%, the residential mortgage loan rate may not increase by more than 2% to
12% the first year. As one of the underlying residential mortgages for the
securities in which the Fund invests, the residential mortgage would depress the
value of the securities and, therefore, the net asset value of the Fund. If the
index against which the interest rate on the underlying residential mortgage
loan is compared moves up no faster or farther than the cap on the underlying
mortgage loan allows, or if the index moves down as fast or faster than the
floor on the underlying mortgage loan allows, the mortgage would maintain or
improve the value of the securities in which the Fund invests and, therefore,
the net asset value of the Fund.

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 Lehman Brothers Global Asset Management, Inc., the Fund's Investment Adviser
(the "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.

-5-
<PAGE>

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 and 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.

-6-
<PAGE>

WHEN-ISSUED TRANSACTIONS. As stated in the Fund's Prospectuses, the Fund
may purchase securities on a "when-issued" or "delayed delivery" basis (I.E.,
for delivery beyond the normal settlement date at a stated price and yield).
When the Fund agrees to purchase when-issued securities, the custodian will set
aside cash or liquid portfolio securities equal to the amount of the commitment
in a separate account. Normally, the custodian will set aside portfolio
securities to satisfy a purchase commitment, and in such a case the Fund may be
required subsequently to place additional assets in the separate account in
order to ensure that the value of the account remains equal to the amount of the
Fund's commitment. It may be expected that the Fund's net assets will fluctuate
to a greater degree when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash. Because the Fund will set
aside cash or liquid assets to satisfy its purchase commitments in the manner
described, the Fund's liquidity and ability to manage its portfolio might be
affected in the event its commitments to purchase when-issued securities exceed
25% of the value of its assets. When the Fund engages in when-issued
transactions, it relies on the seller to consummate the trade. Failure of the
seller to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous. The Fund does not
intend to purchase when-issued securities for speculative purposes but only in
furtherance of its investment objective. The Fund reserves the right to sell the
securities before the settlement date if it is deemed advisable.

LENDING OF PORTFOLIO SECURITIES. The Fund has the ability to lend
securities in an amount up to one-third of the value of their respective total
assets from their respective portfolios to brokers, dealers and other financial
organizations. The Fund may not lend its portfolio securities to Lehman Brothers
or its affiliates without specific authorization from the SEC. Loans of
portfolio securities by the Fund will be collateralized by cash, letters of
credit or securities issued or guaranteed by the U.S. Government or its agencies
which will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. From time to time, the Fund may
return a part of the interest earned from the investment of collateral received
for securities loaned to the borrower and/or a third party, which is
unaffiliated with the Fund or with Lehman Brothers, and which is acting as a
"finder." With respect to loans by the Fund of its portfolio securities, the
Fund would continue to accrue interest on loaned securities and would also earn
income on loans. Any cash collateral received by the Fund in connection with
such loans would be invested in short-term U.S. Government obligations.

-7-
<PAGE>

than the exercise prices of those it has written, it will deposit the difference
with the Custodian in a segregated account) or (c) sell short the securities
underlying the put option at the same or a higher price than the exercise price
on the put options written. The Fund will receive a premium when it writes put
and call options, which increases the Fund's return on the underlying security
in the event the option expires unexercised or is closed out at a profit.

The Fund may purchase call options on securities it intends to acquire to
hedge against an anticipated market appreciation in the price of the underlying
securities. If the market price does rise as anticipated in such a situation,
the Fund will benefit from that rise only to the extent that the rise exceeds
the premiums paid. If the anticipated rise does not occur or if it does not
exceed the premium, the Fund will bear the expense of the option premiums and
transaction costs without gaining an offsetting benefit. 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.

-8-
<PAGE>

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.

-9-
<PAGE>

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.

-10-
<PAGE>

the Fund will not enter into a short sale of securities if, as a result of the
sale, the total market value of all securities sold short by the Fund would
exceed 25% of the value of the Fund's assets. In addition, the Fund may not
sell short the securities of any single issuer to the extent the value of the
securities of such issuer exceeds the lesser of 2% of the value of the Fund's
net assets or 2% of the securities of any class of any issuer.

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 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.

-11-
<PAGE>

INVESTMENT LIMITATIONS

The Fund may not:

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.

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.

-12-
<PAGE>

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.

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.

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.

Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund on fiduciary funds that are invested in the Fund's
Class B 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 Class B shares.

-13-
<PAGE>

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 ("NYSE") is closed, other than customary weekend and holiday
closings, or during which trading on the NYSE 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

-14-
<PAGE>

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 a pricing model
or prices 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 or under the supervision of the
Trustees.

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
---------------- ----------------------- -------------------------------------
<S> <C> <C>

ANDREW GORDON (1) Co-Chairman of the Managing Director, Lehman Brothers.
3 World Financial Center Board, Trustee and President
New York, NY 10285
Age:

KIRK HARTMAN (1) Co-Chairman of the Board, Trustee, Managing Director, Lehman Brothers.
3 World Financial Center Executive Vice President and
New York, NY 10285 Investment Officer
Age:

</TABLE>

-15-
<PAGE>

<TABLE>

CHARLES F. BARBER (2)(3) Trustee Consultant; Director, The Salomon Brothers Fund Inc.,
66 Glenwood Drive The Emerging Markets Income Fund Inc., Salomon
Greenwich, CT 06830 Brothers High Income Fund Inc. and Municipal Partners
Age: Fund Inc.; formerly Chairman of the Board, ASARCO
Incorporated.

BURT N. DORSETT (2)(3) Trustee Managing Partner, Dorsett McCabe Capital Management,
201 East 62nd Street Inc., an investment counseling firm; Director,
New York, NY 10022 Research Corporation Technologies, a non-profit
Age: patent-clearing and licensing operation; formerly
President, Westinghouse Pension Investments
Corporation; formerly Executive Vice President and
Trustee, College Retirement Equities Fund, Inc., a
variable annuity fund; and formerly Investment
Officer, University of Rochester

EDWARD J. KAIER (2)(3) Trustee Partner with the law firm of Hepburn Willcox Hamilton
1100 One Penn Center & Putnam
Philadelphia, PA 19103
Age:

</TABLE>

-16-
<PAGE>

<TABLE>

JOHN M. WINTERS Vice President and Investment Senior Vice President and Senior Money Market
3 World Financial Center Officer Manager, Global Asset Management, Inc.; formerly
New York, NY 10285 Product Manager with Lehman Brothers Capital Markets
Group.

NICHOLAS RABIECKI, III Vice President and Investment Vice President and Senior Portfolio Manager, Lehman
3 World Financial Center Officer Brothers Global Asset Management, Inc.; formerly
New York, NY 10285 Senior Fixed-Income Portfolio Manager with Chase
Age: Private Banking.

MICHAEL C. KARDOK Treasurer Vice President, The Shareholder Services Group, Inc.;
One Exchange Place prior to May 1994, Vice President, The Boston Company
Boston, MA 02109 Advisors, Inc.
Age:

PATRICIA L. BICKIMER Secretary Vice President and Associate General Counsel, The
One Exchange Place Shareholder Services Group, Inc., prior to May 1994.
Boston, MA 02109 Vice President and Associate General Counsel, The
Age: Boston Company Advisors, Inc.

</TABLE>

-17-

<PAGE>

<TABLE>

<S> <C>
<FN>
----------------

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.

</TABLE>

Messrs. Gordon, Hartman 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, the Adviser or The Shareholder Services
Group, Inc. ("TSSG") the Trust's Administrator and Transfer Agent, 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, the Adviser or TSSG or any of their affiliates, a fee of $20,000 per
annum plus $1,250 per meeting attended and reimburses them for travel and
out-of-pocket expenses.

For the fiscal period ended January 31, 1995, such fees and expenses
totalled $361 for the Fund and $104,841 for the Trust in the aggregate. [As of
May 15, 1995, Trustees and officers of the Trust as a group beneficially owned
less than 1% of the outstanding shares for the Fund.]

-18-
<PAGE>

COMPENSATION TABLE

Andrew Gordon $0 $0 N/A $0 (2)
Co-Chairman of the
Board, Trustee and
President

Kirk Hartman $0 $0 N/A $0 (3)
Co-Chairman of the
Board, Trustee,
Executive Vice
President and
Investment Officer

Charles Barber, Trustee $_____ $0 N/A $____(1)

Burt N. Dorsett, $_____ $0 N/A $____(2)
Trustee

Edward J. Kaier, $_____ $0 N/A $____(1)
Trustee

S. Donald Wiley, $_____ $0 N/A $____(1)
Trustee

</TABLE>

-19-
<PAGE>

DISTRIBUTOR

Lehman Brothers acts as Distributor of the Fund's shares. Lehman Brothers,
located at 3 World Financial Center, New York, New York 10285, is a wholly-owned
subsidiary of Lehman Brothers Holdings Inc. ("Holdings"). As of December 31,
1994, FMR Corp. beneficially owned approximately 12.3%, Nippon Life Insurance
Company beneficially owned approximately 8.7% and Heine Securities Corporation
beneficially owned approximately 5.1% of the outstanding voting securities of
Holdings. The Fund's shares are sold on a continuous basis by Lehman Brothers.
The Distributor pays the cost of printing and distributing prospectuses to
persons who are not investors of the Funds (excluding preparation and printing
expenses necessary for the continued registration of Fund shares) and of
preparing, printing and distributing all sales literature. No compensation is
payable by the Fund to Lehman Brothers for its distribution services.

INVESTMENT ADVISER

Lehman Brothers Global Asset Management, Inc. serves as the Investment
Adviser to the Fund. The Adviser, located at 3 World Financial Center, New
York, New York 10285, is a wholly-owned subsidiary of Holdings. As of December
31, 1994, FMR Corp. beneficially owned approximately 12.3%, Nippon Life
Insurance Company owned approximately 8.7% and Heniz Securities Corporation
beneficially owned approximately 5.1% of the outstanding voting securities of
Holdings. The investment advisory agreements provide that the Adviser is
responsible for investment activities of the Fund, including executing portfolio
strategy, effecting Fund purchase and sale transactions and employing
professional portfolio managers and security analysts who provide research for
the Fund.

The Investment Advisory Agreement with respect to the Fund will continue in
effect for a period of two years from the date the Fund commenced investment
operations and thereafter from year to year provided the continuance is approved
annually (i) by the Trust's Board of Trustees or (ii) by a vote of a "majority"
(as defined in the 1940 Act) of a Fund's outstanding voting securities, except
that in either event the continuance is also approved by a majority of the
Trustees of the Trust who are not "interested persons" (as defined in the 1940
Act). The Investment Advisory Agreement may be terminated (i) on 60 days'
written notice by the Trustees of the Trust, (ii) by vote of holders of a
majority of a Fund's outstanding voting securities, or upon 90 days' written
notice by Lehman Brothers, or (iii) automatically in the event of its assignment
(as defined in the 1940 Act).

-20-
<PAGE>

expense ratios at certain levels amounted to $81,388 and $57,100, respectively,
for the fiscal period ended January 31, 1995. In order to maintain competitive
expense ratios during 1995 and thereafter, the Adviser and Administrator have
agreed to voluntary fee waivers and expense reimbursements for the Fund if total
operating expenses exceed certain levels. See "Background and Expense
Information" in the Fund's Prospectus.

PRINCIPAL HOLDERS

At May 15, 1995, principal holders of Class A Shares of the Fund were as
follows: __________. At May 15, 1995, principal holders of Class B Shares of
the Fund were as follows: __________.

As of May 15, 1995, there were no investors in the Retail Shares of the
Fund and all outstanding shares were held by Lehman Brothers.

The investors described above have indicated that they each hold their
shares on behalf of various accounts and not as beneficial owners. To the extent
that any investor is the beneficial owner of more than 25% of the outstanding
shares of the Fund, such investor may be deemed to be a "control person" of the
Fund for purposes of the 1940 Act.

ADMINISTRATOR AND TRANSFER AGENT

TSSG, a subsidiary of First Data Corporation, is located at One Exchange
Place, Boston, Massachusetts 02109, and serves as the Trust's Administrator and
Transfer Agent. As the Trust's Administrator, TSSG has agreed to provide the
following services: (i) assist generally in supervising the Funds' operations,
providing and supervising the operation of an automated data processing system
to process purchase and redemption orders, providing information concerning the
Funds to their shareholders of record, handling investor problems, supervising
the services of employees and monitoring the arrangements pertaining to the
Funds' agreements with Service Organizations; (ii) prepare reports to the Funds'
investors and prepare tax returns and reports to and filings with the SEC;
(iii) compute the respective net asset value per share of each Fund;
(iv) provide the services of certain persons who may be elected as trustees or
appointed as officers of the Trust by the Board of Trustees; and (v) maintain
the registration or qualification of the Fund's shares for sale under state
securities laws. TSSG is entitled to receive, as compensation for its services
rendered under an administration agreement, an administrative fee, computed
daily and paid monthly, at the annual rate of .10% of the average daily net
assets of the Fund. TSSG pays Boston Safe, the Fund's Custodian, a portion of
its monthly administration fee for custody services rendered to the Fund.

Prior to May 6, 1994, The Boston Company Advisors Inc. ("TBCA"), an
indirect, wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"), served
as Administrator of the Fund. On May 6, 1994, TSSG acquired TBCA's third party
mutual fund administration business from Mellon, and the Fund's administration
agreement with TBCA was assigned to TSSG. For the fiscal period ended January
31, 1995, the Administrator, was entitled to receive $27,129 in administration
fees. Waivers by the Administrator of administration fees to maintain the
Fund's operating expense ratios at certain levels amounted to $19,779 for the
fiscal period ended January 31, 1995. In order to maintain competitive expense
ratios during 1995 and thereafter, the Adviser and Administrator have agreed to
reimburse the Fund if total operating expenses exceed certain levels. See
"Background and Expense Information" in the Fund's Prospectus.

-21-
<PAGE>

PLAN OF DISTRIBUTION

The Fund currently offers Class A Shares, Class B Shares and Retail 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 Class A Shares, Class B Shares and Retail Shares of the Fund pursuant to Rule
12b-1 under the 1940 Act.

Class A 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 Class A 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 Class B Shares of the Fund are sold to
institutional investors and bear fees payable at a rate not exceeding .25% (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. Retail 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 Retail Shares for distribution and
other services provided to holders of Retail Shares. Lehman Brothers has agreed
to voluntarily waive Rule 12b-1 fees on Retail Shares so that such fees will
equal .25% of the Fund's average daily net assets attributable to the Retail
Shares. Shares of each class will bear all fees paid for services provided to
that class under the Plan of Distribution.

-22-
<PAGE>

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").

For the fiscal period ended January 31, 1995, service fees equal to $2,840
were paid by the Fund with respect to Class B shares.

CUSTODIAN

Boston Safe Deposit and Trust Company ("Boston Safe"), a wholly-owned
subsidiary of Mellon Bank Corporation., is located at One Boston Place, Boston,
Massachusetts 02108, and serves as the custodian of the Trust pursuant to a
custody agreement. Under the custody agreement, Boston Safe holds each Fund's
portfolio securities and keeps all necessary accounts and records. For its
services, Boston Safe receives a monthly fee based upon the month-end market
value of securities held in custody and also receives securities transaction
charges, including out-of-pocket expenses. The assets of the Trust are held
under bank custodianship in compliance with the 1940 Act.

EXPENSES

The Fund's expenses include taxes, interest, fees and salaries of the
Trust's trustees and officers who are not directors, officers or employees of
the Trust's service contractors, SEC fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to shareholders, advisory and administration fees, charges of the
administrator, 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. The Adviser and
TSSG have agreed that if, in any fiscal year, the expenses borne by the Fund
exceed the applicable expense limitations imposed by the securities regulations
of any state in which shares of that Fund are registered or qualified for sale
to the public, they will reimburse the Fund for any excess to the extent
required by such regulations. Unless otherwise required by law, such
reimbursement would be accrued and paid on the same basis that the advisory and
administration fees are accrued and paid by the Fund. To the Fund's knowledge,
of the

-23-
<PAGE>

expense limitations in effect on the date of this Statement of Additional
Information, none is more restrictive than two and one-half percent (2 1/2%) of
the first $30 million of a Fund's average annual net assets, two percent (2%) of
the next $70 million of the average annual net assets and one and one-half
percent (1 1/2%) of the remaining average annual net assets.

ADDITIONAL INFORMATION CONCERNING TAXES

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.

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 the
Fund that they are not subject to backup withholding when required to do so or
that they are "exempt recipients."

-24-
<PAGE>

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, the 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.

* * * * * * * * * * * * * * * * * * * * * * * *

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.

Based on the fiscal year ended January 31, 1995, the yield, effective yield
and total returns for the Fund were as follows:

-25-
<PAGE>

Average
30-day Annual Total Aggregate Total
30-day Yield Effective Yield Return** Return***
------------ --------------- ------------ ----------------
<S> <C> <C> <C> <C>

Class A Shares % % % %
Class B Shares % % % %

Class A Shares* % % % %
Class B Shares* % % % %

<FN>
*without fee waivers and/or expense reimbursements
**for the period from commencement of operations (March 28, 1994) through
January 31, 1995 and assuming a $1,000 initial investment
***for the period form commencement of operations (March 28, 1994) through
January 31, 1995 and assuming a $1,000 initial investment

</TABLE>

It is important to note that the total return and yield figures set forth
above are based on historical earnings and are not intended to indicate the
future performance. 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.

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.

-26-
<PAGE>

such indices and averages may not be identical to the formulas used by the Fund
to calculate its performance figures.

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

-27-
<PAGE>

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

AUDITORS

FINANCIAL STATEMENTS

The Trust's Annual Report for the fiscal year ended January 31, 1995 is
incorporated by reference into this Statement of Additional Information in its
entirety.

MISCELLANEOUS

SHAREHOLDER VOTE

SHAREHOLDER AND TRUSTEE LIABILITY

-28-
<PAGE>

-29-
<PAGE>

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.

A-1

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:

Will be filed by amendment.

(2) Included in Part B:

Registrant's Annual Report dated January 31, 1995 and the Report of
Independent Accountants dated March 15, 1995 are incorporated by reference
to the Rule 30b2-1 filed on March 24, 1995 as Accession #0000927405-95-
000007.

(b) Exhibits:

All references are to the Registrant's Registration Statement on Form N-
1A as filed with the Securities and Exchange Commission on December 28, 1992
(the "Registration Statement").

(1) (a) Declaration of Trust of Registrant dated November 16, 1992 as
previously filed in the Registration Statement is filed herein.

(b) Amendment No. 1 to Declaration of Trust of Registrant as
previously filed in Pre-Effective Amendment No. 3 on January 19, 1993 is
filed herein.

(c) Designation and Establishment of Series as previously filed
in Pre-Effective Amendment No. 5 on February 5, 1993 is filed herein.

(d) Form of Certificate pertaining to Classification of Shares dated
February 18, 1994 is incorporated herein by reference to Exhibit (1)(d) of
Post-Effective Amendment No. 4 to the Registration Statement as filed on
February 18, 1994.

(e) Form of Certificate pertaining to Classification of Shares with
respect to the Short Duration Municipal Fund is incorporated herein by
reference to Exhibit (1)(e) of Post-Effective Amendment No. 8 to the
Registration Statement as filed on October 7, 1994.

(2) (a) Amended and Restated By-Laws dated November 2, 1994 are
filed herein.

(3) Not Applicable.

(4) Specimen Share Certificate as previously filed in Pre-
Effective Amendment No. 5 on February 5, 1993 is filed herein.

(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 as
previously filed in Post-Effective Amendment No. 1 dated June 21,
1993 is filed herein.

(b) Investment Advisory Agreement between Registrant and Lehman
Brothers Global Asset Management Inc. ("LBGAM"), relating to the
Floating Rate U.S. Government Fund is incorporated herein by reference
to Exhibit (5)(b) of Post-Effective Amendment No. 4 to the
Registration Statement filed on February 18, 1994.

(c) Investment Advisory Agreement between Registrant and Lehman
Brothers Global Asset Management Inc. ("LBGAM"), relating to the Short
Duration U.S. Government Fund is incorporated herein by reference to
Exhibit (5)(c) of Post-Effective Amendment No. 4 to the Registration
Statement as filed on February 18, 1994.

(d) Investment Advisory Agreement between Registrant and Lehman
Brothers Global Asset Management Inc. relating to the Short Duration
Municipal Fund is incorporated herein by reference to Exhibit (5)(d) of
Post-Effective Amendment No. 8 to the Registration Statement as filed on
October 7, 1994. .

(6) (a) Distribution Agreement between Registrant and Lehman
Brothers, a division of Shearson Lehman Brothers Inc. as previously filed
in Post- Effective Amendment No. 1 on June 21, 1993 is filed
herein .

(7) Not Applicable.

(8) (a) Custody Agreement between Registrant and Boston Safe
Deposit and Trust Company as previously filed in Post-Effective Amendment
No. 1 on June 21, 1993 is filed herein.

(b) Form of Amendment No. 1 to the Custody Agreement dated November 10,
1993 between Registrant and Boston Safe Deposit and Trust Company is
incorporated herein by reference to Exhibit 8(b) of Post-Effective Amendment
No. 6 to the Registration Statement as filed on August 8, 1994.

(c) Form of Amendment No. 2 to the Custody Agreement dated January 27,
1994 between Registrant and Boston Safe Deposit and Trust Company is
incorporated herein by reference to Exhibit 8(c) of Post-Effective Amendment
No. 6 to the Registration Statement as filed on August 8, 1994.

(9) (a) Administration Agreement between Registrant and The
Boston Company Advisors, Inc. as previously filed in Post-Effective
Amendment No. 1 on June 21, 1993 is filed herein.

(b) Assignment of Administration Agreement dated April 21, 1994 between
Registrant and The Boston Company Advisors, Inc. to The Shareholder Services
Group, Inc. is incorporated by reference to Exhibit 9(b) of Post-Effective
Amendment No. 5 to the Registration Statement as filed on June 1,1994.

(c) Transfer Agency Agreement and Registrar Agreement dated February 1,
1993 between Registrant and The Shareholder Services Group, Inc. as
previously filed in Pre-Effective Amendment No. 5 on February 5, 1993 is
filed herein.

(d) Form of Amendment No. 1 to the Transfer Agency Agreement dated
November 10, 1993 between Registrant and The Shareholder Services Group,
Inc. is incorporated herein by reference to Exhibit (9)(d) of Post-Effective
Amendment No. 6 to the Registration Statement as filed on August 8, 1994.

(e) Form of Amendment No. 2 to the Transfer Agency Agreement dated January
27, 1994 between the Registrant and The Shareholder Services Group, Inc. is
incorporated herein by reference to Exhibit 9(e) of Post-Effective Amendment
No. 6 to the Registration Statement as filed on August 8, 1994.

(10) (a) Opinion and Consent of Counsel will be filed by
amendment.

(b) Opinion and Consent of Massachusetts Counsel with respect to the
registration of 24e-2 shares is filed herein.

(11)(a) Power of Attorney is incorporated herein by reference to Exhibit
(11) (b) of Post-Effective Amendment No. 7 to the Registration Statement as
filed on September 27, 1994.

(b) Consent of Independent Auditors will be filed by
amendment.

(12) Not Applicable.

(13) (a) Purchase Agreement between Registrant and Shearson Lehman
Brothers Inc. as previously filed in Post-Effective Amendment No. 1 on June
21, 1993 is filed herein.

(b) Purchase Agreement dated March 2, 1994 between Registrant and Lehman
Brothers Inc., relating to the Floating Rate U.S. Government Fund is
incorporated by reference to exhibit 13(b) of Post-Effective Amendment No. 5
to the Registration Statement as filed on June 1, 1994.

(c) Purchase Agreement dated March 2, 1994 between Registrant and Lehman
Brothers, Inc., relating to the Short Duration U.S. Government Fund is
incorporated by reference to exhibit 13(c) of Post-Effective Amendment No. 5
to the Registration Statement as filed on June 1, 1994.

(d) Purchase Agreement dated October 7, 1994 between Registrant
and Lehman Brothers, Inc. relating to the Short Duration Municipal Fund
is incorporated herein by reference to Exhibit (13)(d) of Post- Effective
Amendment No. 8 to the Registration Statement as filed on October 7,
1994.

(14) Not Applicable.

(15) (a) Form of Shareholder Services Plan pursuant to Rule 12b-
1 as previously filed in Pre-Effective Amendment No. 5 on February
5, 1993 is filed herein.

(b) Form of Shareholder Services Plan pursuant to Rule 12b-
1 for Class D Shares as previously filed in Post- Effective Amendment
No. 1 on June 21, 1993 is filed herein.

(c) Form of Shareholder Servicing Agreement for Class B
Shares as previously filed in Pre-Effective Amendment No. 5 on
February 5, 1993 is filed herein.

(d) Form of Shareholder Servicing Agreement for Class C
Shares as previously filed in Pre-Effective Amendment No. 5 on
February 5, 1993 is filed herein.

(e) Form of Shareholder Servicing Agreement for Class D
Shares as previously filed in Post-Effective Amendment No. 1 on
June 21, 1993 is filed herein.

(f) Form of Plan of Distribution for Shares of the Floating Rate
U.S. Government Fund is incorporated herein by reference to Exhibit (15)(f)
of Post-Effective Amendment No. 3 to the Registration Statement as
filed on December 21, 1993.

(g) Form of Plan of Distribution for Shares of the Short Duration U.S.
Government Fund is incorporated herein by reference to Exhibit (15)(g) of
Post-Effective Amendment No. 3 to the Registration Statement as filed on
December 21, 1993.

(h) Form of Shareholder Servicing Agreement for Class B Shares of the non-
money market portfolios is incorporated herein by reference to Exhibit
(15)(h) of Post-Effective Amendment No. 4 to the Registration Statement as
filed on February 18, 1994.

(i) Form of Plan of Distribution for Shares of the Short Duration
Municipal Fund is incorporated herein by reference to Exhibit (15) (i) of
Post-Effective Amendment No. 7 to the Registration Statement as filed on
September 27, 1994.

(j) Form of Plan of Distribution for Retail Shares for the Short Duration
U.S. Government Fund is incorporated herein by reference to Exhibit (15) (j)
of Post-Effective Amendment No. 7 to the Registration Statement as filed on
September 27, 1994.

(16) Performance Data will be filed by amendment .

Item 25. Persons Controlled by or under Common Control with Registrant

Registrant is controlled by its Board of Trustees.

Item 26. Number of Holders of Securities

The following information is as of March 15, 1995:

Title of
Class
Number of
Record
Holders
(Class A
Shares
Number of
Record
Holders
(Class B
Shares)
Number of
Record
Holders
(Class C
Shares)
Number of
Record
Holders
(Class E
Shares)

Prime Money
Market Fund
372
10
6
2

Prime Value
Money Market
Fund
426
3
1
1

Government
Obligations
Money Market
Fund
18
3
1
1

Cash Management
Fund
7
1
1
1

Treasury
Instruments
Money Market
Fund II
28
10
1
1

100% Treasury
Instruments
Money Market
Fund
15
1
1
1

Tax-Free Money
Market Fund
20
1
1
1

Municipal Money
Market Fund
29
1
1
1

Premier
Shares
Select
Shares

Floating Rate
U.S. Government
Fund
2
1

Short Duration
U.S. Government
Fund
2
2

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"). As of
December 31, 1994, FMR Corp, Nippon Life Insurance Company and Heine
Securities Corporation beneficially owned approximately 12.3%, 8.7% and
5.1%, respectively, of the outstanding voting securities of Holdings. LBGAM
is an investment adviser registered under the Investment Advisers Act of
1940 (the "Advisers Act") and serves as investment counsel for individuals
with substantial capital, executors, trustees and institutions. It also
serves as investment adviser, sub-investment adviser, administrator or sub-
administrator to numerous investment companies.

The list required by this Item 28 of officers and directors of LBGAM,
together with information as to any other business profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D
of Form ADV filed by LBGAM pursuant to the Advisers Act (SEC File No. 801-
42006).

Item 29. Principal Underwriters

(a) Lehman Brothers, acts as distributor for the shares of
Registrant's portfolios. Lehman Brothers currently acts as distributor for
Lehman Brothers Funds, Inc., The Latin American Bond Fund N.V., Mexican
Short-Term Investment Portfolio N.V., 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., the Global Advisors Portfolio N.V., the Global Advisors
Portfolio II N.V., the Global Natural Resources Fund N.V., the Asian Dragon
Portfolio N.V., the Mercosur Equity Fund N.V., the Short Duration U.S.
Government Fund N.V. and the Offshore Diversified Strategic Income Fund N.V.
and various series of unit investment trusts.

(b) Lehman Brothers is a wholly-owned subsidiary of Lehman Brothers
Holdings Inc. The information required by this Item 29 with respect to each
director, officer and partner of Lehman Brothers is incorporated by
reference to Schedule A of Form BD filed by Lehman Brothers pursuant to the
Securities Exchange Act of 1934 (SEC File No. 8-12324).

Item 30. Location of Accounts and Records

(1) Lehman Brothers Institutional Funds Group Trust
260 Franklin Street
Boston, Massachusetts 02110

(2) Lehman Brothers Global Asset Management Inc.
3 World Financial Center
New York, New York 10285

(3) The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109

(4) Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108

Item 31. Management Services

Not Applicable.

Item 32. Undertakings

Registrant hereby undertakes as follows:

(1) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a
trustee or trustees of Registrant when requested in writing to do so by the
holders of at least 10% of Registrant's outstanding shares. Registrant
undertakes further, in connection with the meeting, to comply with the
provisions of Section 16(c) of the Investment Company Act of 1940, as
amended, relating to communications with the shareholders of certain common-
law trusts.

(2) Registrant hereby undertakes to file a Post-Effective Amendment,
using financial statements which may not be certified, for the Short
Duration Municipal Fund within four to six months from the commencement of
operations of the Fund.

Exhibit Index

Exhibit
No. Exhibit

(1) (a) Declaration of Trust of Registrant dated November 16,
1992.

(1) (b) Amendment No. 1 to Declaration of Trust of Registrant.

(1) (c) Designation and Establishment of Series.

(2) (a) Restated and Amended By-Laws of Registrant.

(4) Specimen Share Certificate.

(5) (a) Investment Advisory Agreement between Registrant and
Lehman Brothers Global Asset Management Inc.

(6) (a) Distribution Agreement between Registrant and Lehman
Brothers, a division of Shearson Lehman Brothers Inc.

(8) (a) Custody Agreement between Registrant and Boston Safe
Deposit and Trust Company.

(9) (a) Administration Agreement between Registrant and the Boston
Company Advisors, Inc.

(9) (c) Transfer Agency Agreement and Registrar Agreement dated
February 1, 1993 between Registrant and The Shareholder Services Group Inc.

(10) (b) Opinion and Consent of Massachusetts Counsel.

(13) (a) Purchase Agreement between Registrant and Shearson Lehman
Brothers Inc.

(15) (a) Form of Shareholder Services Plan pursuant to Rule 12b-1.

(15) (b) Form of Shareholder Services Plan pursuant to Rule 12b-1
for Class D Shares.

(15) (c) Form of Shareholder Servicing Agreement for Class B
Shares.

(15) (d) Form of Shareholder Servicing Agreement for Class C
Shares.

(15) (e) Form of Shareholder Servicing Agreement for Class D
Shares.

(27) Financial Data Schedules

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. 9 to the Registration
Statement meets the requirements for effectiveness pursuant to Rule 485(a)
of the Securities Act of 1933, as amended, and the Registrant has duly
caused this Post-Effective Amendment No. 9 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 28th day of March,
1995.

LEHMAN BROTHERS
INSTITUTIONAL
FUNDS GROUP TRUST

By: /s/ Andrew Gordon
Andrew Gordon
President

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 9 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

/s/ Andrew Gordon
Andrew Gordon
Co-Chairman of the
Board and Trustee and
President
March 28, 1995

*
Kirk Hartman
Co-Chairman of the
Board and Trustee and
Executive Vice President
March 28, 1995

*
Trustee
March 28, 1995

Charles F. Barber

*
Trustee
March 28, 1995

Burt N. Dorsett

*
Trustee
March 28, 1995

Edward J. Kaier

*
Trustee
March 28, 1995

S. Donald Wiley

/s/ Michael C. Kardok
Michael C. Kardok
Treasurer (Chief Financial and
Accounting Officer)
March 28, 1995

*By: /s/ Andrew Gordon
Andrew Gordon
Attorney-In-Fact

lehman\institut\peas\pea#9.doc

EXHIBIT 1(a)

DECLARATION OF TRUST
OF
INSTITUTIONAL FUNDS GROUP TRUST

DECLARATION OF TRUST made this 16th day of November, 1992 by Peter
Meenan
(together with all other persons from time to time duly elected, qualified and
serving as Trustees in accordance with the provisions of Article II hereof,
the "Trustees");

WHEREAS, the Trustees wish to establish a trust for the investment and
reinvestment of funds contributed thereto;

WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest as
hereinafter provided;

WHEREAS, the Trustees declare that all money and property contributed to
the trust established thereunder shall be held and managed in trust for the
benefit of the holders, from time to time, of the shares of beneficial
interest issued thereunder and subject to the provisions hereof and in
consideration of the foregoing premises and the agreements herein contained
declare as follows:

ARTICLE I

NAME AND DEFINITIONS

Section 1.1. Name. The name of the trust created hereby is
Institutional Funds Group Trust (the "Trust").

Section 1.2. Definitions. Wherever they are used herein, the
following terms have the following respective meanings:

(a) "Administrator" means the party, other than the Trust, to the
contract described in Section 3.3 hereof.

(b) "By-laws" means the By-laws referred to in Section 2.8 hereof, as
from time to time amended.

(c) The terms "Commission" and "Interested Person", have the meanings
given them in the 1940 Act. Except as otherwise defined by the Trustees in
conjunction with the establishment of any Series of Shares, the term "vote of
a majority of the Shares outstanding and entitled to vote" shall have the same
meaning as the term "vote of a majority of the outstanding voting security"
given it in the 1940 Act.

(d) "Class" means any division of shares within a Series, which Class
is or has been established within such Series in accordance with the provision
of Article V.

(e) "Custodian" means any Person other than the Trust who has custody
of any Trust Property as required by 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
17(f).

(f) "Declaration" means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to "Declaration", "hereof",
"herein", and "hereunder" shall be deemed to refer to this Declaration rather
than exclusively to the article or section in which such words appear.

(g) "Distributor" means the party, other than the Trust, to the
contract described in Section 3.1 hereof.

(h) The "1940 Act" means the Investment Company Act of 1940, as
amended from time to time.

(i) "Fund" or "Funds" individually or collectively means the separate
Series of Shares of the Trust, together with the assets and liabilities
assigned thereto.

(j) "His" shall include the feminine and neuter, as well as the
masculine, genders.

(k) "Investment Adviser" means the party, other than the Trust, to the
contract described in Section 3.2 hereof.

(l) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.

(m) "Series" individually or collectively means the separate Series of
the Trust (or if the Trust shall have only one such component, then that one)
as may be established and designated from time to time by the Trustees
pursuant to Section 5.11 hereof.

(n) "Shareholder" means the record owner of Outstanding Shares.

(o) "Shares" means the equal proportionate units of interest into
which the beneficial interest in the Trust shall be divided from time to time,
including the Shares of any and all Series or of any Class within any Series
which may be established by the Trustees, and includes fractions of Shares as
well as whole Shares. "Outstanding" Shares means those Shares shown from time
to time on the books of the Trust or its Transfer Agent as then issued and
outstanding, but shall not include Shares which have been redeemed or
repurchased by the Trust and which are at the time held in the treasury of the
Trust.

(p) "Transfer Agent" means any Person other than the Trust who
maintains the Shareholder records of the Trust, such as the list of
Shareholders, the number of Shares credited to each account, and the like.

(q) "Trust" means Institutional Funds Group Trust.

(r) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.

(s) The "Trustees" means the person who has signed this Declaration,
so long as he shall continue in office in accordance with the terms hereof,
and all other persons who may from time to time be duly elected, qualified and
serving as Trustees in accordance with the provisions of Article II hereof,
and reference herein to a Trustee or the Trustees shall refer to such person
or persons in this capacity or their capacities as trustees hereunder.

ARTICLE II

TRUSTEES

Section 2.1. General Powers. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the Trust to
the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its
branches and maintain offices both within and without The Commonwealth of
Massachusetts, in any and all states of the United States of America, in the
District of Columbia, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the
United States of America and of foreign governments, and to do all such other
things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust although such things
are not herein specifically mentioned. Any determination as to what is in the
interests of the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Declaration, the presumption shall be in
favor of a grant of power to the Trustees.

The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.

Section 2.2. Investments. The Trustees shall have the power:

(a) To operate as and carry on the business of an investment company,
and exercise all the powers necessary and appropriate to the conduct of such
operations.

(b) To invest in, hold for investment, or reinvest in, securities,
including common and preferred stocks; warrants; bonds, debentures, bills,
time notes and all other evidences of indebtedness; negotiable or non-
negotiable instruments; government securities, including securities of any
state, municipality or other political subdivision thereof, or any
governmental or quasi-governmental agency or instrumentality; and money market
instruments including bank certificates of deposit, finance paper, commercial
paper, bankers acceptances and all kinds of repurchase agreements, of any
corporation, company, trust, association, firm or other business organization
however established, and of any country, state, municipality or other
political subdivision, or any governmental or quasi-governmental agency or
instrumentality.

(c) To acquire (by purchase, subscription or otherwise), to hold, to
trade in and deal in, to acquire any rights or options to purchase or sell, to
sell or otherwise dispose of, to lend and to pledge any such securities, to
enter into repurchase agreements, reverse repurchase agreements, firm
commitment agreements and forward foreign currency exchange contracts, to
purchase and sell options on securities, indices, currency or other financial
assets, futures contracts and options on futures contracts of all
descriptions, and other derivative securities, and to engage in all types of
hedging and risk management transactions.

(d) To exercise all rights, powers and privileges of ownership or
interest in all securities and repurchase agreements included in the Trust
Property, including the right to vote thereon and otherwise act with respect
thereto and to do all acts for the preservation, protection, improvement and
enhancement in value of all such securities and repurchase agreements.

(e) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, including cash, and any interest therein.

(f) To borrow money and in this connection issue notes or other
evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; and to endorse,
guarantee, or undertake the performance of any obligation or engagement of any
other Person and to lend Trust Property.

(g) To aid by further investment any corporation, company, trust,
association or firm, any obligation of or interest in which is included in the
Trust Property or in the affairs of which the Trustees have any direct or
indirect interest; to do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest; and to guarantee
or become surety on any or all of the contracts, stocks, bonds, notes,
debentures and other obligations of any such corporation, company, trust,
association or firm.

(h) To enter into a plan of distribution and any related agreements
whereby the Trust may finance directly or indirectly any activity which is
primarily intended to result in sale of Shares.

(i) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary,
suitable or proper for the accomplishment of any purpose or the attainment of
any object or the furtherance of any power herein before set forth either
alone or in association with others, and to do every other act or thing
incidental or appurtenant to or arising out of or connected with the aforesaid
business or purposes, objects or powers.

(j) Notwithstanding any other provision of this Declaration to the
contrary, the Trustees shall have the power in their discretion without any
requirement of approval by Shareholders to either invest all or portion of the
Trust Property or the Property of a Series of the Trust, or sell all or a
portion of the Trust Property or the Property of a Series of the Trust and
invest the proceeds of such sales, in another investment company that is
registered under the 1940 Act.

The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.

The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be
limited by any law limiting the investments which may be made by fiduciaries.

Section 2.3. Legal Title. Legal to all the Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name
of one or more of the Trustees, or in the name of the Trust of any Series of
the Trust, or in the name of any other Person as nominee, on such terms as the
trustees may determine, provided that the interest of the Trust therein is
deemed appropriately protected. The right, title and interest of the Trustees
shall vest automatically in each Person who may hereafter become a Trustee.
Upon the termination of the term of office, resignation, removal or death of a
Trustee he shall automatically cease to have any right, title or interest in
any of the Trust Property, and the right, title and interest of such Trustee
in the Trust Property shall vest automatically in the remaining Trustees.
Such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered.

Section 2.4. Issuance and Repurchase of Shares. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares
and, subject to the provisions set forth in Articles VI and VII and Section
5.11 hereof, to apply to any such repurchase, redemption, retirement,
cancellation, or acquisition of Shares any funds or property of the Trust,
whether capital or surplus or otherwise, to the full extent now or hereafter
permitted by the laws of The Commonwealth of Massachusetts governing business
corporations.

Section 2.5. Delegation: Committees. The Trustees shall have the
power to delegate from time to time to such of their number or to officers,
employees or agents of the Trust the doing of such things and the execution of
such instruments either in the name of the Trust or any Series of the Trust or
the names of the Trustees or otherwise as the Trustees may deem expedient, to
the same extent as such delegation is permitted by the 1940 Act.

Section 2.6. Collection and Payment. Subject to Section 5.11
hereof, the Trustees shall have power to collect all property due to the
Trust; to pay all claims, including taxes, against the Trust Property; to
prosecute, defend, compromise or abandon any claims relating to the Trust
Property; to foreclose any security interest securing any obligations, by
virtue of which any property is owed to the Trust; and to enter into releases,
agreements and other instruments.

Section 2.7. Expenses. Subject to Section 5.11 hereof, the
Trustees shall have the power to incur and pay any expenses which in the
opinion of the Trustees are necessary or incidental to carry out any of the
purposes of this Declaration, and to pay reasonable compensation from the
funds of the Trust to themselves as Trustees. The Trustees shall fix the
compensation of all officers, employees and Trustees.

Section 2.8. Manner of Acting: By-laws. Except as otherwise
provided herein or in the By-laws, any action to be taken by the Trustees may
be taken by a majority of the Trustees present at a meeting of Trustees (a
quorum being present), including any meeting held by means of a conference
telephone circuit or similar communications equipment by means of which all
persons participating in the meeting can hear each other, or by written
consents of the entire number of Trustees then in office. The Trustees may
adopt By-laws not inconsistent with this Declaration to provide for the
conduct of the business of the Trust and may amend or repeal such By-laws to
the extent such power is not reserved to the Shareholders.

Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of
the By-laws, the Trustees may by resolution appoint a committee consisting of
less than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of
such committee were the acts of all the Trustees then in office, with respect
to the institution, prosecution, dismissal, settlement, review or
investigation of any action, suit or proceeding which shall be pending or
threatened to be brought before any court, administrative agency or other
adjudicatory body.

Section 2.9. Miscellaneous Powers. Subject to Section 5.11 hereof,
the Trustees shall have the power to: (a) employ or contract with such
Persons as the Trustees may deem desirable for the transaction of the business
of the Trust or any Series thereof; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees
or fill vacancies in or add their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate,
and appoint from their own number, and terminate, any one or more committees
which may exercise some or all of the power and authority of the Trustees as
the Trustees may determine; (d) purchase, and pay for out of Trust Property or
the Property of the appropriate Series of the Trust, insurance policies
insuring the Shareholders, Trustees, officers, employees, agents, investment
advisers, distributors, selected dealers or independent contractors of the
Trust against all claims arising by reason of holding any such position or by
reason of any action taken or omitted by any such Person in such capacity,
whether or not constituting negligence, or whether or not the Trust would have
the power to indemnify such Person against such liability; (e) establish
pension, profit-sharing, share purchase and other retirement, incentive and
benefit plans for any Trustees, officers, employees and agents of the Trust:
(f) to the extent permitted by law, indemnify any person with whom the Trust
or any Series thereof has dealings, including the Investment Adviser,
Distributor, Administrator, Transfer Agent and selected dealers, to such
extent as the Trustees shall determine; (g) guarantee indebtedness or
contractual obligations of others; (h) determine and change the fiscal year of
the Trust or any Series thereof and the method by which its accounts shall be
kept; (i) adopt a seal for the Trust, but the absence of such seal shall not
impair the validity of any instrument executed on behalf of the Trust.

Section 2.10. Principal Transactions. Except in transactions not
permitted by the 1940 Act or rules and regulations adopted by the Commission,
the Trustees may, on behalf of the Trust, buy any securities from or sell any
securities to, or lend any assets of the Trust or any Series thereof to, any
Trustee or officer of the Trust or any firm of which any such Trustee or
officer is a member acting as principal, or have any such dealings with the
Investment Adviser, Distributor or transfer agent or with any Interested
Person of such Person; and the Trust or Series thereof may employ any such
Person, or firm or company in which such Person is in an Interested Person, as
broker, legal counsel, registrar, transfer agent, dividend disbursing agent or
custodian upon customary terms.

Section 2.11. Number of Trustees. The number of Trustees shall
initially be one (1), and thereafter shall be such number as shall be fixed
from time to time by written instrument signed by a majority of the Trustees,
provided, however, that the number of Trustees shall in no event be less than
one (1) nor more than fifteen (15).

Section 2.12. Election and Term. Except for the Trustees named
herein or appointed to fill vacancies pursuant to Section 2.14 hereof, the
Trustees shall be elected by the Shareholders owning of record a plurality of
the Shares voting at a meeting of Shareholders on a date fixed by the
Trustees. Except in the event of resignation or removals pursuant to Section
2.13 hereof, each Trustee shall hold office until such time as less than a
majority of the Trustees holding office have been elected by Shareholders. In
such event the Trustees then in office will call a Shareholders' meeting for
the election of Trustees. Except for the foregoing circumstances, the
Trustees shall continue to hold office and may appoint successor Trustees.

Section 2.13. Resignation and Removal. Any Trustee may resign his
trust (without the need for any prior or subsequent accounting) by an
instrument in writing signed by him and delivered to the other Trustees and
such resignation shall be effective upon delivery, or at a lager date
according to the terms of the instrument. Any of the Trustees may be removed
(provided the aggregate number of Trustees shall not be less than one) with
cause, by the action of two-thirds of the remaining Trustees or by the action
of two-thirds of the outstanding shares of beneficial interest of the Trust at
a meeting duly called pursuant to Section 5.10 hereof by the Shareholders for
such purpose. Upon the resignation or removal of a Trustee, or his otherwise
ceasing to be a Trustee, he shall execute and deliver such documents as the
remaining Trustees shall require for the purpose of conveying to the Trust or
the remaining Trustees any Trust Property held in the name of the resigning or
removed Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such documents as the
remaining Trustees shall require as provided in the preceding sentence.

Section 2.14. Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the even of his death, resignation,
removal, bankruptcy, adjudicated incompetence or other incapacity to perform
the duties of the office of a Trustee. No such vacancy shall operate to annul
the Declaration or to revoke any existing agency created pursuant to the terms
of the Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject (but only
after the Trust's initial registration statement under the Securities Act of
1933 shall have become effective) to the provisions of Section 16(a) of the
1940 Act, the remaining Trustees shall fill such vacancy by the appointment of
such other person as they in their discretion shall see fit, made by a written
instrument signed by a majority of the Trustees then in office. Any such
appointment shall not become effective, however, until the person named in the
written instrument of appointment shall have accepted in writing such
appointment and agreed to be bound by the terms of the Declaration. An
appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement, resignation or increase in the number of
Trustees, provided that such appointment shall not become effective prior to
such retirement, resignation or increase in the number of Trustees. Whenever
a vacancy in the number of Trustees shall occur, until such vacancy is filled
as provided in this Section 2.14, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of
the Trustees in office shall be conclusive evidence of the existence of such
vacancy.

Section 2.15. Delegation of Power to Other Trustees. Any Trustee
may, by power of attorney, delegate his power for a period not exceeding six
(6) months at any one time to any other Trustee or Trustees; provided that in
no case shall fewer than two (2) Trustees personally exercise the powers
granted to the Trustees under this Declaration except as herein otherwise
expressly provided.

ARTICLE III

CONTRACTS

Section 3.1. Distribution Contract. The Trustees may in their
discretion from time to time enter into an exclusive or non-exclusive
distribution contract or contracts providing for the sale of Shares to net the
Trust or the applicable Series of the Trust not less than the amount provided
for in Section 7.1 of Article VII hereof, whereby the Trustees may either
agree to sell the Shares to the other party to the contract or appoint such
other party their sales agent for the Shares, and in either case on such terms
and conditions, if any, as may be prescribed in the By-laws, and such further
terms and conditions as the Trustees may in their discretion determine not
inconsistent with the provisions of this Article III or of the By-laws; and
such contract may also provide for the repurchase of the Shares by such other
party as agent of the Trustees.

Section 3.2. Advisory or Management Contract. The Trustees may in
their discretion from time to time enter into an investment advisory contract,
or, if the Trustees establish multiple Series, separate investment advisory
contracts with respect to each Series, whereby the other party to such
contract or contracts shall undertake to manage the investment operations of
one or more Series of the Trust and the compositions of the portfolios of the
Trust or such Series, including the purchase, retention and disposition of
securities and other assets in accordance with the investment objectives,
policies and restrictions of the Trust or such Series and all upon such terms
and conditions as the Trustees may in their discretion determine, including
the grant of authority to such other party to determine what securities shall
be purchased or sold by the Trust or applicable Series of the Trust and what
portion of its assets shall be uninvested, which authority shall include the
power to make changes in the investments of the Trust or any Series.

Section 3.3. Administration Contract. The Trustees may in their
discretion from time to time enter into an administration contract or
contracts whereby the other party to such contract shall undertake to
supervise all or any part of the operations of the Trust or any Series thereof
and to provide all or any part of the administrative and clerical personnel,
office space and office equipment and services appropriate for the efficient
administration and operations of the Trust and any Series thereof.

Section 3.4. Affiliations of Trustees or Officers, Etc.
The fact that:

(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager, adviser
or distributor of or for any partnership, corporation, trust, association or
other organization or of or for any parent of affiliate of any organization,
with which a contract of the character described in Sections 3.1 or 3.2 above
or for services as Custodian, Administrator, Transfer Agent or disbursing
agent or for related services may have been or may hereafter be made, or that
any such organization, or any parent or affiliate thereof, is a Shareholder of
or has any interest in the Trust, or that

(ii) any partnership, corporation, trust, association or other
organization with which a contract of the character described in Sections 3.1
or 3.2 above or for services as Custodian, Administrator, Transfer Agent or
disbursing agent or for related services may have been or may hereafter may be
made also has any one or more of such contracts with one or more other
partnerships, corporations, trusts, associations or other organizations, or
has other business or interests, shall not affect the validity of any such
contract or disqualify any Shareholder, Trustee or officer of the Trust from
voting upon or executing the same or create any liability or accountability to
the Trust or its Shareholders.

Section 3.5. Compliance with 1940 Act. Any contract entered into
or pursuant to Sections 3.1 or 3.2 shall be consistent with and subject to the
requirements of Section 15 of the 1940 Act (including any other applicable Act
of Congress hereafter enacted) with respect to its continuance in effect, its
termination and the method of authorization and approval of such contract or
renewal thereof.

ARTICLE IV

LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS

Section 4.1. No Personal Liability of Shareholders, Trustees, Etc.
No Shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property or the acts, obligations or affairs
of the Trust. No Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever to any Person, other than to the
Trust or its Shareholders, in connection with Trust Property or the affairs of
the Trust, save only that arising from bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties with respect to such Person;
and all such Persons shall look solely to the Trust Property, or to the
Property of one or more specific Series of the Trust if the claim arises from
the conduct of such Trustee, officer, employee or agent with respect to only
such Series, for satisfaction of claims of any nature arising in connection
with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee, or agent, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability of the Trust, he shall not, on
account thereof, be held to any personal liability. The Trust shall indemnify
and hold each Shareholder harmless from and against all claims and
liabilities, to which such Shareholder may become subject by reason of his
being or having been a Shareholder, and shall reimburse such Shareholder out
of the Trust Property for all legal and other expenses reasonably incurred by
him in connection with any such claim or liability. The indemnification and
reimbursement required by the preceding sentence shall be made only out of
assets of the one or more Series whose Shares were held by said Shareholder at
the time the act or event occurred which gave rise to the claim against or
liability of said Shareholder. The rights accruing to a Shareholder under
this Section 4.1 shall not impair any other right to which such Shareholder
may be lawfully entitled, nor shall anything herein contained restrict the
right of the Trust to indemnify or reimburse a Shareholder in any appropriate
situation even though not specifically provided herein.

Section 4.2. Non-Liability of Trustees. Etc. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its Shareholders,
or to any Shareholder, Trustee, officer, employee or agent thereof for any
action or failure to act (including without limitation the failure to compel
in any way any former or acting Trustee to redress any breach of trust) except
for his own bad faith, willful misfeasance, gross negligence or reckless
disregard of the duties involved in the conduct of his office.

Section 4.3. Mandatory Indemnification. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:

(i) every person who is, or has been, a Trustee or officer of the
Trust shall be indemnified by the Trust, or by one or more Series thereof if
the claim arises from his or her conduct with respect to only such Series, to
the fullest extent permitted by the law against all liability and against all
expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer and
against amounts paid or incurred by him in the settlement thereof;

(ii) the words "claim", "action", "suit", or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal, or other,
including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties and other liabilities.

(b) No indemnification shall be provided hereunder to a Trustee or
officer:

(i) against any liability to the Trust, a Series thereof or the
Shareholders by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office;

(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable belief
that his action was in the best interest of the Trust or a Series thereof;

(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b) (ii) resulting in
a payment by a Trustee or officer, unless there has been a determination that
such Trustee or officer did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his office:

(A) by the court or other body approving the settlement or
other disposition; or

(B) based upon a review of readily available facts (as
opposed to a full trial-type inquiry) by (x) vote of a majority of the Non-
interested Trustees acting on the matter (provided that a majority of the Non-
Interested Trustees then in office act on the matter) or (y) written opinion
of independent legal counsel.

(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not
affect any other rights to which any other Trustee or officer may now or
hereafter be entitled, shall continue as to a person who has ceased to be such
Trustee or officer, shall inure to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing contained herein shall
affect any rights to indemnification to which personnel of the Trust other
than Trustees and officer may be entitled by contract or otherwise under law.

(d) Expenses of preparation and presentation of a defense to any
claim, action, suit or proceeding of the character described in paragraph (a)
of this Section 4.3 may be advanced by the Trust or a Series thereof prior to
final disposition thereof upon receipt of an undertaking by or on behalf of
the recipient to repay such amount if it is ultimately determined that he is
not entitled to indemnification under this Section 4.3, provided that either:

(i) such undertaking is secured by surety bond or some
other appropriate security provided by the recipient, or the Trust or Series
thereof shall be insured against losses arising out of any such advances; or

(ii) a majority of the Non-interested Trustees acting on
the matter (provided that a majority of the Non-interested Trustees act on the
matter) or an independent legal counsel in a written opinion shall determine,
based upon a review of readily available facts (as opposed to a full trial-
type inquiry) that there is reason to believe that the recipient ultimately
will be found entitled to indemnification.

As used in this section 4.3, a "Non-interested Trustee" is one who is
not (i) an "Interested Person" of the Trust (including anyone who has been
exempted from being an "Interested Person" by any rule, regulation, or order
of the Commission), or (ii) involved in the claim, action, suit or proceeding.

Section 4.4. No Bond Required of Trustees. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.

Section 4.5. No Duty of Investigation: Notice in Trust
Instruments, Etc. No purchases, lender, transfer agent or other Person
dealing with the Trustees or any officer, employee or agent of the Trust or a
Series thereof shall be bound to make any inquiry concerning the validity of
any transaction purporting to be made by the Trustees or by said officer,
employee or agent or be liable for the application of money or property paid,
loaned, or delivered to or on the order of the Trustees or of said officer,
employee or agent. Every obligation, contract, instrument, certificate,
Share, other security of the Trust or a Series thereof or undertaking, and
every other act or thing whatsoever executed in connection with the Trust
shall be conclusively presumed to have been executed or done by the executors
thereof only in their capacity as Trustees under this Declaration or in their
capacity as officers, employees or agents of the Trust or a Series thereof.
Every written obligation, contract, instrument, certificate, Share, other
security of the Trust or a Series thereof or undertaking made or issued by the
Trustees may recite that the same is executed or made by them not
individually, but as Trustees under the Declaration, and that the obligations
of the Trust or a Series thereof under any such instrument are not binding
upon any of the Trustees or Shareholders individually, but bind only the Trust
Property or the Trust Property of the applicable Series, and may contain any
further recital which they may deem appropriate, but the omission of such
recital shall not operate to bind the Trustees individually. The Trustees
shall at all times maintain insurance for the protection of the Trust Property
or the Trust Property of the applicable Series, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.

Section 4.6. Reliance on Experts, Etc. Each Trustee, officer or
employee of the Trust or a Series thereof shall, in the performance of his
duties, be fully and completely justified and protected with regard to any act
or any failure to act resulting from reliance in good faith upon the books of
account or other records of the Trust or a Series thereof, upon an opinion of
counsel, or upon reports made to the trust or a Series thereof by any of its
officers or employees or by the Investment Adviser, the Distributor, Transfer
Agent, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers or
employees of the Trust, regardless of whether such counsel or expert may also
be a Trustee.

ARTICLE V

SHARES OF BENEFICIAL INTEREST

Section 5.1. Beneficial Interest. The interest of the
beneficiaries hereunder shall be divided into transferable shares of
beneficial interest, par value $.001 per share. The Trustees shall have the
authority to establish and designate one or more Series of shares and one or
more Classes thereof as provided in Section 5.11 hereof. The number of shares
of beneficial interest authorized hereunder is unlimited. All shares issued
hereunder including, without limitation, Shares issued in connection with a
dividend in Shares or a split of Shares, shall be fully paid and non-
assessable.

Section 5.2. Rights of Shareholders. The ownership of the Trust
Property of every description and the right to conduct any business
hereinbefore described are vested exclusively in the Trustees, and the
Shareholders shall have no interest therein other than the beneficial interest
conferred by their Shares, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of the
Trust nor can they be called upon to share or assume any losses of the Trust
or suffer an assessment of any kind by virtue of their ownership of Shares.
The Shares shall be personal property giving only the rights specifically set
forth in this Declaration. The Shares shall not entitle the holder to
preference, preemptive, appraisal, conversion or exchange rights, except as
the Trustees may determine with respect to any Series of Shares.

Section 5.3. Trust Only. It is the intention of the Trustees to
create only the relationship of Trustee and beneficiary between the Trustees
and each Shareholder from time to time. It is not the intention of the
Trustees to create a general partnership, limited partnership, joint stock
association, corporation, bailment or any form of legal relationship other
than a trust. Nothing in this Declaration of Trust shall be construed to make
the Shareholders, either by themselves or with the Trustees, partners or
members of a joint stock association.

Section 5.4. Issuance of Shares. The Trustees in their discretion
may, from time to time without vote of the shareholders, issue Shares, in
addition to the then issued and outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount and type of
consideration including cash or property, at such time or times and on such
terms as the Trustees may deem best, and may in such manner acquire other
assets (including the acquisition of assets subject to, and in connection with
the assumption of, liabilities) and businesses. In connection with any
issuance of Shares, the Trustees may issue fractional Shares and Shares held
in the treasury. The Trustees may from time to time divide or combine the
Shares of the Trust or, if the Shares be divided into Series, of any Series of
the Trust, into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Trust or in the Trust Property
allocated or belonging to such Series. Contributions to the Trust or Series
thereof may be accepted for, and Shares shall be redeemed as, whole Shares
and/or 1/1,000ths of a Share or integral multiples thereof.

Section 5.5. Registrer of Shares. A register shall be kept at the
principal office of the Trust or an office of the Transfer Agent which shall
contain the names and addresses of the Shareholders and the number of Shares
held by them respectively and a record of all transfers thereof. Such
register shall be conclusive as to who are the holders of the Shares and who
shall be entitled to receive dividends or distributions or otherwise to
exercise or enjoy the rights of Shareholders. No Shareholder shall be
entitled to receive payment of any dividend or distribution, nor to have
notice given to him herein or in the By-laws provided, until he has given his
address to the Transfer Agent or such other officer or agent of the Trustees
as shall keep the said register for entry thereon. It is not contemplated
that certificates will be issued for the Shares; however, the Trustees, in
their discretion, may authorize the issuance of share certificates and
promulgate appropriate rules and regulations as to their use.

Section 5.6. Transfer of Shares. Shares shall be transferable on
the records of the Trust only by the record holder thereof or by his agent
thereunto duly authorized in writing, upon delivery to the Trustees or the
Transfer Agent of a duly executed instrument of transfer, together with such
evidence of the genuineness of each such execution and authorization and of
other matters as may reasonably be required. Upon such delivery the transfer
shall be recorded on the register of the Trust. Until such record is made,
the Shareholder of record shall be deemed to be the holder of such Shares for
all purposes hereunder and neither the Trustees nor any transfer agent or
registrar nor any officer, employee or agent of the Trust shall be affected by
any notice of the proposed transfer.

Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be
deemed to be the holder of such Shares for all purposes hereunder and neither
the Trustees nor any Transfer Agent or registrar nor any officer or agent of
the Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law.

Section 5.7. Notices. Any and all notices to which any Shareholder
may be entitled and any and all communications shall be deemed duly served or
given if mailed, postage pre-paid, addressed to any Shareholder of record at
his last known address as recorded on the register of the Trust.

Section 5.8. Treasury Shares. Shares held in the treasury shall,
until resold pursuant to Section 5.4, not confer any voting rights on the
Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.

Section 5.9. Voting Powers. The Shareholders shall have power to
vote only (i) for the election of Trustees as provided in Section 2.12; (ii)
with respect to any investment advisory contract entered into pursuant to
Section 3.2; (iii) with respect to termination of the Trust or a Series
thereof as provided in Section 8.2; (iv) with respect to any amendment of this
Declaration to the extent and as provided in Section 8.3; (v) with respect to
any merger, consolidation or sale of assets as provided in Section 8.4; (vi)
with respect to incorporation of the Trust to the extent and as provided in
Section 8.5; (vii) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class
action on behalf of the Trust or a Series thereof or the Shareholders of
either; (viii) with respect to any plan adopted pursuant to Rule 12b-1 (or any
successor rule) under the 1940 Act, and related matters; and (ix) with respect
to such additional matters relating to the Trust as may be required by this
Declaration, the By-laws or any registration of the Trust as an investment
company under the 1940 Act with the Commission (or any successor agency) or as
the Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote. On any
matter submitted to Shareholders all shares shall be voted in the aggregate
and not by individual Series except (1) when required by the 1940 Act or any
rule thereunder Shares shall be voted by individual Series or Class and (2)
when the Trustees shall have determined that the matter affects only the
interests of one or more Series or Classes thereof, then only the Shareholders
of such Series or Classes thereof shall be entitled to vote thereon. The
Trustees may, in conjunction with the establishment of any Series or any
Classes of Shares, establish conditions under which the several Series or
Classes of Shares shall have separate voting rights or no voting rights.
There shall be no cumulative voting in the election of Trustees. Until Shares
are issued, the Trustees may exercise all rights of Shareholders and may take
any action required by law, this Declaration or the By-laws to be taken by
Shareholders. The By-laws may include further provisions for Shareholders'
votes and meetings and related matters.

Section 5.10. Meetings of Shareholders. Meetings of the
Shareholders of the Trust may be called at any time by the Chairman of the
Board (if there be one) or the President, and shall be called by the President
or the Secretary at the request, in writing or by resolution, of a majority of
the Trustees, or at the written request of the holder or holders of ten
percent (10%) or more of the total number or Shares then issued and
outstanding of the Trust entitled to vote at such meeting. Meetings of the
Shareholders of any Series of the Trust shall be called by the President or
the Secretary at the written request of the holder or holders of ten percent
(10%) or more of the total number of Shares then issued and outstanding of
such Series of the Trust entitled to vote at such meeting. Any such request
shall state the purpose of the proposed meeting.

Section 5.11. Series and Class Designation. The Trustees, in their
discretion, may authorize the division of Shares into two or more Series or
Classes thereof, and the different Series and Classes shall be established and
designated, and the variations in the relative rights and preferences as
between the different Series and Classes shall be fixed and determined, by the
Trustees; provided that all Shares shall be identical except that there may be
variations so fixed and determined between different Series or Classes as to
investment objective, policies and restrictions, purchase price, payment
obligations, distribution expenses, right of redemption, special and relative
rights as to dividends and on liquidation, conversion rights, exchange rights
and conditions under which the several Series or Classes shall have separate
voting rights, all of which are subject to the limitations set forth below.
All references to Shares in this Declaration shall be deemed to be Shares of
any or all Series or Classes as the context may require.

If the Trustees divide the Shares of the Trust into two or more Series
or Classes, the following provisions shall be applicable:

(a) The number of authorized Shares and the number of Shares of each
Series or Class thereof that may be issued shall be unlimited. The Trustees
may classify or reclassify any unissued Shares or any Shares previously issued
and reacquired of any Series or Class into one or more Series or one or more
Classes that may be established and designated from time to time. The
Trustees may hold as treasury shares (of the same or some other Series or
Class), reissue for such consideration and on such terms as they may
determine, or cancel any Shares of any Series or Class reacquired by the Trust
at their discretion from time to time.

(b) All consideration received by the Trust for the issue or sale of
Shares of a particular Series or Class thereof, together with all assets in
which such consideration is invested or reinvested, all income, earnings,
profits and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the rights
of creditors of such Series and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the books of account of the
Trust. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular Series, the Trustees shall allocate them among any
one or more of the Series established and designated from time to time in such
a manner and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and
binding upon the Shareholders of all Series and Classes for all purposes. No
holder of Shares of any Series shall have any claim on or right to any assets
allocated or belonging to any other Series.

(c) The assets belonging to each particular Series shall be charged
with the liabilities of the Trust in respect of that Series or the appropriate
Class or Classes thereof and all expenses, costs, charges and reserves
attributable to that Series or Class or Classes thereof, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series or Class shall be
allocated and charged by the Trustees to and among any one or more of the
Series or Classes established and designated from time to time in such manner
and on such basis as the Trustees in their sole discretion deem fair and
equitable. Each allocation of liabilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive and binding upon the Shareholders
of all Series and Classes for all purposes. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to determine
which items are capital; and each such determination and allocation shall be
conclusive and binding upon the Shareholders. The assets of a particular
Series of the Trust shall, under no circumstances, be charged with liabilities
attributable to any other Series or Class or Classes thereof of the Trust.
All persons extending credit to, or contracting with or having any claim
against a particular Series or Class thereof of the Trust shall look only to
the assets of that particular Series for payment of such credit, contract or
claim.

(d) The power of the Trustees to pay dividends and make distributions
shall be governed by Section 7.2 of this Declaration with respect to any
Series or Class which represents the interests in the assets of the Trust
immediately prior to the establishment of two or more Series or Classes. With
respect to any other Series or Class, dividends and distributions on Shares of
a particular Series or Class may be paid with such frequency as the Trustees
may determine, which may be daily or otherwise, pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the
Trustees may determine, to the holders of Shares of that Series or Class, from
such of the income and capital gains, accrued or realized, from the assets
belonging to that Series, as the Trustees may determine after providing for
actual and accrued liabilities belonging to that Series or Class. All
dividends and distributions on Shares of a particular Series or Class shall be
distributed pro rata to the Shareholders of that Series or Class in proportion
to the number of Shares of that Series or Class held by such Shareholders at
the time of record established for the payment of such dividends or
distribution.

(e) Each Share of a Series of the Trust shall represent a beneficial
interest in the net assets of such Series. Each holder of Shares of a Series
or Class thereof shall be entitled to receive his pro rata share of
distributions of income and capital gains made with respect to such Series or
Class thereof. Upon redemption of his Shares or indemnification for
liabilities incurred by reason of his being or having been a Shareholder of a
Series or Class thereof, such Shareholder shall be paid solely out of the
funds and property of such Series of the Trust. Upon liquidation or
termination of a Series or Class thereof of the Trust, Shareholders of such
Series or Class thereof shall be entitled to receive a pro rata share of the
net assets of such Series. A Shareholder of a particular Series of the Trust
shall not be entitled to participate in a derivative or class action on behalf
of any other Series or the Shareholders of any other Series of the Trust.

(f) Subject to compliance with the requirements of the 1940 Act, the
Trustees shall have the authority to provide that the holders of Shares of any
Series or Class shall have the right to convert or exchange said Shares into
Shares of one or more Series or Classes of Shares in accordance with such
requirements and procedures as may be established by the Trustees.

The establishment and designation of any Series or Classes of Shares
shall be effective upon the execution by a majority of the then Trustees of an
instrument setting forth such establishment and designation and the relative
rights and preferences of such Series or Classes, or as otherwise provided in
such instrument. At any time that there are no Shares outstanding of any
particular Series or Class previously established and designated, the Trustees
may by an instrument executed by a majority of their number abolish that
Series or Class and the establishment and designation thereof. Each
instrument referred to in this section shall have the status of an amendment
to this Declaration.

ARTICLE VI

REDEMPTION AND REPURCHASE OF SHARES

Section 6.1. Redemption of Shares. All Shares of the Trust shall
be redeemable, at the redemption price determined in the manner set out in
this Declaration. Redeemed or repurchased Shares may be resold by the Trust.

The Trust shall redeem the Shares of the Trust or any Series or Class
thereof at the price determined hereinafter set forth, upon appropriately
verified written application of the record holder thereof (or upon such other
form of request as the Trustees may determine) at such office or agency as may
be designated from time to time for that purpose by the Trustees. The
Trustees may from time to time specify additional conditions, not inconsistent
with the 1940 Act, regarding the redemption of Shares in the Trust's then
effective prospectus under the Securities Act of 1933.

Section 6.2. Price. Shares shall be redeemed at their net asset
value determined as set forth in Section 7.1 hereof as of such time as the
Trustees shall have theretofore prescribed by resolution. In absence of such
resolution, the redemption price of Shares deposited shall be the net asset
value of such Shares next determined as set forth in Section 7.1 hereof after
receipt of such application.

Section 6.3. Payment. Payment of the redemption price of Shares of
the Trust or any Series or Class thereof shall be made in cash or in property
to the Shareholder at such time and in the manner, not inconsistent with the
1940 Act or other applicable laws, as may be specified from time to time in
the Trust's then effective prospectus under the Securities Act of 1933,
subject to the provisions of Section 6.4 hereof.

Section 6.4. Effect of Suspension of Determination of Net Asset
Value.
If, pursuant to Section 6.9 hereof, the Trustees shall declare a
suspension of the determination of net asset value with respect to Shares of
the Trust or any Series or Class thereof, the rights of Shareholder (including
those who shall have applied for redemption pursuant to section 6.1 hereof but
who shall not yet have received payment) to have Shares redeemed and paid for
by the Trust or Series or Class thereof shall be suspended until the
termination of such suspension is declared. Any record holder who shall have
his redemption right so suspended may, during the period of such suspension,
by appropriate written notice of revocation at the office or agency where
application was made, revoke any application for redemption not honored and
withdraw any certificates on deposit. The redemption price of Shares for
which redemption applications have not been revoked shall be the net asset
value of such Shares next determined as set forth in Section 7.1 after the
termination of such suspension, and payment shall be made within seven (7)
days after the date upon which the application was made plus the period after
such application during which the determination of net asset value was
suspended.

Section 6.5. Repurchase by Agreement. The Trust may repurchase
Shares directly, or through the Distributor or another agent designated for
the purpose, by agreement with the owner thereof at a price not exceeding the
net asset value per share determined as of the time when the purchase or
contract of purchase is made or the net asset value as of any time which may
be later determined pursuant to Section 7.1 hereof, provided payment is not
made for the Shares prior to the time as of which such net asset value is
determined.

Section 6.6. Redemption of Shareholder's Interest. The Trust
shall have the right at any time without prior notice to the Shareholder to
redeem Shares of any Shareholder for their then current net asset value per
Share if at such time the Shareholder owns Shares of any Series or Class
having an aggregate net asset value per Series or Class of less than $10,000
subject to such terms and conditions as the Trustees may approve, and subject
to the Trust's giving general notice to all Shareholders of its intention to
avail itself of such right, either by publication in the Trust's prospectus,
if any, or by such other means as the Trustees may determine.

Section 6.7. Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding. If the Trustees shall, at any time
and in good faith, be of the opinion that direct or indirect ownership of
shares or other Securities of the Trust has or may become concentrated in any
Person to an extent which would disqualify the Trust or any Series of the
Trust as a regulated investment company under the Internal Revenue Code, then
the Trustees shall have the power by lot or other means deemed equitable by
them (i) to call for the redemption by any such Person a number, or principal
amount, of Shares or other securities of the Trust or any Series of the Trust
sufficient to maintain or bring the direct or indirect ownership of Shares or
other securities of the Trust or any Series of the Trust into conformity with
the requirements for such qualification and (ii) to refuse to transfer or
issue Shares or other securities of the Trust or any Series of the Trust to
any Person whose acquisition of the Shares or other securities of the Trust or
any Series of the Trust in question would result in such disqualification.
The redemption shall be effected at the redemption price and in the manner
provided in Section 6.1.

The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct
and indirect ownership of Shares or other securities of the Trust as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other taxing authority.

Section 6.8. Reductions in number of Outstanding Shares pursuant to
Net Asset Value Formula. The Trust may also reduce the number of outstanding
Shares of the Trust or of any Series of the Trust pursuant to the provisions
of Section 7.3.

Section 6.9. Suspension of Right of Redemption. The Trust may
declare a suspension of the right of redemption or postpone the date of
payment or redemption for the whole or any part of any period (i) during which
the New York Stock Exchange is closed other than customary weekend and holiday
closings, (ii) during which trading on the New York Stock Exchange is
restricted, (iii) during which an emergency exists as a result of which
disposal by the Trust or a Series thereof of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Trust or a
Series thereof fairly to determine the value of its net assets, or (iv) during
any other period when the Commission may for the protection of Shareholders of
the Trust by order permit suspension of the right of redemption or
postponement of the date of payment or redemption; provided that applicable
rules and regulations of the Commission shall govern as to whether the
conditions prescribed in (ii), (iii), or (iv) exist. Such suspension shall
take effect at such time as the Trust shall specify but not later than the
close of business on the business day next following the declaration of
suspension, and thereafter there shall be no right of redemption or payment on
redemption until the Trust shall declare the suspension at an end, except that
the suspension shall terminate in any event on the first day on which said
stock exchange shall have reopened or the period specified in (ii) or (iii)
shall have expired (as to which in the absence of an official ruling by the
Commission, the determination of the Trust shall be conclusive). In the case
of a suspension of the right of redemption, a Shareholder may either withdraw
his request for redemption or receive payment based on the net asset value
extending after the termination of the suspension.

ARTICLE VII

DETERMINATION OF NET ASSET VALUE, NET INCOME AND DISTRIBUTIONS

Section 7.1. Net Asset Value. The value of the assets of the Trust
or of any Series of the Trust may be determined on the basis of the amortized
cost of such securities, by appraisal of the securities owned by the Trust or
any Series of the Trust, or by such other method as shall be deemed to reflect
the fair value thereof, determined in good faith by or under the direction of
the Trustees. From the total value of said assets, there shall be deducted
all indebtedness, interest, taxes, payable or accrued, including estimated
taxes on unrealized book profits, expenses and management charges accrued to
the appraisal date, net income determined and declared as a distribution and
all other items in the nature of liabilities which shall be deemed
appropriate, as incurred by or allocated to any Series or Class of the Trust.
The resulting amount which shall represent the total net assets of the Trust,
Series or Class thereof shall be divided by the number of Shares of the Trust,
Series or Class thereof outstanding at the time and the quotient so obtained
shall be deemed to be the net asset value of the Shares of the Trust, Series
or Class thereof. The net asset value of the Shares shall be determined at
least once on each business day, as of the close of the trading on the New
York Stock Exchange or as such other time or times as the Trustees shall
determine. The power and duty to make the daily calculations may be delegated
by the Trustees to the Investment Adviser, the Custodian, the Transfer Agent
or such other Person as the Trustees by resolution may determine. The
Trustees may suspend the daily determination of net asset value to the extent
permitted by the 1940 Act.

Section 7.2. Distributions to Shareholders. The Trustees shall
from time to time distribute ratably among the Shareholders of the Trust, a
Series or Class thereof such proportion of the net profits, surplus (including
paid-in surplus), capital, or assets of the Trust or such Series held by the
Trustees as they may deem proper. Such distributions may be made in cash or
property (including without limitation any type of obligations of the Trust,
Series or Class or any assets thereof), and the Trustees may distribute
ratably among the Shareholders of the Trust or Series or Class thereof
additional Shares of the Trust, Series or Class thereof issuable hereunder in
such a manner, at such times, and on such terms as the Trustees may deem
proper. Such distributions may be among the Shareholders of the Trust, Series
or Class thereof at the time of declaring a distribution or among the
Shareholders of the Trust, Series or Class thereof at such other date or time
or dates or times as the Trustees shall determine. The Trustees may in their
discretion determine that, solely for the purposes of such distributions,
Outstanding Shares shall exclude Shares for which orders have been placed
subsequent to a specified time on the date the distribution is declared or on
the next preceding day if the distribution is declared as of a day on which
Boston banks are not open for business, all as described in the then effective
prospectus under the Securities Act of 1933. The Trustees may always retain
from the net profits such amount as they may deem necessary to pay the debts
or expenses of the Trust, a Series or Class thereof or to meet obligations of
the Trust, Series or Class thereof, or as they may deem desirable to use in
the conduct of its affairs or to retain for future requirements or extensions
of the business. The Trustees may adopt and offer to Shareholders such
dividend reinvestment plans, cash dividend payout plans or related plans as
the Trustees shall deem appropriate. The Trustees may in their discretion
determine that an account administration fee or other similar charge may be
deducted directly from the income and other distributions paid on Shares to a
Shareholder's account in each Series or Class.

Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust, a Series or Class thereof to avoid or reduce liability for
taxes.

Section 7.3. Determination of Net Income: Constant Net Asset
Value: Reduction of Outstanding Shares. Subject to Section 5.11 hereof, the
net income of the Series and Classes thereof of the Trust shall be determined
in such manner as the Trustees shall provide by resolution. Expenses of the
Trust or of a Series or Class thereof, including the advisory or management
fee, shall be accrued each day. Each Class shall bear only expenses relating
to its Shares and an allocable portion of Series and Trust expenses in
accordance with such policies as may be established by the Trustees form time
to time and as are not inconsistent with the provisions of this Declaration of
Trust or of any applicable document filed by the Trust with the Commission or
of the Internal Revenue Code of 1986, as amended. Such net income may be
determined by or under the direction of the Trustees as of the close of
trading on the New York Stock Exchange on each day on which such market is
open or as of such other time or times as the Trustees shall determine, and,
except as provided herein, all the net income of any Series or Class of the
Trust, as so determined, may be declared as a dividend on the Outstanding
Shares of such Series or Class. If, for any reason, the net income of any
Series or Class of the Trust determined at any time is a negative amount, the
Trustees shall have the power with respect to such Series or Class (i) to
offset each Shareholder's pro rata share of such negative amount from the
accrued dividend account of such Shareholder, or (ii) to reduce the number of
Outstanding Shares of such Series or Class by reducing the number of Shares in
the account of such Shareholder by that number of full and fractional Shares
which represents the amount of such excess negative net income, or (iii) to
cause to be recorded on the books of the Trust an asset account in the amount
of such negative net income, which account may be reduced by the amount,
provided that the same shall thereupon become the property of the Trust with
respect to such Series or Class and shall not be paid to any Shareholder, of
dividends declared thereafter upon the Outstanding Shares of such Series or
Class on the day such negative net income is experienced, until such asset
account is reduced to zero; or (iv) to combine the methods described in
clauses (i) and (ii) and (iii) of this sentence, in order to cause the net
asset value per Share of such Series or Class to remain at a constant amount
per Outstanding Share immediately after such determination and declaration.
The Trustees shall also have the power to fail to declare a dividend out of
the net income for the purpose of causing the net asset value per Share to be
increased to a constant amount. The Trustees shall have full discretion to
determine whether any cash or property received shall be treated as income or
as principal and whether any item of expense shall be charged to the income or
the principal account, and their determination made in good faith shall be
conclusive upon the Shareholders. In the case of stock dividends received,
the Trustees shall have full discretion to determine, in the light of the
particular circumstances, how much if any of the value thereof shall be
treated as income, the balance, if any, to be treated as principal. The
Trustees shall not be required to adopt, but at any time may adopt,
discontinue or amend the practice of maintaining the net asset value per Share
of a Series at a constant amount.

Section 7.4. Power to Modify Foregoing Procedures. Notwithstanding
any of the foregoing provisions of this Article VII, the Trustees may
prescribe, in their absolute discretion, such other bases and times for
determining the per Share net asset value of the Shares of the Trust or a
Series or Class thereof, or the declaration and payment of dividends and
distributions as they may deem necessary or desirable. Without limiting the
generality of the foregoing, the Trustees may establish several Series or
Classes of Shares in accordance with Section 5.11, and declare dividends
thereon in accordance with Section 5.11(d).

ARTICLE VIII

DURATION; TERMINATION OF TRUST OR A SERIES; AMENDMENT; MERGERS, ETC.

Section 8.1. Duration. The Trust shall continue without limitation
of time but subject to the provisions of this Article VIII.

Section 8.2. Termination of the Trust, a Series or a Class. The
Trust, any Series or Class thereof may be terminated by (i) the affirmative
vote of the holders of not less than two-thirds of the Shares outstanding and
entitled to vote at any meeting of Shareholders of the Trust or the
appropriate Series or Class thereof or (ii) an instrument in writing signed by
a majority of the Trustees, stating that a majority of the Trustees has
determined that the continuation of the Trust, the Series or Class thereof is
not in the best interest of such Series or Class, the Trust or their
respective shareholders as a result of such factors or events adversely
affecting the ability of such Series or Class or the Trust to conduct its
business and operations in an economically viable manner. Such factors and
events may include, but are not limited to, the inability of a Series or Class
of the Trust to maintain its assets at an appropriate size, changes in laws or
regulations governing the Series or Class or the Trust or affecting assets of
the type in which such Series or the Trust invests or economic developments or
trends having a significant adverse impact on the business or operations of
such Series or Class or the Trust. Upon the termination of the Trust or the
Series or Class,

(i) The Trust or the Series or Class shall carry on no business
except for the purpose of winding up its affairs.

(ii) The Trustees shall proceed to wind up the affairs of the
Trust or the Series or Class and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust shall have been
wound up, including the power to fulfill or discharge the contracts of the
Trust or the Series, collect its assets, sell, convey, assign, exchange,
transfer or otherwise dispose of all or any part of the remaining Trust
Property or Trust Property allocated or belonging to such Series or Class to
one or more persons at public or private sale for consideration which may
consist in whole or in part of cash, securities or other property of any kind,
discharge or pay its liabilities, and do all other acts appropriate to
liquidate its business; provided that any sale, conveyance, assignment,
exchange, transfer or other disposition of all or substantially all the Trust
Property or Trust Property allocated or belonging to such Series or Class
(other than as provided in (iii) below) shall require Shareholder approval in
accordance with Section 8.4 hereof.

(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property or the remaining property of the
terminated Series or Class, in cash or in kind or partly each, among the
Shareholders of the Trust or the Series or Class according to their respective
rights.

(b) After termination of the Trust or the Series or Class and
distribution to the Shareholders as herein provided, a majority of the
Trustees shall execute and lodge among the records of the Trust and file with
the Secretary of The Commonwealth of Massachusetts an instrument in writing
setting forth the fact of such termination, and the Trustees shall thereupon
be discharged from all further liabilities and duties with respect to the
Trust or the terminated Series or Class, and the rights and interests of all
Shareholders of the Trust or the terminated Series or Class shall thereupon
cease.

Section 8.3. Amendment Procedure. (a) This Declaration may be
amended by a vote of the holders of a majority of the Shares outstanding and
entitled to vote or by any instrument in writing, without a meeting, signed by
a majority of the Trustees and consented to by the holders of a majority of
the Shares outstanding and entitled to vote. The Trustees may amend this
Declaration without the vote or consent of Shareholders so long as such
amendment does not materially adversely affect the rights of Shareholders.

(b) No amendment may be made under this Section 8.3 which would change
any rights with respect to any Shares of the Trust or Series or Class thereof
by reducing the amount payable thereon upon liquidation of the Trust or Series
or Class thereof or by diminishing or eliminating any voting rights pertaining
thereto, except with the vote or consent of the holders of two-thirds of the
Shares of the Trust or such Series or Class outstanding and entitled to vote.
Nothing contained in this Declaration shall permit the amendment of this
Declaration to impair the exemption from personal liability of the
Shareholder, Trustees, officers, employees and agents of the Trust or to
permit assessments upon Shareholders.

(c) A certificate signed by a majority of the Trustees setting forth
an amendment and reciting that it was duly adopted by the Shareholders or by
the Trustees as aforesaid or a copy of the Declaration, as amended, and
executed by a majority of the Trustees, shall be conclusive evidence of such
amendment when lodged among the records of the Trust.

Section 8.4. Merger, Consolidation and Sale of Assets. The Trust
or any Series thereof may merger or consolidate with any other corporation,
association, trust or other organization or may sell, lease or exchange all or
substantially all of the Trust Property or Trust Property allocated or
belonging to such Series, including its good will, upon such terms and
conditions and for such consideration when and as authorized at any meeting of
Shareholders called for the purpose by the affirmative vote of the holders of
two-thirds of the Shares of the Trust or such Series outstanding and entitled
to vote, or by an instrument or instruments in writing without a meeting,
consented to by the holders of two-thirds of the Shares of the Trust or such
Series; provided, however, that, if such merger, consolidation, sale, lease or
exchange is recommended by the Trustees, the vote or written consent of the
holders of a majority of the Shares of the Trust or such Series outstanding
and entitled to vote shall be sufficient authorization; and any such merger,
consolidation, sale, lease or exchange shall be deemed for all purposed to
have been accomplished under and pursuant to Massachusetts law.

Section 8.5. Incorporation. With the approval of the holders of a
majority of the shares of the Trust or a Series thereof outstanding and
entitled to vote, the Trustees may cause to be organized or assist in
organizing a corporation or corporations under the laws of any jurisdiction or
any other trust, partnership, association or other organization to take over
all of the Trust Property or the Trust Property allocated or belonging to such
Series or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property or the Trust Property allocated or belonging to such Series to any
such corporation, trust, association or organization in exchange for the
shares or securities thereof or otherwise, and to lend money to, subscribe for
the shares or securities of, and enter into any contracts with any such
corporation, trust, partnership, association or organization, or any
corporation, partnership, trust, association or organization in which the
Trust or such Series holds or is about to acquire shares or any other
interest. The Trustees may also cause a merger or consolidation between the
Trust or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to organize
or assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entities.

ARTICLE IX

REPORTS TO SHAREHOLDERS

The Trustees shall at least semi-annually submit to the Shareholders of
each Series a written financial report of the transactions of the Trust,
including financial statements which shall at least annually be certified by
independent public accountants.

ARTICLE X

MISCELLANEOUS

Section 10.1. Execution and Filing. This Declaration and any
amendment hereto shall be filed in the office of the Secretary of The
Commonwealth of Massachusetts and in such other places as may be required
under the laws of Massachusetts and may also be filed or recorded in such
other places as the Trustees deem appropriate. Each amendment so filed shall
be accompanied by a certificate signed and acknowledged by a Trustee stating
that such action was duly taken in a manner provided herein, and unless such
amendment or such certificate sets forth some later time for the effectiveness
of such amendment, such amendment shall be effective upon its execution. A
restated Declaration, integrating into a single instrument all of the
provisions of the Declaration which are then in effect and operative, may be
executed from time to time by a majority of the Trustees and filed with the
Secretary of The Commonwealth of Massachusetts. A restated Declaration shall,
upon execution, be conclusive evidence of all amendments contained therein and
may hereafter be referred to in lieu of the original Declaration and the
various amendments thereto.

Section 10.2. Governing Law. This Declaration is executed by the
Trustees and delivered in The Commonwealth of Massachusetts and with reference
to the laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the laws of said State.

Section 10.3. Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.

Section 10.4. Reliance by Third Parties. Any certificate executed
by an individual who, according to the records of the Trust appears to be a
Trustee hereunder, certifying (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements
of this Declaration, (e) the form of any By-laws adopted by or the identity of
any officers elected by the Trustees, or (f) the existence of any fact or
facts which in any manner relate to the affairs of the Trust, shall be
conclusive evidence as to the matters so certified in favor of any Person
dealing with the Trustees and their successors.

Section 10.5. Provisions in Conflict with Law or Regulations. (a)
The provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any
of the remaining provisions of this Declaration or render invalid or improper
any action taken or omitted prior to such determination.

(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any other provision of
this Declaration in any jurisdiction.

The address of the Trust is:
One Exchange Place
Boston, MA 02109

The address of the sole Trustee, Peter Meenan, is:
One Exchange Place
Boston, MA 02109

IN WITNESS WHEREOF, the undersigned has executed this instrument this
sixteenth day of November, 1992.

________________________________________
Peter Meenan, as Trustee and
not individually

COMMONWEALTH OF MASSACHUSETTS

SUFFOLK COUNTY MASSACHUSETTS

November 16, 1992

Then personally appeared the above-named person who acknowledged the
foregoing instrument to be his free act and deed.

Before me,

_________________________________
Notary Public

My commission expires:

EXHIBIT 2

-30-

shared/lehman/institut/corpdocs/dectrust.doc

EXHIBIT 1(b)

AMENDMENT
TO
DECLARATION OF TRUST
OF
INSTITUTIONAL FUNDS GROUP TRUST

Dated January 14, 1993

Whereas, pursuant to a Declaration of Trust dated November 16, 1992, the
Trustees established a trust for the investment and reinvestment of funds
contributed thereto; and

Whereas, the Trustees desire to amend the Declaration of Trust to change
the name of the Trust, as hereinafter provided;

Now, therefore, the undersigned, being the sole Trustee of the Trust,
hereby amends the Declaration of Trust, as follows:

1. Section 1.1 is amended to read:

"Section 1.1. Name. The name of the trust created hereby is Lehman
Brothers Institutional Funds Group Trust (the "Trust")."

2. Paragraph (q) of Section 1.2 is amended to read:

"(q) "Trust" means Lehman Brothers Institutional Funds Group Trust."

IN WITNESS WHEREOF, the undersigned has executed this instrument this
14th day of January, 1993.

Peter Meenan, as Trustee and
not individually

COMMONWEALTH OF MASSACHUSETTS

SUFFOLK COUNTY MASSACHUSETTS

January 14, 1993,

Then personally appeared the above-named person who acknowledged the
foregoing instrument to be his free act and deed.

Before me,

Notary Public

My commission expires:

LEHMAN\INSTITUTE\CORPDOCS\DECAMEND.DOC

EXHIBIT 1(c)

LEHMAN BROTHERS INSTITUTIONAL
FUNDS GROUP TRUST

Establishment and Designation of Series of Shares of
Beneficial Interest, $.001 Par Value

The undersigned, being the sole Trustee of Lehman Brothers Institutional
Funds Group Trust, a Massachusetts business trust (the "Trust"), acting
pursuant to Section 5.11 of the Declaration of Trust dated November 16, 1992,
as amended (the "Declaration of Trust"), of the Trust, hereby divides the
shares of beneficial interest of the Trust into eleven separate series, each
series to have the following special and relative rights:

1. The series shall be designated as follows:

Prime Money Market Fund
Prime Value Money Market Fund
Government Obligations Money Market Fund
100% Government Obligations Money Market Fund
Treasury Instruments Money Market Fund
Treasury Instruments Money Market Fund II
100% Treasury Instruments Money Market Fund
Municipal Money Market Fund
Tax-Free Money Market Fund
California Municipal Money Market Fund
New York Municipal Money Market Fund

2. The shares of each series are divided into three classes thereof:
Class A Shares, Class B Shares and Class C Shares. The Class A Shares, Class
B Shares and Class C Shares of each series will represent interests in the
same portfolio of investments of the particular series, and will be identical
in all respects, except as follows. The only difference between Class A
Shares, Class B Shares and Class C Shares of the same series will relate to:
(1) the impact of payments made under the Trust's Service Plan ("Plan
Payment"); (2) voting rights on matters which pertain to the Plans and related
agreements; (3) the different exchange privileges of the Class A Shares, Class
B Shares and Class C Shares as described in the Trust's prospectus (and
Statement of Additional Information); (4) the designation of each class of
shares; and (5) sales loads, if any, assessed due to differing distribution
methods. The Trust will operate a portfolio declaring net investment income
as a dividend to shareholders on a daily basis (a "Daily Dividend Fund") that
issues more than one class of shares only when and for so long as the series
accrues its Plan Payments daily and has received undertakings from those
persons entitled to receive payments under the Plans waiving such portion of
any such Plan Payments to the extent necessary to assure that payments (if
any) required to be accrued to such class of shares on any day do not exceed
the income to be accrued to such class on that day (this is to ensure a stable
net asset value for all classes of shares in Daily Dividend Funds). Any
dividends paid by a series with respect to each class of its shares will be
calculated in the same manner, at the same time, on the same day, and will be
proportion to each class of shares' respective net asset value, except that
any Plan Payments relating to Class C Shares of Class B Shares will be borne
exclusively by that class.

3. Each series shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the Trust's
then currently effective registration statement under the Securities Act of
1933. Each share of beneficial interest of each series ("share") shall be
redeemable, shall be entitled to one vote or fraction thereof in respect of a
fractional share on matters on which shares of that series shall be entitled
to vote and shall represent a pro rata beneficial interest in the assets
allocated to the series, and shall be entitled to receive its pro rata share
of net assets of that series upon liquidation of that series, all as provided
in the Declaration of Trust.

4. The voting rights of holders of shares of each series and class
thereof shall be as set forth in Section 5.9 of the Declaration of Trust.

5. The assets and liabilities of the Trust shall be allocated among
the above-referenced series as set forth in Section 5.11 of the Declaration of
Trust.

6. The Trustees (including any successor Trustees) shall have the
right at any time and from time to time to reallocate assets and expenses or
to change the designation of any series now or hereafter created, or to
otherwise change the special and relative rights of any such series provided
that such change shall not adversely affect the rights of holders of shares of
a series.

Dated: February 3, 1993
Peter Meenan as Trustee and
not indvidually

LEHMAN\INSTITUT\CORPDOCS\SHARES.DOC

EXHIBIT 2(a)

RESTATED AND AMENDED BY-LAWS

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

(November 2, 1994)

TABLE OF CONTENTS

Page

ARTICLE I - DEFINITIONS 1

ARTICLE II - OFFICES 1
Section 1. Principal Office
1
Section 2. Other Offices
1

ARTICLE III - SHAREHOLDERS 1
Section 1. Meetings
1
Section 2. Notice of Meetings
1
Section 3. Record Date for Meetings and Other Purposes
2
Section 4. Proxies
2
Section 5. Inspection of Records
2
Section 6. Action without Meeting
3

ARTICLE IV - TRUSTEES 3
Section 1. Meetings of the Trustees
3
Section 2. Quorum and Manner of Acting
3

ARTICLE V - COMMITTEES 4
Section 1. Executive and Other Committees
4
Section 2. Meetings, Quorum and Manner of Acting
4

ARTICLE VI - OFFICERS 4
Section 1. General Provisions
5
Section 2. Term of Office and Qualifications
5
Section 3. Removal
5
Section 4. Powers and Duties of the Chairman/Chairmen
5
Section 5. Powers and Duties of the President
5
Section 6. Powers and Duties of Vice Presidents
5
Section 7. Powers and Duties of the Treasurer
6
Section 8. Powers and Duties of the Secretary
6
Section 9. Powers and Duties of Assistant Officers
6
Section 10. Powers and Duties of Assistant Secretaries
6
Section 11. Compensation of Officers and Trustees and Members of the
Advisory Board
6

ARTICLE VII - FISCAL YEAR 7

ARTICLE VIII - SEAL 7

TABLE OF CONTENTS (continued)

Page

ARTICLE IX - SUFFICIENCY AND WAIVERS OF NOTICE 7

ARTICLE X - CUSTODY OF SECURITIES 7
Section 1. Employment of a Custodian
7
Section 2. Action Upon Termination of Custodian Agreement
7
Section 3. Provisions of Custodian Contract
8
Section 4. Central Certificate System
8
Section 5. Acceptance of Receipts in Lieu of Certificates
9

ARTICLE XI - AMENDMENTS 9

ARTICLE XII - MISCELLANEOUS 9

BY-LAWS

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

(as amended November 2, 1994)

ARTICLE I

DEFINITIONS

The terms "By-laws," "Commission", "Custodian", "Declaration",
"Distributor", "Fund" or "Funds", "His", "Interested Person", "Investment
Adviser", "1940 Act", "Person", "Series", "Shareholder", "Shares", "Transfer
Agent", "Trust", "Trust Property", "Trustees", and "vote of a majority of the
Shares outstanding and entitled to vote", have the respective meanings given
them in the Declaration of Trust of Institutional Funds Group Trust dated
November 16, 1992.

ARTICLE II

OFFICES

Section 1. Principal Office. Until changed by the Trustees, the
principal office of the Trust shall be in

Section 2. Other Offices. The Trust may have offices in such other
places without as well as within the Commonwealth of Massachusetts as the
Trustees may from time to time determine.

ARTICLE III

SHAREHOLDERS

Section 1. Meetings. Meetings of the Shareholders of the Trust or a
Series thereof shall be held as provided in the Declaration at such place
within or without the Commonwealth of Massachusetts as the Trustees shall
designate. The holders of a majority of outstanding Shares of the Trust or a
Series thereof present in person or by proxy shall constitute a quorum at any
meeting of the Shareholders of the Trust or a Series thereof.

Section 2. Notice of Meetings. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder at his address as recorded
on the register of the Trust mailed at least ten (10) days and not more than
sixty (60) days before the meeting, provided, however, that notice of a
meeting need not be given to a shareholder to whom such notice need not be
given under the proxy rules of the Commission under the 1940 Act and the
Securities Exchange Act of 1934, as amended. Only the business stated in the
notice of the meeting shall be considered at such meeting. Any adjourned
meeting may be held as adjourned without further notice. No notice need by
given to any Shareholder who shall have failed to inform the Trust of his
current address or if a written waiver of notice, executed before or after the
meeting by the Shareholder or his attorney thereunto authorized, is filed with
the records of the meeting.

Section 3. Record Date for Meetings and Other Purposes. For the
purpose of determining the Shareholders who are entitled to notice of and to
vote at any meeting, or to participate in any distribution, or for the purpose
of any other action, the Trustees may from time to time close the transfer
books for such period, not exceeding thirty (30) days, as the Trustees may
determine; or without closing the transfer books the Trustees may fix a date
not more than sixty (60) days prior to the date of any meeting of Shareholders
or distribution or other action as a record date for the determination of the
persons to be treated as Shareholders of record for such purposes, except for
dividend payments which shall be governed by the Declaration.

Section 4. Proxies. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy
shall be voted at any meeting unless it shall have been placed on file with
the Secretary, or with such other officer or agent of the Trust as the
Secretary may direct, for verification prior to the time at which such vote
shall be taken. Proxies may be solicited in the name of one or more Trustees
or one or more of the officers of the Trust. Only Shareholders of record
shall be entitled to vote. Each whole share shall be entitled to one vote as
to any matter on which it is entitled by the Declaration to vote, and each
fractional Share shall be entitled to a proportionate fractional vote. When
any Share is held jointly by several persons, any one of them may vote at any
meeting in person or by proxy in respect of such Share, but if more than one
of them shall be present at such meeting in person or by proxy, and such joint
owners or their proxies so present disagree as to any vote to be cast, such
vote shall not be received in respect of such Share. A proxy purporting to be
executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise, and the burden of proving invalidity
shall rest on the challenger. If the holder of any such share is a minor or a
person of unsound mind, and subject to guardianship or the legal control of
any other person as regards the charge or management of such Share, he may
vote by his guardian or such other person appointed or having such control,
and such vote may be given in person or by proxy.

Section 5. Inspection of Records. The records of the Trust shall be
open to inspection by Shareholders to the same extent as in permitted
shareholders of a Massachusetts business corporation.

Section 6. Action without Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consents shall be treated for
all purposes as a vote taken at a meeting of Shareholders.

ARTICLE IV

TRUSTEES

Section 1. Meetings of the Trustees. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than regular or stated meetings shall be held whenever called by the
President, or by any one of the Trustees, at the time being in office. Notice
of the time and place of each meeting other than regular or stated meetings
shall be given by the Secretary or an Assistant Secretary or by the officer or
Trustee calling the meeting and shall be mailed to each Trustee at least two
days before the meeting, or shall be telegraphed, cabled, or wirelessed to
each Trustee at his business address, or personally delivered to him at least
one day before the meeting. Such notice may, however, be waived by any
Trustee. Notice of a meeting need not be given to any Trustee if a written
waiver of notice, executed by him before or after the meeting, is filed with
the records of the meeting, or to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him. A
notice or waiver of notice need not specify the purpose of any meeting. The
Trustees may meet by means of a telephone conference circuit or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall be deemed to have been held at a place designated by the Trustees at the
meeting. Participation in a telephone conference meeting shall constitute
presence in person at such meeting. Any action required or permitted to be
taken at any meeting of the Trustees may be taken by the Trustees without a
meeting if all the Trustees consent to the action in writing and the written
consents are filed with the records of the Trustees' meetings. Such consents
shall be treated as a vote for all purposes.

Section 2. Quorum and Manner of Acting. A majority of the Trustees
shall be present in person at any regular or special meeting of the Trustees
in order to constitute a quorum for the transaction of business at such
meeting and (except as otherwise required by law, the Declaration or these By-
laws) the act of a majority of the Trustees present at any such meeting, at
which a quorum is present, shall be the act of the Trustees. In the absence
of a quorum, a majority of the Trustees present may adjourn the meeting from
time to time until a quorum shall be present. Notice of an adjourned meeting
need not be given.

ARTICLE V

COMMITTEES

Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) members to hold office at the
pleasure of the Trustees, which shall have the power to conduct the current
and ordinary business of the Trust while the Trustees are not in session,
including the purchase and sale of securities and the designation of
securities to be delivered upon redemption of Shares of the Trust or a Series
thereof, and such other powers of the Trustees as the Trustees may, from time
to time, delegate to them except those powers which by law, the Declaration or
these By-laws they are prohibited from delegating. The Trustees may also
elect from their own number other Committees from time to time, the number
composing such Committees, the powers conferred upon the same (subject to the
same limitations as with respect to the Executive Committee) and the term of
membership on such Committees to be determined by the Trustees. The Trustees
may designate a chairman of any such Committee. In the absence of such
designation the Committee may elect its own Chairman.

Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committee, (2) specify the manner of
calling and notice required for special meetings of any Committee, (3) specify
the number of members of a Committee required to constitute a quorum and the
number of members of a Committee required to exercise specified powers
delegated to such Committee, (4) authorize the making of decisions to exercise
specified powers by written assent of the requisite number of members of a
Committee without a meeting, and (5) authorize the members of a Committee to
meet by means of a telephone conference circuit.

The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in
a book designated for that purpose and kept in the office of the Trust.

ARTICLE VI

OFFICERS

Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the
business of the Trust may require, including one or more Vice Presidents, one
or more Assistant Secretaries, and one or more Assistant Treasurers. The
Trustees may delegate to any officer or committee the power to appoint any
subordinate officers or agents.

Section 2. Term of Office and Qualifications. Except as otherwise
provided by law, the Declaration or these By-laws, the President, the
Treasurer and the Secretary shall each hold office until his successor shall
have been duly elected and qualified, and all other officers shall hold office
at the pleasure of the Trustees. The Secretary and the Treasurer may be the
same person. A Vice President and the Treasurer or a Vice President and the
Secretary may be the same person, but the offices of Vice President, Secretary
and Treasury shall not be held by the same person. The President shall hold
no other office. Except as above provided, any two offices may be held by the
same person. Any officer may be but none need be a Trustee or Shareholder.

Section 3. Removal. The Trustees, at any regular or special meeting of
the Trustees, may remove any officer without cause, by a vote of a majority of
the Trustees then in office. Any officer or agent appointed by an officer or
committee may be removed with or without cause by such appointing officer or
committee.

Section 4. Powers and Duties of the Chairman/Chairmen. The Trustees
may, but need not, appoint from among their number a Chairman or two Co-
Chairmen. When present he or they shall preside at the meetings of the
shareholders and of the Trustees. He or they may call meetings of the
Trustees and of any committee thereof whenever he or they deem(s) it
necessary. He or they shall be (an) executive officer(s) of the Trust and
shall have, with the President, general supervision over the business and
policies of the Trust, subject to the limitations imposed upon the President,
as provided in Section 5 of this Article VI.

Section 5. Powers and Duties of the President. In the absence of the
Chairman, the President may call meetings of the Trustees and of any Committee
thereof when he deems it necessary and shall preside at all meetings of the
Shareholders. Subject to the control of the Trustees and to the control of
any Committees of the Trustees, within their respective spheres, as provided
by the Trustees, he shall at all times exercise a general supervision and
direction over the affairs of the Trust. He shall have the power to employ
attorneys and counsel for the Trust or any Series thereof and to employ such
subordinate officers, agents, clerks and employees as he may find necessary to
transact the business of the Trust or any Series thereof. He shall also have
the power to grant, issue, execute or sign such powers of attorney, proxies or
other documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust or any Series thereof. The President shall have such
other powers and duties, as from time to time may be conferred upon or
assigned to him by the Trustees.

Section 6. Powers and Duties of Vice Presidents. In the absence or
disability of the President, the Vice President or, if there by more than one
Vice President, any Vice President designated by the Trustees shall perform
all the duties and may exercise any of the powers of the President, subject to
the control of the Trustees. Each Vice President shall perform such other
duties as may be assigned to him from time to time by the Trustees and the
President.

Section 7. Powers and Duties of the Treasurer. The Treasurer shall be
the principal financial and accounting officer of the Trust. He shall deliver
all funds of the Trust or any Series thereof which may come into his hands to
such Custodian as the Trustees may employ pursuant to Article X of these By-
laws. He shall render a statement of condition of the finances of the Trust
or any Series thereof to the Trustees as often as they shall require the same
and he shall in general perform all the duties incident to the office of a
Treasurer and such other duties as from time to time may be assigned to him by
the Trustees. The Treasurer shall give a bond for the faithful discharge of
his duties, if required so to do by the Trustees, in such sum and with such
surety or sureties as the Trustees shall require.

Section 8. Powers and Duties of the Secretary. The Secretary shall
keep the minutes of all meetings of the Trustees and of the Shareholders in
proper books provided for that purpose; he shall have custody of the seal of
the Trust; he shall have charge of the Share transfer books, lists and records
unless the same are in the charge of the Transfer Agent. He shall attend to
the giving and serving of all notices by the Trust in accordance with the
provisions of these By-laws and as required by law; and subject to these By-
laws, he shall in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Trustees.

Section 9. Powers and Duties of Assistant Officers. In the absence or
disability of the Treasurer, any officer designated by the Trustees shall
perform all the duties, and may exercise any of the powers, of the Treasurer.
Each officer shall perform such other duties as from time to time may be
assigned to him by the Trustees. Each officer performing the duties and
exercising the powers of the Treasurer, if any, and any Assistant Treasurer,
shall give a bond for the faithful discharge of his duties, if required so to
do by the Trustees, in such sum and with such surety or sureties as the
Trustees shall require.

Section 10. Powers and Duties of Assistant Secretaries. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as
from time to time may be assigned to him by the Trustees.

Section 11. Compensation of Officers and Trustees and Members of the
Advisory Board. Subject to any applicable provisions of the Declaration, the
compensation of the officers and Trustees and members of an Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers,
by any Committee or officer upon whom such power may be conferred by the
Trustees. No officer shall be prevented from receiving such compensation as
such officer by reason of the fact that he is also a Trustee.

ARTICLE VII

FISCAL YEAR

The fiscal year of the Trust shall begin on the first day of November in
each year and shall end on the last day of October in each year, provided,
however, that the Trustees may from time to time change the fiscal year. The
fiscal year of the Trust shall be the taxable year of each Series of the
Trust.

ARTICLE VIII

SEAL

The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.

ARTICLE IX

SUFFICIENCY AND WAIVERS OF NOTICE

Whenever any notice whatever is required to be given by law, the
Declaration or these By-laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. A notice shall be deemed
to have been telegraphed, cabled or wirelessed for the purposes of these By-
laws when it has been delivered to a representative of any telegraph, cable or
wireless company with instructions that it be telegraphed, cabled or
wirelessed.

ARTICLE X

CUSTODY OF SECURITIES

Section 1. Employment of a Custodian. The Trust shall place and at all
times maintain in the custody of one or more Custodians (including any sub-
custodian for the Custodian) all funds, securities and similar investments
included in the Trust Property or the Trust Property allocated or belonging to
a Series thereof. The Custodian (and any sub-custodian) shall be a bank
having not less than $2,000,000 aggregate capital, surplus and undivided
profits and shall be appointed from time to time by the Trustees, who shall
fix its remuneration.

Section 2. Action Upon Termination of Custodian Agreement. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Trustees shall promptly appoint a successor custodian, but in
the event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call as promptly as
possible a special meeting of the Shareholders of the Trust or a Series
thereof to determine whether the Trust or Series thereof shall function
without a custodian or shall be liquidated. If so directed by vote of the
holders of a majority of the outstanding voting securities, the Custodian
shall deliver and pay over all Trust Property or the Trust Property allocated
or belonging to a Series thereof held by it as specified in such vote.

Section 3. Provisions of Custodian Contract. The following provisions
shall apply to the employment of a Custodian and to any contract entered into
with the Custodian so employed:

The Trustees shall cause to be delivered to the Custodian all securities
included in the Trust Property or the Trust Property allocated or belonging to
a Series thereof or to which the Trust or such Series may become entitled, and
shall order the same to be delivered by the Custodian only in completion of a
sale, exchange, transfer, pledge, loan of securities to another person, or
other disposition thereof, all as the Trustees may generally or from time to
time require or approve or to a successor Custodian; and the Trustees shall
cause all funds included in the Trust Property or the Trust Property allocated
or belonging to a Series thereof or to which it may become entitled to be paid
to the Custodian, and shall order the same disbursed only for investment
against delivery of the securities acquired, or the return of cash held as
collateral for loans of fund securities, or in payment of expenses, including
management compensation, and liabilities of the Trust or Series thereof,
including distributions to shareholders, or for other proper Trust purposes,
or to a successor Custodian. Notwithstanding anything to the contrary in
these By-laws, upon receipt of proper instructions, which may be standing
instructions, the Custodian may deliver funds in the following cases: In
connection with repurchase agreements, the Custodian shall transmit, prior to
receipt on behalf of the Trust or Series thereof of any securities or other
property, funds from the custodian account of the Trust or Series thereof to a
special custodian approved by the Trustees of the Trust, which funds shall be
used to pay for securities to be purchased by the Trust or Series thereof
subject to the obligation of the Trust or Series thereof to sell and the
seller's obligation to repurchase such securities. In such case, the
securities shall be held in the custody of the special custodian. In
connection with the purchase or sale of financial futures contracts, the
Custodian shall transmit, prior to receipt on behalf of the Trust of any
securities or other property, funds from the custodian account of the Trust or
Series thereof in order to furnish to and maintain funds with brokers as
margin to guarantee the performance of the futures obligations of the Trust or
Series thereof in accordance with the applicable requirements of commodities
exchanges and brokers.

Section 4. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct
the Custodian to deposit all or any part of the securities owned by the Trust
or Series thereof in a system for the central handling of securities
established by a national securities exchange or a national securities
association registered with the Commission under the Securities Exchange Act
of 1934, or such other person as may be permitted by the Commission, or
otherwise in accordance with the 1940 Act, pursuant to which system all
securities of any particular class or series of any issuer deposited within
the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust or Series thereof.

Section 5. Acceptance of Receipts in Lieu of Certificates. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees
may direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.

ARTICLE XI

AMENDMENTS

These By-laws, or any of them, may be altered, amended or repealed, or
new By-laws may be adopted by (a) vote of a majority of the Shares outstanding
and entitled to vote or (b) by the Trustees, provided however, that no By-law
may be amended, adopted or repealed by the Trustees if such amendment,
adoption or repeal requires, pursuant to law, the Declaration or these By-
laws, a vote of the Shareholders.

ARTICLE XII

MISCELLANEOUS

(A) Except as hereinafter provided, no officer or Trustee of the Trust
and no partner, officer, director or shareholder of the Investment Adviser of
the Trust (as that term is defined in the Investment Company Act of 1940) or
of the underwriter of the Trust, and no Investment Adviser or underwriter of
the Trust, shall take long or short positions in the securities issued by the
Trust or any Series thereof.

(1) The foregoing provisions shall not prevent the underwriter
from purchasing Shares from the Trust or any Series if such purchases are
limited (except for reasonable allowances for clerical errors, delays and
errors of transmission and cancellation of orders) to purchase for the purpose
of filling orders for such Shares received by the underwriter, and provided
that orders to purchase from the Trust or any Series thereof are entered with
the Trust or any Series thereof or the Custodian promptly upon receipt by the
underwriter of purchase orders for such Shares, unless the underwriter is
otherwise instructed by its customer.

(2) The foregoing provision shall not prevent the underwriter
from purchasing Shares of the Trust or any Series thereof as agent for the
account of the Trust or any Series thereof.

(3) The foregoing provisions shall not prevent the purchase from
the Trust or any Series thereof or from the underwriter of Shares issued by
the Trust or any Series thereof, by any officer, or Trustee of the Trust or
any Series thereof or by any partner, officer, director or shareholder of the
Investment Adviser of the Trust or Series thereof or of the underwriter of the
Trust at the price available to the public generally at the moment of such
purchase, or as described in the then currently effective Prospectus of the
Trust.

(4) The foregoing shall not prevent the Investment Adviser, or
any affiliate thereof, of the Trust or any Series thereof from purchasing
Shares prior to the effectiveness of the first registration statement relating
to the Shares under the Securities Act of 1933.

(B) Neither the Trust nor any Series thereof shall lend assets of the
Trust or of such Series to any officer or Trustee of the Trust or Series, or
to any partner, officer, director or shareholder of, or person financially
interested in, the Investment Adviser of the Trust or Series or the
underwriter of the Trust.

(C) The Trust shall not impose any restrictions upon the transfer of
the Shares of the Trust or any Series thereof except as provided in the
Declaration or as may be required to comply with federal or state securities
laws, but this requirement shall not prevent the charging of customary
transfer agent fees.

(D) The Trust shall not permit any officer or Trustee of the Trust, or
any partner, officer or director of the Investment Adviser of the Trust or any
Series thereof or underwriter of the Trust to deal for or on behalf of the
Trust or a Series thereof with himself as principal or agent, or with any
partnership, association or corporation in which he has a financial interest;
provided that the foregoing provisions shall not prevent (a) officers and
Trustees of the Trust or partners, officers or directors of the Investment
Adviser of the Trust or any Series thereof or underwriter of the Trust from
buying, holding or selling shares in the Trust or a Series thereof, or from
being partners, officers or directors or otherwise financially interested in
the Investment Adviser of the Trust or any Series thereof or any underwriter
of the Trust; (b) purchases or sales of securities or other property by the
Trust or a Series thereof from or to an affiliated person or to the Investment
Adviser of the Trust or any Series thereof or underwriter of the Trust if such
transaction is not prohibited by or is exempt from the applicable provisions
of the 1940 Act; (c) purchases of investments by the Series of the Trust or
sales of investments owned by the Trust or a Series thereof through a security
dealer who is, or one or more of whose partners, shareholders, officers or
directors is, an officer or Trustee of the Trust, or a partner, officer or
director of the Investment Adviser of the Trust or any Series thereof or
underwriter of the Trust, if such transactions are handled in the capacity of
broker only and commissions charged do not exceed customary brokerage charges
for such services; (d) employment of legal counsel, registrar, Transfer Agent,
dividend disbursing agent or Custodian who is, or has a partner, shareholder,
officer, or director who is, an officer or Trustee of the Trust, or a partner,
officer or director of the Investment Adviser of the Trust or any Series
thereof or underwriter of the Trust, if only customary fees are charged for
services to the Trust or Series thereof; (e) sharing statistical research,
legal and management expenses and office hire and expenses with any other
investment company in which an officer or Trustee of the Trust, or a partner,
officer or director of the Investment Adviser of the Trust or a Series thereof
or underwriter of the Trust, is an officer or director or otherwise
financially interested.

END OF BY-LAWS

shared/lehman/institut/corpdocs/byamend.doc

- 11 -

shared/lehman/institut/misc/byamend.doc

EXHIBIT 4
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

(A MASSACHUSETTS BUSINESS TRUST)
____________________

CUSIP
SHARES OF BENEFICIAL INTEREST

ACCOUNT NO.__________________

_________________ THIS CERTIFIES THAT_________________________________________
__________________
Number
Shares
_________________ IS THE OWNER OF
__________________

See Reverse for

Certain Directions

FULLY PAID AND NON-ASSESSABLE SHARES (Par Value
$.001 Per Share) of
Lehman Brothers Institutional Funds Group Trust
_____________________________________ (Insert Name of Series),
Class _____, a Series of Shares established and designated under the
Declaration of Trust of Lehman Brothers Institutional Funds Group Trust, a
Massachusetts business trust (the "Trust") dated November 25, 1992, as amended
from time to time. The terms of the Declaration of Trust, a copy of which is
on file with the Secretary of the Commonwealth of Massachusetts, are hereby
incorporated by reference as fully as if set forth herein in their entirety.
As provided in the Declaration of Trust, the beneficial interest in the Trust
has been divided into Shares of such Series as may be established and
designated from time to time, and the Shares evidenced hereby represent the
beneficial interest in an undivided proportionate part of the assets belonging
to the above designated Series subject to the liabilities belonging to such
Series. Such Series and other Series have the relative rights and preferences
set forth in the Declaration of Trust, and the Trust will furnish to the
holder of this certificate upon written request and without charge a statement
of such relative rights and preferences. THE SHARES EVIDENCED HEREBY ARE
SUBJECT TO REDEMPTION BY THE TRUST pursuant to the procedures that may be
determined by the Trustees of LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST,
not individually but as Trustees under the Trust Agreement, and represents
Shares of the above designated Series and does not bind any of the Trustees,
Shareholders, Officers, Employees or Agents of the Trust personally but only
the assets and property of the Trust. Subject to the provisions of the
Declaration of Trust, the Shares represented by this certificate are
transferable upon the books of the Trust by the registered holder hereof in
person or by his duly authorized attorney upon surrender of this certificate.

WITNESS the facsimile signature of the President of the Trust and of its
duly authorized officers.

Dated:

Secretary
President

The following abbreviations, when used in the inscription on the
face of this certificate shall be construed as though they were written
out in full according to applicable laws or regulations:

TEN COM - as tenants in common UNIF GIFT MIN ACT -
.......Custodian.......
TEN ENT - as tenants by the entireties (Cust)
(Minor)
JT TEN - as joint tenants with right under
Uniform Gift to Minors
of survivorship and not as
Act.......................................
tenants in common (State)

Additional abbreviations may also be used though not in the above
list.

For Value Received, ______________ hereby sell, assign and
transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

__________________________________________________________________
(Please Print or Typewrite name and address of Assignee)

__________________________________________________________________

__________________________________________________________________
Shares of Beneficial Interest represented by the within Certificate, and
do
hereby irrevocably constitute and appoint

__________________________________________________________Attorney
to transfer the said shares on the books of the within named Trust with
full power of substitution in the premises.

Dated ______________________

_________________________

institut/ifg/misc/certif.doc

EXHIBIT 5(a)

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

INVESTMENT ADVISORY AGREEMENT

February 5, 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 the Prime Plus Money Market 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 .10% 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.

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:
Name: Peter Meenan
Title: President

Accepted:

LEHMAN BROTHERS GLOBAL
ASSET MANAGEMENT INC.

By:
Name: Steven Spiegel
Title: President

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

INVESTMENT ADVISORY AGREEMENT

February 5, 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 the Prime Money Market Fund (the "Fund"), a portfolio of the Trust.
The Advisor agrees to provide services upon the following terms and
conditions:

1. Investment Description; Appointment.

2. Services as Investment Adviser.

3. Information Provided to the Trust.

4. Standard of Care.

5. Compensation.

6. Expenses.

7. Reduction of Fee.

8. Services to Other Companies or Accounts.

9. Term of Agreement.

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.

* * * * *

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:
Name: Peter Meenan
Title: President

Accepted:

LEHMAN BROTHERS GLOBAL
ASSET MANAGEMENT INC.

By:
Name: Steven Spiegel
Title: President

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

INVESTMENT ADVISORY AGREEMENT

February 5, 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 the Tax-Free Money Market Fund (the "Fund"), a portfolio of the
Trust. The Advisor agrees to provide services upon the following terms and
conditions:

1. Investment Description; Appointment.

2. Services as Investment Adviser.

3. Information Provided to the Trust.

4. Standard of Care.

5. Compensation.

6. Expenses.

7. Reduction of Fee.

8. Services to Other Companies or Accounts.

9. Term of Agreement.

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.

* * * * *

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:
Name: Peter Meenan
Title: President

Accepted:

LEHMAN BROTHERS GLOBAL
ASSET MANAGEMENT INC.

By:
Name: Steven Spiegel
Title: Presiden

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

INVESTMENT ADVISORY AGREEMENT

February 5, 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 the California Municipal Money Market Fund (the "Fund"), a
portfolio of the Trust. The Advisor agrees to provide services upon the
following terms and conditions:

1. Investment Description; Appointment.

2. Services as Investment Adviser.

3. Information Provided to the Trust.

4. Standard of Care.

5. Compensation.

6. Expenses.

7. Reduction of Fee.

8. Services to Other Companies or Accounts.

9. Term of Agreement.

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.

* * * * *

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:
Name: Peter Meenan
Title: President

Accepted:

LEHMAN BROTHERS GLOBAL
ASSET MANAGEMENT INC.

By:
Name: Steven Spiegel
Title: President

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

INVESTMENT ADVISORY AGREEMENT

February 5, 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 the Government Obligations Money Market Fund (the "Fund"), a
portfolio of the Trust. The Advisor agrees to provide services upon the
following terms and conditions:

1. Investment Description; Appointment.

2. Services as Investment Adviser.

3. Information Provided to the Trust.

4. Standard of Care.

5. Compensation.

6. Expenses.

7. Reduction of Fee.

8. Services to Other Companies or Accounts.

9. Term of Agreement.

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.

* * * * *

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:
Name: Peter Meenan
Title: President

Accepted:

LEHMAN BROTHERS GLOBAL
ASSET MANAGEMENT INC.

By:
Name: Steven Spiegel
Title: President

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

INVESTMENT ADVISORY AGREEMENT

February 5, 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 the 100% Government Obligations Money Market Fund (the "Fund"), a
portfolio of the Trust. The Advisor agrees to provide services upon the
following terms and conditions:

1. Investment Description; Appointment.

2. Services as Investment Adviser.

3. Information Provided to the Trust.

4. Standard of Care.

5. Compensation.

6. Expenses.

7. Reduction of Fee.

8. Services to Other Companies or Accounts.

9. Term of Agreement.

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.

* * * * *

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:
Name: Peter Meenan
Title: President

Accepted:

LEHMAN BROTHERS GLOBAL
ASSET MANAGEMENT INC.

By:
Name: Steven Spiegel
Title: President

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

INVESTMENT ADVISORY AGREEMENT

February 5, 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 the Treasury Instruments Money Market Fund (the "Fund"), a
portfolio of the Trust. The Advisor agrees to provide services upon the
following terms and conditions:

1. Investment Description; Appointment.

2. Services as Investment Adviser.

3. Information Provided to the Trust.

4. Standard of Care.

5. Compensation.

6. Expenses.

7. Reduction of Fee.

8. Services to Other Companies or Accounts.

9. Term of Agreement.

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.

* * * * *

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:
Name: Peter Meenan
Title: President

Accepted:

LEHMAN BROTHERS GLOBAL
ASSET MANAGEMENT INC.

By:
Name: Steven Spiegel
Title: President

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

INVESTMENT ADVISORY AGREEMENT

February 5, 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 the Treasury Instruments Money Market Fund II (the "Fund"), a
portfolio of the Trust. The Advisor agrees to provide services upon the
following terms and conditions:

1. Investment Description; Appointment.

2. Services as Investment Adviser.

3. Information Provided to the Trust.

4. Standard of Care.

5. Compensation.

6. Expenses.

7. Reduction of Fee.

8. Services to Other Companies or Accounts.

9. Term of Agreement.

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.

* * * * *

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:
Name: Peter Meenan
Title: President

Accepted:

LEHMAN BROTHERS GLOBAL
ASSET MANAGEMENT INC.

By:
Name: Steven Spiegel
Title: President

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

INVESTMENT ADVISORY AGREEMENT

February 5, 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 the 100% Treasury Instruments Money Market Fund (the "Fund"), a
portfolio of the Trust. The Advisor agrees to provide services upon the
following terms and conditions:

1. Investment Description; Appointment.

2. Services as Investment Adviser.

3. Information Provided to the Trust.

4. Standard of Care.

5. Compensation.

6. Expenses.

7. Reduction of Fee.

8. Services to Other Companies or Accounts.

9. Term of Agreement.

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.

* * * * *

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:
Name: Peter Meenan
Title: President

Accepted:

LEHMAN BROTHERS GLOBAL
ASSET MANAGEMENT INC.

By:
Name: Steven Spiegel
Title: President

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

INVESTMENT ADVISORY AGREEMENT

February 5, 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 the Municipal Money Market Fund (the "Fund"), a portfolio of the
Trust. The Advisor agrees to provide services upon the following terms and
conditions:

1. Investment Description; Appointment.

2. Services as Investment Adviser.

3. Information Provided to the Trust.

4. Standard of Care.

5. Compensation.

6. Expenses.

7. Reduction of Fee.

8. Services to Other Companies or Accounts.

9. Term of Agreement.

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.

* * * * *

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:
Name: Peter Meenan
Title: President

Accepted:

LEHMAN BROTHERS GLOBAL
ASSET MANAGEMENT INC.

By:
Name: Steven Spiegel
Title: President

ifg/agreem/invadvs.doc

EXHIBIT 6(a)
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

DISTRIBUTION AGREEMENT

February 5, 1993

Shearson Lehman Brothers Inc.
American Express Tower
World Financial Center
New York, New York 10285

Ladies and Gentlemen:

This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned, Lehman Brothers
Institutional Funds Group Trust (the "Trust"), a business trust
organized under the laws of The Commonwealth of Massachusetts,
has agreed that Shearson Lehman Brothers Inc. ("Shearson Lehman
Brothers") will be, for the period of this Agreement, a
distributor of shares of beneficial interest (the "Shares") of
each investment fund currently offered by the Trust or to be
offered in the future (individually, a "Fund" and collectively,
the "Funds").

1. Services as Distributor.

1.1 Shearson Lehman Brothers will act as agent for the
distribution of Shares covered by the Trust's registration
statement, prospectuses and statements of additional information
then in effect (the "Registration Statement") under the
Securities Act of 1933, as amended (the "1933 Act"), and the
Investment Company Act of 1940, as amended (the "1940 Act").

1.2 Shearson Lehman Brothers agrees to use its best efforts
to solicit orders for the sale of Shares at the public offering
price, as determined in accordance with the Registration
Statement, and will undertake such advertising and promotion as
it believes is reasonable in connection with such solicitation;
provided, that it shall not be responsible for such advertising
and promotional activities as are provided by Funds Distributor
Inc. pursuant to a Distribution Agreement dated even date
herewith. Shearson Lehman Brothers shall not be obligated to
sell any certain number of Shares.

1.3 All activities by Shearson Lehman Brothers as
distributor of the Shares will comply with all applicable laws,
rules and regulations, including, without limitation, all rules
and regulations made or adopted by the Securities and Exchange
Commission (the "SEC") or by any securities association
registered under the Securities Exchange Act of 1934.

1.4 Shearson Lehman Brothers will provide one or more
persons during normal business hours to respond to telephone
questions concerning the Funds.

1.5 Shearson Lehman Brothers will transmit any orders
received by it for purchase or redemption of Shares to The
Shareholder Services Group, Inc. ("TSSG"), the Trust's transfer
agent, or any successor to TSSG of which the Trust has notified
Shearson Lehman Brothers in writing.

1.6 Whenever in their judgment such action is
warranted for any reason, including, without limitation, market,
economic or political conditions, the Trust's officers may
decline to accept any orders for, or make any sales of, the
Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.

1.7 Shearson Lehman Brothers will act only on its own
behalf as principal should it choose to enter into selling
agreements with selected dealers or others.

2. Duties of the Trust.

2.1 The Trust agrees at its own expense to execute any
and all documents, to furnish any and all information and to take
any other actions that may be reasonably necessary in connection
with the qualification of the Shares for sale in those states
that Shearson Lehman Brothers may designate.

2.2 The Trust shall furnish from time to time, for use
in connection with the sale of the Shares, such information
reports with respect to the Funds and the Shares as Shearson
Lehman Brothers may reasonably request, all of which shall be
signed by one or more of the Trust's duly authorized officers;
and the Trust warrants that the statements contained in any such
reports, when so signed by the Trust's officers, will be true and
correct. The Trust will also furnish Shearson Lehman Brothers
upon request with (a) annual audits of the books and accounts of
the Funds made by independent certified public accountants
regularly retained by the Trust; (b) semi-annual unaudited
financial statements pertaining to each Fund; (c) quarterly
earnings statements prepared by the Trust with respect to each
Fund; (d) a monthly itemized list of the securities in the
portfolio of each Fund; (e) monthly balance sheets with respect
to each Fund as soon as practicable after the end of each month;
and (f) from time to time such additional information regarding
the financial condition of each Fund as Shearson Lehman Brothers
may reasonably request.

3. Representations and Warranties.

The Trust represents to Shearson Lehman Brothers that
all registration statements, prospectuses and statements of
additional information filed by the Trust with the SEC under the
1933 Act and the 1940 Act with respect to the Shares have been
carefully prepared in conformity with the requirements of the
1933 Act, the 1940 Act and the rules and regulations of the SEC
thereunder. As used in this Agreement, the terms "registration
statement," "prospectus" and "statement of additional
information" mean any registration statement, prospectus and
statement of additional information filed by the Trust with the
SEC and any amendments and supplements to the registration
statement, prospectus and statement of additional information
that at any time has been filed with the SEC. The Trust
represents and warrants to Shearson Lehman Brothers that any
registration statement, prospectus and statement of additional
information, when the registration statement becomes effective,
will include all statements required to be contained in it in
conformity with the 1933 Act, the 1940 Act and the rules and
regulations of the SEC; that all statements of fact contained in
any registration statement, prospectus or statement of additional
information will be true and correct when the registration
statement becomes effective; and that the registration statement,
the prospectus and the statement of additional information, when
the registration statement becomes effective, will include no
untrue statement of a material fact and will not omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading to a purchaser of the
Shares. Shearson Lehman Brothers may, but is not be obligated
to, propose from time to time such amendment or amendments to any
registration statement and such supplement or supplements to any
prospectus or statement of additional information as, in the
light of future developments, may, in the opinion of Shearson
Lehman Brothers' counsel, be necessary or advisable. If the
Trust does not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by
the Trust of a written request from Shearson Lehman Brothers to
do so, Shearson Lehman Brothers may, at its option, terminate
this Agreement. The Trust will not file any amendment to any
registration statement or supplement to any prospectus or
statement of additional information without giving Shearson
Lehman Brothers reasonable advance notice except that nothing
contained in this Agreement will in any way limit the Trust's
right to file at any time such amendments to any registration
statement and/or supplements to any prospectus or statement of
additional information, of whatever character, as the Trust may
deem advisable, such right being in all respects absolute and
unconditional.

4. Indemnification.

4.1 The Trust authorizes Shearson Lehman Brothers and
any dealers with whom Shearson Lehman Brothers has entered into
dealer agreements to use any prospectus or statement of
additional information furnished by the Trust from time to time,
in connection with the sale of the Shares. The Trust agrees to
indemnify, defend and hold Shearson Lehman Brothers, its several
officers and directors, and any person who controls Shearson
Lehman Brothers within the meaning of Section 15 of the 1933 Act,
free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or
defending those claims, demands or liabilities and any related
counsel fees) that Shearson Lehman Brothers, its officers and
directors, or any such controlling person, may incur under the
1933 Act, the 1940 Act or common law or otherwise, arising out of
or on the basis of any untrue statement, or alleged untrue
statement, of a material fact contained in any registration
statement, any prospectus or any statement of additional
information or arising out of or based upon any omission, or
alleged omission, to state a material fact required to be stated
in any registration statement, any prospectus or any statement of
additional information or necessary to make the statements in any
of them not misleading, except that the Trust's agreement to
indemnify Shearson Lehman Brothers, its officers or directors,
and any such controlling person will not be deemed to cover any
claims, demands, liabilities or expenses arising out of or based
upon any statements or representations made by Shearson Lehman
Brothers or its representatives or agents other than those
statements and representations as are contained in any
registration statement, prospectus or statement of additional
information and in the financial and other statements as are
furnished to Shearson Lehman Brothers pursuant to paragraph 2.2
of this Agreement; and except that the Trust's agreement to
indemnify Shearson Lehman Brothers and the Trust's
representations and warranties set out in paragraph 3 of this
Agreement will not be deemed to cover any liability to the Funds
or their shareholders to which Shearson Lehman Brothers would
otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of its duties, or by
reason of Shearson Lehman Brothers' reckless disregard of its
obligations and duties under this Agreement. The Trust's
agreement to indemnify Shearson Lehman Brothers, its officers and
directors, and any such controlling person, as described above,
is expressly conditioned upon the Trust's being notified of any
action brought against Shearson Lehman Brothers, its officers or
directors, or any such controlling person, the notification to be
given by letter, via facsimile or by telegram addressed to the
Trust at its principal office in New York, New York and sent to
the Trust by the person against whom the action is brought,
within ten days after the summons or other first legal process
has been served. The failure so to notify the Trust of any such
action will not relieve the Trust from any liability that the
Trust may have to the person against whom the action is brought
by reason of any such untrue, or alleged untrue, statement or
omission, or alleged omission, otherwise than on account of the
Trust's indemnity agreement contained in this paragraph 4.1. The
Trust will be entitled to assume the defense of any suit brought
to enforce any such claim, demand or liability, but, in such
case, the defense will be conducted by counsel of good standing
chosen by the Trust and approved by Shearson Lehman Brothers. In
the event the Trust elects to assume the defense of any such suit
and retains counsel of good standing approved by Shearson Lehman
Brothers, the defendant or defendants in the suit will bear the
fees and expenses of any additional counsel retained by any of
them; but if the Trust does not elect to assume the defense of
any such suit, or if Shearson Lehman Brothers does not approve of
counsel chosen by the Trust, the Trust will reimburse Shearson
Lehman Brothers, its officers and directors, or the controlling
person or persons named as defendant or defendants in the suit,
for the fees and expenses of any counsel retained by Shearson
Lehman Brothers or them. The Trust's indemnification agreement
contained in this paragraph 4.1 and the Trust's representations
and warranties in this Agreement will remain operative and in
full force and effect regardless of any investigation made by or
on behalf of Shearson Lehman Brothers, its officers and
directors, or any controlling person, and will survive the
delivery of any of the Shares. This agreement of indemnity will
inure exclusively to Shearson Lehman Brothers' benefit, to the
benefit of its several officers and directors, and their
respective estates, and to the benefit of the controlling persons
and their successors. The Trust agrees to notify Shearson Lehman
Brothers promptly of the commencement of any litigation or
proceedings against the Trust or any of its officers or trustees
in connection with the issuance and sale of any of the Shares.

4.2 Shearson Lehman Brothers agrees to indemnify,
defend and hold the Trust, its several officers and Trustees, and
any person who controls the Trust within the meaning of Section
15 of the 1933 Act, free and harmless from and against any and
all claims, demands, liabilities and expenses (including the
costs of investigating or defending those claims, demands or
liabilities and any related counsel) that the Trust, its officers
or Trustees or any such controlling person may incur under the
1933 Act, the 1940 Act or common law or otherwise, but only to
the extent that the liability or expense incurred by the Trust,
its officers or Trustees or such controlling person resulting
from the claims or demands arise out of or are based upon (a) any
unauthorized sales literature, advertisements, information,
statements or representations or (b) any untrue, or alleged
untrue, statement of a material fact contained in information
furnished in writing by Shearson Lehman Brothers to the Trust and
used in the answers to any of the items of the registration
statement or in the corresponding statements made in the
prospectus or statement of additional information, or arise out
of or are based upon any omission, or alleged omission, to state
a material fact in connection with the information furnished in
writing by Shearson Lehman Brothers to the Trust and required to
be stated in such answers or necessary to make such information
not misleading. Shearson Lehman Brothers' agreement to indemnify
the Trust, its officers and Trustees, and any such controlling
person, as described above, is expressly conditioned upon
Shearson Lehman Brothers' being notified of any action brought
against the Trust, its officers or Trustees, or any such
controlling person, the notification to be given by letter via
facsimile or telegram addressed to Shearson Lehman Brothers at
its principal office in New York, New York, and sent to Shearson
Lehman Brothers by the person against whom such action is
brought, within ten days after the summons or other first legal
process has been served. Shearson Lehman Brothers will have the
right to control the defense of such action, with counsel of its
own choosing, satisfactory to the Trust, if the action is based
solely upon such alleged misstatement or omission on Shearson
Lehman Brothers' part, and in any other event the Trust, its
officers or Trustees or such controlling person each will have
the right to participate in the defense or preparation of the
defense of any such action. The failure so to notify Shearson
Lehman Brothers of any such action will not relieve Shearson
Lehman Brothers from any liability that Shearson Lehman Brothers
may have to the Trust, its officers or Trustees, or to such
controlling person by reason of the untrue, or alleged untrue,
statement or omission, or alleged omission, otherwise than on
account of Shearson Lehman Brothers' indemnity agreement
contained in this paragraph 4.2. Shearson Lehman Brothers agrees
to notify the Trust promptly of the commencement of any
litigation or proceedings against Shearson Lehman Brothers or any
of its officers or directors in connection with the issuance and
sale of any of the Trust's shares.

5. Effectiveness of Registration.

None of the Shares may be offered by either Shearson
Lehman Brothers or the Trust under any of the provisions of this
Agreement and no orders for the purchase or sale of the Shares
under this Agreement may be accepted by the Trust if and so long
as the effectiveness of the registration statement then in effect
or any necessary amendments the registration statement is
suspended under any of the provisions of the 1933 Act or if and
so long as a current prospectus as required by Section 5(b)(2) of
the 1933 Act is not on file with the SEC; except that nothing
contained in this paragraph 5 will in any way restrict or have an
application to or bearing upon the Trust's obligation to
repurchase Shares from any shareholder in accordance with the
provisions of the prospectuses or statement of additional
information relating to the Fund's or the Trust's Declaration of
Trust dated November 25, 1992, as amended from time to time (the
"Declaration of Trust").

6. Notice to Shearson Lehman Brothers.

The Trust agrees to advise Shearson Lehman Brothers
immediately in writing:

(a) of any request by the SEC for amendments to the
registration statement, prospectus or statement of additional
information then in effect or for additional information;

(b) in the event of the issuance by the SEC of any stop
order suspending the effectiveness of the registration statement,
prospectus or statement of additional information then in effect
or the initiation of any proceeding for that purpose;

(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement,
prospectus or statement of additional information then in effect
or that requires the making of a change in the registration
statement, prospectus or statement of additional information in
order to make the statements in those documents not misleading;
and

(d) of all actions of the SEC with respect to any amendment
to any registration statement, prospectus or statement of
additional information that may from time to time be filed with
the SEC.

7. Term of the Agreement.

7.1 This Agreement will become effective with respect
to a Fund 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 such continuance is
specifically approved at least annually by (i) the Trust's Board
of Trustees or (ii) by a vote of a "majority" (as defined in the
1940 Act) of the Fund's outstanding voting securities, except
that in either event the continuance is also approved by a
majority of the Trustees of the Trust who are not "interested
persons" (as defined in the 1940 Act) of any party to this
Agreement by vote cast in person at a meeting called for the
purpose of voting on the approval.

7.2 This Agreement is terminable with respect to a
Fund, without penalty, on 60 days' written notice, by the
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 Shearson Lehman Brothers.

7.3 This Agreement will terminate automatically in the
event of its "assignment" (as defined in the 1940 Act).

8. Miscellaneous.

The Trust recognizes that directors, officers and
employees of Shearson Lehman Brothers, may from time to time
serve as directors, trustees, officers and employees of
corporations and business trusts (including other investment
companies) and that such other corporations and trusts may
include the name "Shearson," "Shearson Lehman," "Lehman Brothers"
or any variant, including initials, as part of their names, and
that Shearson Lehman Brothers, or its affiliates may enter into
distribution or other agreements with such other corporations and
trusts. If Shearson Lehman Brothers ceases to act as a
distributor of the Trust's shares, the Trust agrees that, at
Shearson Lehman Brothers' request, the Trust's license to use the
words "Lehman Brothers" will terminate and that the Trust will
take all necessary action to change the name of the Trust to a
name not including the words "Lehman Brothers" or any other name
referring to Shearson Lehman Brothers.

9. Representation by the Trust.

The Trust represents that a copy of its Declaration of
Trust is on file with the Secretary of The Commonwealth of
Massachusetts and with the Boston City Clerk.

10. Limitation of Liability.

The Trust and Shearson Lehman Brothers 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 Funds,
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 Funds, 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 or any
shareholder of the Trust personally, but will bind only the trust
property of the Trust as provided in its Declaration of Trust.
No Fund will be liable for any claims against any other Fund.

If the foregoing is in accordance with your
understanding, kindly indicate your acceptance of this Agreement
by signing and returning to us the enclosed copy of this
Agreement.

Very truly yours,

LEHMAN BROTHERS INSTITUTIONAL FUNDS
GROUP TRUST

By:
Name:
Title: President

Accepted:

SHEARSON LEHMAN BROTHERS INC.

By:
Name:
Title:

ifg/agreemen/distagre.doc

EXHIBIT 8(a)
CUSTODY AGREEMENT

THIS AGREEMENT is made as of February 3, 1993 between Lehman Brothers
Institutional Funds Group Trust (the "Trust"), on behalf of its Prime Money
Market Fund, Prime Plus Money Market Fund, Treasury Instruments Money Market
Fund, Treasury Instruments Money Market Fund II, Government Obligations Money
Market Fund, 100% Treasury Instruments Money Market Fund, 100% Government
Obligations Money Market Fund, Tax-Free Money Market Fund, Municipal Money
Market Fund, California Municipal Money Market Fund and New York Municipal
Money Market Fund (each a "Fund" and collectively the "Funds"), a
Massachusetts business trust having its principal office and place of business
at One Exchange Place, 53 State Street, Boston, Massachusetts 02109, and
BOSTON SAFE DEPOSIT & TRUST COMPANY (the "Custodian"), a Massachusetts trust
company having its principal place of business at One Boston Place, Boston,
Massachusetts 02108.

W I T N E S S E T H:

That for and in consideration of the mutual premises and convenants
hereinafter set forth, the Trust and the Custodian agree as follows:

1. Definitions.

Whenever used in this Agreement or in any Schedules to this Agreement,
the following words and phrases, unless the context otherwise requires, shall
have the following meanings:

(a) "Declaration of Trust" shall mean the Declaration of Trust dated November
16, 1992 of the Trust filed with The Commonwealth of Massachusetts on
November 25, 1992, as now in effect and as the same may be amended from time
to time.

(b) "Authorized Person" shall be deemed to include the President, any Vice
President, the Secretary, any Assistant Secretary, the Treasurer or Assistant
Treasurer or any other person, whether or not any such person is an officer or
employee of the Trust, duly authorized by the Board of Trustees of the Trust
to give Oral Instructions and Written Instructions on behalf of the Fund and
listed in a certification in the form annexed hereto as Appendix A or such
other certification as may be received by the Custodian from time to time.

(c) "Book-Entry System" shall mean the Federal Reserve/ Treasury book-entry
system for United States and federal agency securities, its successor or
successors and its nominee or nominees.

(d) "Depository" shall mean The Depository Trust Company ("DTC"), a clearing
agency registered with the Securities and Exchange Commission under Section
17A of the Securities Exchange Act of 1934, as amended, its successor or
successors and its nominee or nominees, in which the Custodian is specifically
authorized by the Trust's Board to make deposits. The term "Depository" shall
further mean and include any other person to be named in Written Instructions
authorized to act as a depository under the 1940 Act, its successor or
successors and its nominee or nominees.

(e) "Money Market Securities" shall be deemed to include, without limitation,
debt obligations issued or guaranteed as to interest and principal by the
Government of the United States or agencies or instrumentalities thereof,
commercial paper, bank certificates of deposit, bankers' acceptances and
short-term corporate obligations, where the purchase or sale of such
securities normally requires settlement in federal funds on the same day as
such purchase or sale, and repurchase and reverse repurchase agreements with
respect to any of the foregoing types of securities.

(f) "Oral Instructions" shall mean verbal instructions actually received by
the Custodian from an Authorized Person or a person reasonably believed by the
Custodian to be an Authorized Person.

(g) "Prospectus" shall mean the Fund's current prospectus relating to the
registration of the Funds' Shares under the Securities Act of 1933, as
amended.

(h) "Shares" refers to the Shares of beneficial interest, par value $.001 per
share, as may be issued by the Fund from time to time.

(i) "Security" or Securities" shall be deemed to include bonds, debentures,
notes, stocks, shares, evidences of indebtedness, and other securities and
investments from time to time of the Fund, including futures contracts and
options on futures contracts.

(j) "Transfer Agent" shall mean the person which performs the transfer agent,
dividend disbursing agent and shareholder servicing agent functions for the
Fund.

(k) "Written Instructions" shall mean a written communication actually
received by the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized Person by telex or
facsimile machine or any other such system whereby the receiver of such
communication is able to verify through codes or otherwise with a reasonable
degree of certainty the authenticity of the sender of such communication.

(l) The "1940 Act" refers to the Investment Company Act of 1940, and the
rules and regulations thereunder, all as amended from time to time.

2. Appointment of Custodian.

(a) The Trust hereby constitutes and appoints the Custodian as custodian of
all of the Securities and monies at any time owned by or in the possession of
the Fund during the period of this Agreement.

(b) The Custodian hereby accepts appointment as such custodian for the Fund
and agrees to perform the duties thereof as hereinafter set forth.

3. Compensation.

(a) The Trust will compensate the Custodian for its services rendered under
this Agreement in accordance with the fees set forth in that certain fee
agreement dated ____________, 1993, as may be amended from time to time (the
"Fee Agreement"). Such Fee Agreement does not include out-of-pocket
disbursements of the Custodian for which the Custodian shall be entitled to
bill separately. Out-of-pocket disbursements shall include, but shall not be
limited to, the items specified in Appendix B and incorporated herein (the
"Schedule"), which Schedule may be modified by the Custodian upon not less
than sixty (60) days' prior written notice to the Trust.

(b) The Custodian will bill the Trust in respect of out-of-pocket expenses as
soon as practicable after the end of each calendar month, and said billings
will be detailed in accordance with the Schedule. The Trust will promptly
pay to the Custodian the amount of such billing.

4. Custody of Cash and Securities.

(a) Receipt and Holding of Assets. The Trust will deliver or cause to be
delivered to the Custodian all Securities and monies owned by the Fund,
including cash received from the issuance of its Shares, at any time during
the period of this Agreement. The Custodian will not be responsible for such
Securities and monies until actually received by it. The Trust shall instruct
the Custodian from time to time in its sole discretion, by means of Written
Instructions, or in connection with the purchase or sale of Money Market
Securities, by means of Oral Instructions or Written Instructions, as to the
manner in which and in what amounts Securities and monies of the Fund are to
be deposited on behalf of the Fund in the Book-Entry System or a Depository
and specifically allocated on the books of the Custodian to the Fund;
provided, however, that prior to the initial deposit of Securities of the Fund
in the Book-Entry System or the Depository, the Custodian shall have received
Written Instructions specifically approving such deposit by the Custodian in
the Book-Entry System or a Depository.

(b) Accounts and Disbursements. The Custodian shall establish and maintain a
separate account for the Fund and shall credit to the separate account of the
Fund all monies received by it for the account of such Fund and shall disburse
the same only:

(i) In payment for Securities purchased for the Fund, as provided in Section
5 hereof;

(ii) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of the
Fund: interest, taxes, management, accounting, transfer agent and legal fees
and operating expenses of the Fund whether or not such expenses are, in whole
or in part, to be capitalized or treated as deferred expenses;

(iii) For payment of the amount of dividends received in respect of
Securities sold short;

(iv) In payment of dividends or distributions with respect to the Shares of
the Fund, as provided in Section 7 hereof;

(v) In payment of original issue or other taxes with respect to the Shares of
the Fund;

(vi) In payment for Shares which have been repurchased by the Fund, in the
open market or otherwise;

(vii) Pursuant to Written Instructions or, with respect to Money Market
Securities, Oral Instructions or Written Instructions, setting forth the name
and address of the person to whom the payment is to be made, the amount to be
paid and the purpose for which payment is to be made; or

(viii) In payment of fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to the Fund, as provided in Section
3(a) and Section 10(h) hereof.

(c) Confirmation and Statements. Promptly after the close of business on
each day, the Custodian shall furnish the Trust with confirmations and a
summary of all transfers to or from the account of the Fund during said day.
Where securities purchased by the Fund are in a tangible bulk of securities
registered in the name of the Custodian (or its nominee) or shown on the
Custodian's account on the books of the Depository or the Book-Entry System,
the Custodian shall by book entry or otherwise identify the quantity of those
securities belonging to the Fund. At least monthly, the Custodian shall
furnish the Fund with a detailed statement of the Securities and monies held
for the Fund under this Agreement.

(d) Registration of Securities and Physical Separation. All Securities held
for the Fund which are issued or issuable only in bearer form, except such
Securities as are held in the Book-Entry System, shall be held by the
Custodian in that form; all other Securities held for the Fund may be
registered in the name of the Fund, in the name of any duly appointed
registered nominee of the Custodian as the Custodian may from time to time
determine, or in the name of the Book-Entry System or a Depository or their
successor or successors, or their nominee or nominees. The Fund reserves the
right to instruct the Custodian as to the method of registration and
safekeeping of the Securities of the Fund. The Fund agrees to furnish to the
Custodian appropriate instruments to enable the Custodian to hold or deliver
in proper form for transfer, or to register in the name of its registered
nominee or in the name of the Book-Entry System or a Depository, any
Securities which it may hold for the account of the Fund and which may from
time to time be registered in the name of the Fund. The Custodian shall hold
all such Securities which are not held in the Book-Entry System or the
Depository in a separate account for the Fund in the name of the Fund
physically segregated at all times from those of any other person or persons.

(e) Collection of Income and Other Matters Affecting Securities. Unless
otherwise instructed to the contrary by Written Instructions, the Custodian by
itself, or through the use of the Book-Entry System or the Depository with
respect to Securities therein deposited, shall with respect to all Securities
held for the Fund in accordance with this Agreement:

(i) Collect on a timely basis all income due or payable;

(ii) Present on a timely basis for payment and collect the amount payable
upon all Securities which may mature or be called, redeemed or retired, or
otherwise become payable. Notwithstanding the foregoing, the Custodian shall
have no responsibility to the Fund for monitoring or ascertaining any call,
redemption or retirement dates with respect to any put bonds which are owned
by the Fund and held by the Custodian or its nominee, nor shall the Custodian
have any responsibility or liability to the Fund for any loss by the Fund for
any missed payment or other default resulting therefrom; unless the Custodian
received timely notification from the Fund specifying the time, place and
manner for the presentment of any such put bond owned by the Fund and held by
the Custodian or its nominee. The Custodian shall not be responsible and
assumes no liability to the Fund for the accuracy or completeness of any
notification the Custodian may furnish to the Fund with respect to put bonds;

(iii) Surrender Securities in temporary form for definitive Securities;

(iv) Execute any necessary declarations or certificates of ownership under
the Federal income tax laws or the laws or regulations of any other taxing
authority now or hereafter in effect; and

(v) Hold directly, or through the Book-Entry System or a Depository with
respect to Securities therein deposited, for the account of the Fund all
rights and similar Securities issued with respect to any Securities held by
the Custodian hereunder for the Fund.

(f) Delivery of Securities and Evidence of Authority. Upon receipt of
Written Instructions and not otherwise, except for subparagraphs (v) - (xii)
below which may be effected by Oral or Written Instructions, the Custodian,
directly or through the use of the Book-Entry System or a Depository, shall:

(i) Execute and deliver or cause to be executed and delivered to such persons
as may be designated in such Written Instructions proxies, consents,
authorizations and any other instruments whereby the authority of the Fund as
owner of any Securities may be exercised;

(ii) Deliver or cause to be delivered any Securities held for the Fund in
exchange for other Securities or cash issued or paid in connection with the
liquidation, reorganization, refinancing, merger, consolidation or
recapitalization of any corporation, or the exercise of any conversion
privilege;

(iii) Deliver or cause to be delivered any Securities held for the Fund to
any protective committee, reorganization committee or other person in
connection with the reorganization, refinancing, merger, consolidation or
recapitalization or sale of assets of any corporation, and receive and hold
under the terms of this Agreement in the separate account for the Fund such
certificates of deposit, interim receipts or other instruments or documents as
may be issued to it to evidence such delivery;

(iv) Make or cause to be made such transfers or exchanges of the assets
specifically allocated to the separate account of the Fund and take such other
steps as shall be stated in said Written Instructions to be for the purpose of
effectuating any duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund;

(v) Deliver Securities owned by the Fund upon sale of such Securities for the
account of the Fund pursuant to Section 5;

(vi) Deliver Securities owned by the Fund upon the receipt of payment in
connection with any repurchase agreement related to such Securities entered
into by the Fund;

(vii) Deliver Securities owned by the Fund to the issuer thereof or its agent
when such Securities are called, redeemed, retired or otherwise become
payable; provided, however, that in any such case the cash or other
consideration is to be delivered to the Custodian. Notwithstanding the
foregoing, the Custodian shall have no responsibility to the Fund for
monitoring or ascertaining any call, redemption or retirement dates with
respect to any put bonds which are owned by the Fund and held by the Custodian
or its nominee, nor shall the Custodian have any responsibility or liability
to the Fund for any loss by the Fund for any missed payment or other default
resulting therefrom unless the Custodian received timely notification from the
Fund specifying the time, place and manner for the presentment of any such put
bond owned by the Fund and held by the Custodian or its nominee. The
Custodian shall not be responsible and assumes no liability to the Fund for
the accuracy or completeness of any notification the Custodian may furnish to
the Fund with respect to put bonds;

(viii) Deliver Securities owned by the Fund to the issuer thereof, or its
agent, for transfer into the name of the Fund or into the name of any nominee
or nominees of the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 10(f) or into the name or nominee name of any
sub-custodian appointed pursuant to Section 10(e); or for exchange for a
different number of bonds, certificates or other evidence representing the
same aggregate face amount or number of units; provided, however, that in any
such case, the new Securities are to be delivered to the Custodian;

(ix) Deliver Securities owned by the Fund to the broker for examination in
accordance with "street delivery" custom;

(x) Deliver Securities owned by the Fund in accordance with the provisions of
any agreement among the Fund, the Custodian and a broker-dealer registered
under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of
the National Association of Securities Dealers, Inc. (the "NASD"), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund;

(xi) Deliver Securities owned by the Fund in accordance with the provisions
of any agreement among the Fund, the Custodian, and a futures commission
merchant registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding account
deposits in connection with transactions by the Fund;

(xii) Deliver Securities owned by the Fund for delivery in connection with
any loans of Securities made by the Fund but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian and the Fund
which may be in the form of cash or obligations issued by the United States
government, its agencies or instrumentalities;

(xiii) Deliver Securities owned by the Fund for delivery as security in
connection with any borrowings by the Fund requiring a pledge of Fund assets,
but only against receipt of amounts borrowed;

(xiv) Deliver Securities owned by the Fund upon receipt of instructions from
the Fund for delivery to the Transfer Agent or to the holders of Shares in
connection with distributions in kind, as may be described from time to time
in the Fund's Prospectus, in satisfaction of requests by holders of Shares for
redemption; and

(xv) Deliver Securities owned by the Fund for any other proper business
purpose, but only upon receipt of, in addition to Written Instructions, a
certified copy of a resolution of the Board of Trustees signed by an
Authorized Person and certified by the Secretary of the Fund specifying the
Securities to be delivered, setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a proper business purpose, and
naming the person or persons to whom delivery of such Securities shall be
made.

(g) Endorsement and Collection of Checks, Etc. The Custodian is hereby
authorized to endorse and collect all checks, drafts or other orders for the
payment of money received by the Custodian for the account of the Fund;
provided, however, that the Custodian shall not be liable for any money,
whether or not represented by any check, draft, or other instrument for the
payment of money, received by it on behalf of the Fund until the Custodian
actually receives and collects such money directly or by the final crediting
of the account representing the Fund's interest in the Book-Entry System or
the Depository.

5. Purchase and Sale of Investments of the Fund.

(a) Promptly after each purchase of Securities for the Fund, the Fund shall
deliver to the Custodian (i) with respect to each purchase of Securities which
are not Money Market Securities, Written Instructions, and (ii) with respect
to each purchase of Money Market Securities, either Written Instructions or
Oral Instructions, in either case specifying with respect to each purchase:
(1) the name of the issuer and the title of the Securities; (2) the number of
shares or the principal amount purchased and accrued interest, if any; (3) the
date of purchase and settlement; (4) the purchase price per unit; (5) the
total amount payable upon such purchase; (6) the name of the person from whom
or the broker through whom the purchase was made, if any; (7) whether or not
such purchase is to be settled through the Book-Entry System or the
Depository; and (8) whether the Securities purchased are to be deposited in
the Book-Entry System or the Depository. The Custodian shall receive the
Securities purchased by or for the Fund and upon receipt of such Securities
shall pay out of the monies held for the account of the Fund the total amount
payable upon such purchase, provided that the same conforms to the total
amount payable as set forth in such Written Instructions or Oral Instructions.

(b) Promptly after each sale of Securities of the Fund, the Fund shall
deliver to the Custodian (i) with respect to each sale of Securities which are
not Money Market Securities, Written Instructions, and (ii) with respect to
each sale of Money Market Securities, either Written or Oral Instructions, in
either case specifying with respect to such sale: (1) the name of the issuer
and the title of the Securities; (2) the number of shares or principal amount
sold, and accrued interest, if any; (3) the date of sale; (4) the sale price
per unit; (5) the total amount payable to the Fund upon such sale; (6) the
name of the broker through whom or the person to whom the sale was made; and
(7) whether or not such sale is to be settled through the Book-Entry System or
the Depository. The Custodian shall deliver or cause to be delivered the
Securities to the broker or other person designated by the Fund upon receipt
of the total amount payable to the Fund upon such sale, provided that the same
conforms to the total amount payable to the Fund as set forth in such Written
or such Oral Instructions. Subject to the foregoing, the Custodian may accept
payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs prevailing
among dealers in securities.

6. Lending of Securities.

(a) Within 24 hours after each loan of Securities by the Fund as disclosed in
its Prospectus, the Fund shall deliver or cause to be delivered to the
Custodian Written Instructions specifying with respect to each such loan: (1)
the name of the issuer and the title of the Securities; (2) the number of
shares or the principal amount loaned; (3) the date of loan and delivery; (4)
the total amount to be delivered to the Custodian, including the amount of
cash collateral and the premium, if any, separately identified; (5) the name
of the broker, dealer or financial institution to which the loan was made; and
(6) whether the Securities loaned are to be delivered through the Book-Entry
System or the Depository. Promptly after each termination of a loan of
Securities, the Fund shall deliver to the Custodian Written Instructions
specifying with respect to each such loan termination and return of
Securities: (1) the name of the issuer and the title of the Securities to be
returned; (2) the number of shares or the principal amount to be returned; (3)
the date of termination; (4) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting
credits as described in said Written Instructions); (5) the name of the
broker, dealer or financial institution from which the Securities will be
returned; and (6) whether such return is to be effected through the Book-Entry
System or the Depository. The Custodian shall receive all Securities returned
from the broker, dealer or financial institution to which such Securities were
loaned and upon receipt thereof shall pay, out of the monies held for the
account of the Fund, the total amount payable upon such return of Securities
as set forth in the Written Instructions. Securities returned to the
Custodian shall be held as they were prior to such loan.

7. Payment of Dividends or Distributions.

(a) The Fund shall furnish to the Custodian a copy of the resolution of the
Board of Trustees of the Trust certified by the Secretary or an Assistant
Secretary (i) authorizing the declaration of dividends or distributions with
respect to the Fund on a specified periodic basis and authorizing the
Custodian to rely on Oral or Written Instructions specifying the date of the
declaration of such dividend or distribution, the date of payment thereof, the
record date as of which shareholders entitled to payment shall be determined
and the amount payable per share to the shareholders of record as of the
record date, or (ii) setting forth the date of declaration of any dividend or
distribution by the Fund, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined and the amount
payable per share to the shareholders of record as of the record date.

(b) Prior to the payment date specified in such resolution, Oral Instructions
or Written Instructions, as the case may be, the Fund shall deliver to the
Custodian Oral Instructions or Written Instructions specifying the total
amount payable to the Transfer Agent.

(c) Upon the payment date specified in such resolution, Oral Instructions or
Written Instructions, as the case may be, the Custodian shall pay to the
Transfer Agent out of monies specifically allocated to and held for the
account of the Fund the total amount payable to the Transfer Agent.

8. Indebtedness.

(a) The Fund will cause to be delivered to the Custodian by any bank
(excluding the Custodian) from which the Fund borrows money using Securities
as collateral for such borrowings, a notice or undertaking in the form
currently employed by any such bank setting forth the amount which such bank
will loan to the Fund against delivery of a stated amount of collateral. The
Fund shall promptly deliver to the Custodian Written or Oral Instructions
stating with respect to each such borrowing: (1) the name of the bank; (2)
the amount and terms of the borrowing, which may be set forth by incorporating
by reference an attached promissory note, duly endorsed by the Fund, or other
loan agreement; (3) the time and date, if known, on which the loan is to be
entered into (the "Borrowing Date"); (4) the date on which the loan becomes
due and payable; (5) the total amount payable to the Fund on the Borrowing
Date; (6) the market value of Securities to be delivered as collateral for
such loan, including the name of the issuer, the title and the number of
shares or the principal amount of any particular Securities; (7) whether the
Custodian is to deliver such collateral through the Book-Entry System or the
Depository; and (8) a statement that such loan is in conformance with the 1940
Act and the Fund's Prospectus.

(b) Upon receipt of the Written or Oral Instructions referred to in
subparagraph (a) above, the Custodian shall deliver on the Borrowing Date the
specified collateral and the executed promissory note, if any, against
delivery by the lending bank of the total amount of the loan payable, provided
that the same conforms to the total amount payable as set forth in the Written
or Oral Instructions. The Custodian may, at the option of the lending bank,
keep such collateral in its possession, but such collateral shall be subject
to all rights therein given the lending bank by virtue of any promissory note
or loan agreement. The Custodian shall deliver as additional collateral in
the manner directed by the Fund from time to time such Securities as may be
specified in Written or Oral Instructions to collateralize further any
transaction described in this Section 8. The Fund shall cause all Securities
released from collateral status to be returned directly to the Custodian, and
the Custodian shall receive from time to time such return of collateral as may
be tendered to it. In the event that the Fund fails to specify in Written or
Oral Instructions all of the information required by this Section 8, the
Custodian shall not be under any obligation to deliver any Securities or to
seek the return of the collateral; provided, however, that the Custodian shall
promptly notify the Fund of any information required by this Section 8 and not
specified in Written or Oral Instructions. Collateral returned to the
Custodian shall be held hereunder as it was prior to being used as collateral.

9. Persons Having Access to Assets of the Fund.

(a) No Trustee, employee or agent of the Trust, and no officer, director,
employee or agent of the Fund's investment adviser, shall have physical access
to the assets of the Fund held by the Custodian or be authorized or permitted
to withdraw any investments of the Fund, nor shall the Custodian deliver any
assets of the Fund to any such person. No officer, director, employee or
agent of the Custodian who holds any similar position with the Fund or its
investment adviser shall have access to the assets of the Fund.

(b) Nothing in this Section shall prohibit any officer, employee or agent of
the Trust, or any officer, director, employee or agent of the Fund's
investment adviser, from giving Oral Instructions or Written Instructions to
the Custodian or executing a certificate so long as it does not result in
delivery of or access to assets of the Fund as prohibited by subparagraph (a)
of this Section.

10. Concerning the Custodian.

(a) Standard of Conduct. Except as otherwise provided herein, neither the
Custodian nor its nominee shall be liable for any loss or damage, including
counsel fees, resulting from its action or omission to act or otherwise,
except for any such loss or damage arising out of its own negligence, bad
faith or willful misconduct. The Custodian may, with respect to questions of
law, apply for and obtain the advice and opinion of counsel to the Trust (at
the expense of the Trust) or of its own counsel and shall be fully protected
with respect to anything done or omitted by it in good faith in conformity
with such advice or opinion. The Custodian shall be liable to the Fund for
any loss or damage resulting from the use of the Book-Entry System or the
Depository arising by reason of any negligence, misfeasance or misconduct on
the part of the Custodian or any of its employees or agents.

(b) Limit of Duties. Without limiting the generality of the foregoing, the
Custodian shall be under no duty or obligation to inquire into, and shall not
be liable for:

(i) The validity of the issue of any Securities purchased by the Fund, the
legality of the purchase thereof, or the propriety of the amount paid
therefor;

(ii) The legality of the sale of any Securities by the Fund or the propriety
of the amount for which the same are sold;

(iii) The legality of the issue or sale of any Shares, or the sufficiency of
the amount to be received therefor;

(iv) The legality of the repurchase of any Shares, or the propriety of the
amount to be paid therefor;

(v) The legality of the declaration or payment of any dividend or other
distribution of the Fund; or

(vi) The legality of any borrowing for temporary or emergency administrative
purposes.

(c) Amounts Due from Transfer Agent. The Custodian shall not be under any
duty or obligation to take action to effect collection of any amount due to
the Fund from the Transfer Agent nor to take any action to effect payment or
distribution by the Transfer Agent of any amount paid by the Custodian to the
Transfer Agent in accordance with this Agreement.

(d) Collection Where Payment Refused. The Custodian shall not be under any
duty or obligation to take action to effect collection of any amount, if the
Securities upon which such amount is payable are in default, or if payment is
refused after due demand or presentation, unless and until (i) it shall be
directed to take such action by Written Instructions and (ii) it shall be
assured to its satisfaction of reimbursement of its costs and expenses in
connection with any such action.

(e) Appointment of Sub-Custodians. The Custodian may appoint one or more
qualified institutions, including but not limited to banking institutions, to
act as Depository or Depositories or as Sub-Custodian or Sub-Custodians of
Securities and monies at any time owned by the Fund, upon terms and conditions
specified in a Board Resolution, the terms of which have been mutually agreed
upon from time to time by the Custodian and the Fund. The Custodian shall use
reasonable care in selecting any such Depository and/or Sub-Custodian and
shall oversee the maintenance of any Securities or monies of the Fund by the
Sub-Custodian. In addition, the Custodian may from time to time appoint one
or more of the institutions listed in Appendix D hereto, or such other
institutions as may hereafter be approved by vote of the Trustees of the Fund,
as foreign sub-custodians for the Fund's securities located outside the United
States, provided that any such institution shall constitute an "Eligible
Foreign Custodian" within the meaning of Rule 17f-5 under the 1940 Act.

The Custodian shall maintain such records as shall be necessary to identify
the assets of the Fund held by any foreign sub-custodians. The Custodian
shall furnish to the Fund such periodic reports as the Fund shall reasonably
request with respect to the assets of the Fund held by each foreign sub-
custodian, and shall furnish to the Fund such notices of transfers of
securities, deposits or other assets to or from the Fund's account by any
foreign sub-custodian as the Fund shall request.

The Custodian shall advise the Fund promptly if it learns that any foreign
agent or sub-custodian no longer constitutes an "Eligible Foreign Custodian"
and of any failure by any foreign sub-custodian to observe any material term
of its appointment.

The Custodian may authorize one or more of the foreign sub-custodians to use
the facilities of one or more foreign central securities depositories or
clearing agencies listed in Appendix E hereto, or as may hereafter be approved
by vote of the Trustees of the Fund; provided that any such organization shall
constitute an "Eligible Foreign Custodian."

In the event that any foreign sub-custodian fails to perform any of its
obligations under the terms of its appointment, the Custodian shall use its
best efforts to cause such foreign sub-custodian to perform such obligations.
At the written request of the Fund, the Custodian shall use its best efforts
to assert and collect any claim for liability for any loss or damage incurred
by the Fund arising out of the failure of any such subcustodian to perform
such obligations.

(f) Appointment of Agents. The Custodian may at any time or times in its
discretion appoint, and may at any time remove, any other bank or trust
company which is itself qualified under the 1940 Act to act as a custodian, as
its agent to carry out such of the provisions of this Agreement as the
Custodian may from time to time direct.

(g) No Duty to Ascertain Authority. The Custodian shall not be under any
duty or obligation to ascertain whether any Securities at any time delivered
to or held by it for the Fund are such as may properly be held by the Fund
under the provisions of its Charter and the Prospectus.

(h) Payments to the Custodian. The Custodian may charge against any money
held by it for the account of the Fund any expenses incurred by the Custodian
in the performance of its duties pursuant to this Agreement with respect to
the Fund. The Custodian shall also be entitled to charge against any money of
the Fund held by it the amount of any loss, damage, liability or expense
incurred with respect to the Fund including counsel fees, for which it shall
be entitled to reimbursement under the provisions of this Agreement.

(i) Reliance on Certificates and Instructions. The Custodian shall be
entitled to rely upon any certificate, notice or other instrument in writing
received by the Custodian and reasonably believed by the Custodian to be
genuine and to be signed by an Authorized Person. The Custodian shall be
entitled to rely upon any Written Instructions or Oral Instructions actually
received by the Custodian pursuant to the applicable Sections of this
Agreement and reasonably believed by the Custodian to be genuine and to be
given by an Authorized Person. The Fund agrees to forward to the Custodian
Written Instructions from an Authorized Person confirming such Oral
Instructions in such manner so that such Written Instructions are received by
the Custodian, whether by hand delivery, telex or otherwise, by the close of
business on the same day that such Oral Instructions are given to the
Custodian. The Fund agrees that the fact that such confirming instructions
are not received by the Custodian shall in no way affect the validity of the
transactions or enforceability of the transactions hereby authorized by the
Fund. The Fund agrees that the Custodian shall incur no liability to the Fund
in acting upon Oral Instructions given to the Custodian hereunder concerning
such transactions, provided such instructions reasonably appear to have been
received from a duly Authorized Person.

11. Records. The Custodian shall create and maintain all records
relating to its activities and obligations under this Agreement in such a
manner as will meet the obligations of the Fund under the 1940 Act, with
particular attention to Section 31 thereof, Rules 31a-1 and 31a-2 thereunder,
applicable federal and state tax laws and any law or administrative rules or
procedures which may be applicable to the Fund. All such records shall be the
property of the Trust and shall at all times during regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Trust and employees and agents of the Securities and Exchange
Commission.

12. Opinion of Fund's Independent Accountants. The Custodian shall
take all reasonable action as the Fund may from time to time request, to
obtain from year to year favorable opinions from the Fund's independent
accountants with respect to the activities hereunder in connection with the
preparation of Amendments to the Trust's Registration Statement, and Form N-
SAR or other annual reports to the Securities and Exchange Commission, and
with respect to any other requirements of such Commission.

13. Reports to Fund by Independent Public Accountants. The Custodian
shall provide the Fund with reports by independent public accountants on the
accounting system, internal accounting controls and procedures for
safeguarding Securities, including securities deposited and/or maintained in a
Depository or Book-Entry System, relating to the services provided by the
Custodian under this Agreement.

14. Miscellaneous.

(a) Annexed hereto as Appendix A is a certification signed by the
Secretary or an Assistant Secretary of the Trust setting forth the names and
the signatures of the present Authorized Persons. The Trust agrees to furnish
to the Custodian a new certification in similar form in the event that any
such present Authorized Person ceases to be such an Authorized Person or in
the event that other or additional Authorized Persons are elected or
appointed. Until such new certification shall be received, the Custodian
shall be fully protected in acting under the provisions of this Agreement upon
Oral Instructions or signatures of the present Authorized Persons as set forth
in the last delivered certification.

(b) Annexed hereto as Appendix C is a certification signed by the Secretary
or an Assistant Secretary of the Trust setting forth the names and the
signatures of the present officers of the Trust. The Trust agrees to furnish
to the Custodian a new certification in similar form in the event that any
such present officer ceases to be an officer of the Trust or in the event that
other or additional officers are elected or appointed. Until such new
certification shall be received, the Custodian shall be fully protected in
acting under the provisions of this Agreement upon the signature of the
officer as set forth in the last delivered certification.

(c) Any notice or other instrument in writing, authorized or required by this
Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at 31
St. James Avenue, Boston, Massachusetts 02116, Attention:
, or at such other place as the Custodian may from time to
time designate in writing.

(d) Any notice or other instrument in writing, authorized or required by this
Agreement to be given to the Trust, shall be sufficiently given if addressed
to the Trust and mailed or delivered to it at One Exchange Place, Boston, MA
02109, Attention: Gary M. Gardner, Secretary or at such other place as the
Fund may from time to time designate in writing.

(e) This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties with the same formality as this
Agreement.

(f) This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Trust without the written
consent of the Custodian, or by the Custodian without the written consent of
the Trust authorized or approved by a resolution of the Board of Trustees of
the Trust, and any attempted assignment without such written consent shall be
null and void.

(g) This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts.

(h) This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original but such counterparts shall, together,
constitute only one agreement.

(i) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.

15. Termination of Agreement

(a) This Agreement shall become effective on the date hereof and
shall remain in force unless terminated pursuant to the provisions of
subparagraph (b) of this Section 15.

(b) This Agreement may be terminated at any time without payment
of any penalty, upon sixty (60) days' written notice, by vote of the holders
of a majority of the outstanding voting securities of the Trust, by vote of a
majority of the Board of Trustees of the Trust, or by the Custodian. In the
event such notice is given by the Trust, it shall be accompanied by a
certified vote of the Board of Trustees of the Trust, electing a successor
custodian or custodians. In the event such notice is given by the Custodian,
the Trust shall, on or before the termination date, deliver to the Custodian a
certified resolution of the Board of Trustees of the Trust, designating a
successor custodian or custodians. In the absence of such designation, the
Custodian may designate a successor custodian which shall be qualified to so
act under the 1940 Act. If the Trust fails to designate a successor
custodian, upon the delivery by the Custodian of all Securities and monies
then owned by the Trust to a successor custodian designated by the Custodian,
the Custodian shall thereby be relieved of all duties and responsibilities
pursuant to this Agreement.

(c) Upon the date set forth in such notice under this Section 15,
this Agreement shall terminate to the extent specified in such notice, and the
Custodian shall upon receipt of a notice of acceptance by the successor
custodian on that date deliver directly to the successor custodian all
Securities and monies then held by the Custodian, after deducting all fees,
expenses and other amounts for the payment or reimbursement of which it shall
then be entitled.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their duly authorized officers as of the date first
set forth above.

LEHMAN BROTHERS INSTITUTIONAL
FUNDS GROUP TRUST

By:

Name: William J. Nutt
Chairman of the Board of Trustees

BOSTON SAFE DEPOSIT & TRUST
COMPANY

By:

Name:
Title:

CUSTODY AGREEMENT

APPENDIX A

I, Francis J. McNamara, III, Secretary of Institutional Funds Group
Trust. (the "Trust"), do hereby certify that the following individuals have
been duly authorized by the Board of Trustees of the Trust in conformity with
the Trust's Declaration of Trust and By-Laws to give Oral Instructions and
Written Instructions on behalf of the Prime Money Market Fund, Prime Plus
Money Market Fund, Treasury Instruments Money Market Fund, Treasury
Instruments Money Market Fund II, Government Obligations Money Market Fund,
100% Treasury Instruments Money Market Fund, 100% Government Obligations Money
Market Fund, Tax-Free Money Market Fund, Municipal Money Market Fund,
California Municipal Money Market Fund, and New York Municipal Money Market
Fund and the signatures set forth opposite their respective names are their
true and correct signatures:

Name Signature

Diane Leone

Robert Dwight

Francis J. McNamara, III
Secretary

CUSTODY AGREEMENT
APPENDIX B
Out-of-Pocket Expenses

I. Out of pocket expenses include, but are not limited to, the
following:

- Telephone
- Wire charges
- Postage and Insurance
- Courier Charges
- Supplies
- Duplicating
- Transfer Fees
- Sub-custodian charges
- Single Audit Letter

CUSTODY AGREEMENT

APPENDIX C

I, Francis J. McNamara, III, Secretary of Institutional Funds Group
Trust (the "Trust"), do hereby certify that the following individuals serve in
the following positions with the Trust and each individual has been duly
elected or appointed by the Board of Trustees of the Trust to each such
position and qualified therefor in conformity with the Trust's Declaration of
Trust and By-Laws, and the signature set forth opposite their respective names
are their true and correct signatures:

Name Position Signature

William J. Nutt Chairman

Peter Meenan President

Vincent Nave Treasurer

Francis J. McNamara, III Secretary

Gary M. Gardner Assistant Secretary

Elizabeth Nystedt Assistant Secretary

Richard H. Rose Assistant Treasurer

Richard W. Ingram Assistant Treasurer

Phyllis Visalli-Zahorodny Vice President and
Investment Officer

Lawrence McDermott Vice President and
Investment Officer

Francis J. McNamara, III
Secretary

CUSTODY AGREEMENT
APPENDIX D

Foreign Sub-Custodians

Citibank, N.A., Buenos Aires

National Australia Bank, Ltd, Melbourne

Creditanstalt-Bankverein, Vienna

Generale Bank, Brussels

Citibank, N.A., Sao Paulo

Canada Trustco Mortgage Company, Toronto

Citibank, N.A., Santiago

Barclays Bank PLC, Nicosia

Den Danske Bank, Copenhagen

Kansallis-Osake-Pankki, Helsinki

Banque Paribas, Paris

Berliner Handels und Frankfurter Bank, Frankfurt

National Bank of Greece, Athens

The Hongkong and Shanghai Banking Corp., Hong Kong

The Hongkong and Shanghai Banking Corp., Jakarta

Bank of Ireland, Dublin

Bank Hapoalim B.M., Tel Aviv

Morgan Guaranty Trust Co., Milan

The Mitsubishi Bank, Ltd, Tokyo

Arab Bank, Amman
Korea Exchange Bank, Seoul

Banque Generale du Luxembourg, Luxembourg

Standard Chartered Bank, Kuala Lumpur

Banco Nacional de Mexico S.A., Mexico City

Pierson, Heldring & Pierson, N.A., Amsterdam

National Nominees, Ltd., Auckland

Christiania Bank, Oslo

Deutsche Bank, Karachi

The Hongkong and Shanghai Banking Corp., Manila

Banco Totta & Acores S.A., Lisbon

Development Bank of Singapore, Singapore

Banco Urquijo, Madrid

The Hongkong and Shanghai Banking Corp., Colombo

Svenska Handelsbanken, Stockholm

Bank Leu Ltd., Zurich

The Hongkong and Shanghai Banking Corp., Bangkok

Citibank, N.A., Istanbul

Boston Safe Deposit and Trust Co., London

Citibank, N.A., Montevideo

Citibank, N.A., Caracus

Transnational Depositories:

Euro-clear Clearance System, Belgium

Centrale de Livraison de Valeures Mobilieres (Cedel), Luxembourg

CUSTODY AGREEMENT
APPENDIX E

Foreign Central Securities
Depositories and Clearing Agencies

Caja de Valores (CDV)

Austraclear Limited

Wertpapiersammelbank (WSB)

Caisse Interprofessionelle de Depots et de Virements de Titres S.A. (C.I.K.)

Bolsa de Valores de Sao Paulo (BOVESPA)

The Canadian Depository for Securities Ltd. (CDS)

Vaerdipapircentralen (VP-Centralen)

Society Interprofessionelle pour la Conversation des Valeurs Mobilieres
(SICOVAM)

Kassenvereine

Hong Kong Securities Clearing Co. (HSCC)

Bank Hapoalim, Bank Leumi, Bank Mizrahi and Israel Discount Bank

Monte Titoli S.p.A.

Japan Securities Depository Centre (JASDEC)

Korea Securities Settlement Corp. (KSSC)

Central Depository System (CDS)

Instituto para el Deposito de Valores (INDEVAL)

Netherlands Clearing Institute for Giro Securities Deliveries (NECIGEF)

Verdipapirsentralen (VPS)

Central Depository (Pte) Ltd. (CDP)

Central Depository System (Pvt) Ltd. (CDS)

Vardepapperscentralen VPC

The Schweizerische Effekten-Giro AG (SEGA)

a:custody.doc
16

EXHIBIT 9(a)
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

ADMINISTRATION AGREEMENT

February 3, 1993

The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108

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 The
Boston Company Advisors, Inc. ("Boston Advisors") regarding
administration services to be provided by Boston Advisors to each
investment fund currently offered by the Trust or to be offered
in the future (individually, a "Fund" and collectively, the
"Funds"). Boston Advisors agrees to provide services upon the
following terms and conditions:

1. Appointment.

The Trust desires to employ and hereby appoints Boston
Advisors to act as the administrator of each Fund. Boston
Advisors accepts this appointment and agrees to furnish the
services for the compensation set forth below.

2. Services.

(a) As administrator, and subject to the supervision of the
Trust's Board of Trustees, Boston Advisors will assist in
supervising all aspects of the operations of the Funds, other
than those functions which are to be performed by the other
service providers to the Funds. Boston Advisors responsibilities
include:

(i) Providing and supervising the operation of an automated
data processing system to process purchase and redemption orders;

(ii) Providing information concerning the Funds to their
shareholders of record; distributing regular written
communications to their record shareholders such as dividend
letters, listings of each Fund's portfolio securities; and
handling shareholder inquiries;

(iii) Supervising the services of employees
("shareholder representatives") whose principal responsibility
and function shall be to preserve and strengthen the Trust's
relationships with its shareholders;

(iv) Monitoring the Trust's arrangements with respect to
services provided by certain institutional shareholders (herein
called "Service Organizations") to their customers, who are the
beneficial owners of shares of the Fund (including any series or
sub-class thereof), pursuant to agreements between the Trust and
such Service Organizations (herein called "Servicing
Agreements"), including, among other things, reviewing the
qualifications of Service Organizations wishing to enter into
Servicing Agreements with the Trust, assisting in the execution
and delivery of Servicing Agreements, reporting to the Board of
Trustees with respect to the amounts paid or payable by the Trust
from time to time under the Servicing Agreements and the nature
of the services provided by Service Organizations, and
maintaining appropriate records in connection with its monitoring
duties.

(b) Boston Advisors will prepare reports to the Funds
shareholders and prepare tax returns and reports to and filings
with the Securities and Exchange Commission.

(d) Boston Advisors shall be responsible for the
maintenance of the registration or qualification of the shares of
the Funds for sale under state securities laws. Payment of share
registration fees and any fees for qualifying or continuing the
qualification of the Trust as a dealer or broker shall be made by
the Trust.

(e) Boston Advisors shall provide the services of certain
persons who may be elected as trustees or appointed as officers
of the Trust by the Board of Trustees.

3. Compensation.

In consideration of services rendered pursuant to this
Agreement, each Fund will pay Boston Advisors on the first
business day of each month a fee for the previous month at the
annual rate of .10% of the value of such Fund's average daily net
assets. The fee for the period from the date a 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 with
respect to a Fund before the end of any month, the fee for such
part of a 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 with respect to
the Fund. For the purpose of determining fees payable to Boston
Advisors, the value of a Fund's net assets will be computed at
the times and in the manner specified in the prospectus and/or
the statement of additional information describing the Fund filed
with the Securities and Exchange Commission.

4. Expenses.

Boston Advisors will bear all expenses in connection with
the performance of its services under this Agreement. Each 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, administration and
shareholder services 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 the costs of corresponding with
shareholders of the Fund.

5. Reduction of Fee.

If in any fiscal year of a Fund, the aggregate expenses of
the Fund (including fees pursuant to this Agreement and the
Trust's investment advisory 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 limitations of any
state having jurisdiction over the Fund, Boston Advisors will
reduce its fee to the Fund for that excess expense, to the extent
required by state law in the same proportion as its
administration fee bears to the Fund's aggregate fees for
investment advice and administration. A fee reduction pursuant
to this paragraph 5, if any, will be estimated, reconciled and
paid on a monthly basis.

6. Standard of Care.

Boston Advisors will exercise its best judgment in rendering
the services listed in paragraph 2 above. Boston Advisors will
not be liable for any error of judgment or mistake of law or for
any loss suffered by a 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 Boston
Advisors against liability to the Trust or to shareholders of the
Fund to which Boston Advisors 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 Boston
Advisors reckless disregard of its obligations and duties under
this Agreement.

7. Term of Agreement.

(a) This Agreement will become effective with respect to a
Fund 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 with respect to a Fund,
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 Boston Advisors.

8. Service to Other Companies or Accounts.

(a) The Trust understands that Boston Advisors now acts,
will continue to act and may act in the future as investment
adviser to fiduciary and other managed accounts, and as
investment adviser, sub-investment adviser and/or administrator
to other investment companies, and the Trust has no objection to
Boston Advisors so acting, provided that whenever a Fund and one
or more fiduciary and other managed accounts or other investment
companies advised by Boston Advisors have available funds for
investment, investments suitable and appropriate for each will be
allocated in accordance with a formula believed by Boston
Advisors to be equitable to each company.

(b) The Trust understands that the persons employed by
Boston Advisors to assist in the performance of Boston Advisors
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 Boston Advisors or any
affiliate of Boston Advisors to engage in and devote time and
attention to other businesses or to render services of whatever
kind or nature.

9. 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.

10. Limitation of Liability.

The Trust and Boston Advisors 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 Funds, 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 Funds, as provided in the Declaration of
Trust . The execution and delivery of this Agreement have been
authorized by the Trustees 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 Funds as provided in the Declaration
of Trust . No Fund will be liable for any claims against any
other Fund.

If the foregoing is in accordance with your understanding,
kindly indicate your acceptance of this Agreement by signing and
returning to us the enclosed copy of this Agreement.

Very truly yours,

LEHMAN BROTHERS INSTITUTIONAL FUNDS
GROUP TRUST

By:
Name: Peter Meenan
Title: President

Accepted:

THE BOSTON COMPANY ADVISORS, INC.

By:
Name: Francis J. McNamara, III
Title: Senior Vice President

ifg/agreem/admin2.doc

EXHIBIT 9(c)
TRANSFER AGENCY AND REGISTRAR AGREEMENT

AGREEMENT, dated as of February 1, 1993 between LEHMAN INSTITUTIONAL
FUNDS GROUP TRUST, composed of: NEW YORK MUNICIPAL MONEY MARKET FUND;
CALIFORNIA MUNICIPAL MONEY MARKET FUND; PRIME MONEY MARKET FUND; GOVERNMENT
MONEY MARKET FUND; TREASURY MONEY MARKET FUND; TREASURY MONEY MARKET FUND II;
100% GOVERNMENT MONEY MARKET FUND; 100% TREASURY MONEY MARKET FUND; -MUNICIPAL
MONEY MARKET FUND; TAX-FREE MONEY MARKET FUND; and, PRIME PLUS MONEY MARKET
FUND, (collectively, the "Fund"), and THE SHAREHOLDER SERVICES GROUP, INC.
(MA) (the "Transfer Agent"), a Massachusetts corporation with principal
offices at One Exchange Place, 53 State Street, Boston, Massachusetts 02109.

W I T N E S S E T H

That for and in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and the Transfer Agent are as follows:

1. Definitions. Whenever used in this Agreement, the following words
and phrases, unless the context otherwise requires, shall have the following
meanings:

(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, Partnership Agreement, or similar
organizational document as the case may be, of the Fund as the same may be
amended form time to time.

(b) "Authorized Person" shall be deemed to include my person,
whether or not such person is an officer or employee of the Fund, duly
authorized to give Oral Instructions or Written Instructions on behalf of the
Fund as indicated in a certificate furnished to the Transfer Agent pursuant to
Section 4(c) hereof as may be received by the Transfer Agent from time to
time.

(c) "Board of Directors" shall mean the Board of Directors,
Board of Trustees or, if the Fund is a limited partnership, the General
Partner(s) of the Fund, as the case may be.

(d) "Commission" shall mean the Securities and Exchange
Commission.

(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time deposit, or
cause to be deposited or held under the name or account of such a custodian
pursuant to a Custodian Agreement.

(f) "Fund" shall mean the entity executing this Agreement, and
if it is a series fund, as such term is used in the 1940 Act, such term shall
mean each series of the Fund hereafter created, except that appropriate
documentation with respect to each series must be presented to the Transfer
Agent before this Agreement shall become effective with respect to each such
series.

(g) "1940 Act" shall mean the Investment Company Act of 1940.

(h) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by the Transfer Agent from a person
reasonably believed by the Transfer Agent to be an Authorized Person;

(i) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any supplements
thereto if any, which has become effective under the Securities Act of 1933
and the 1940 Act.

(j) "Shares" refers collectively to such shares of capital
stock, beneficial interest or limited partnership interests, as the case may
be, of the Fund as may be issued from time to time and, if the Fund is a
closed-end or a series fund, as such terms are used in the 1940 Act any other
classes or series of stock, shares of beneficial interest or limited
partnership interests that may be issued from time to time.

(k) "Shareholder" shall mean a holder of shares of capital
stock, beneficial interest or any other class or series, and also refers to
partners of limited partnerships.

(l) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by the Transfer Agent to be an
Authorized Person and actually received by the Transfer Agent. Written
Instructions shall include manually executed originals and authorized
electronic transmissions, including telefacsimile of a manually executed
original or other process.

2. Appointment of the Transfer Agent. The Fund hereby appoints and
constitutes the Transfer Agent as transfer agent, registrar and dividend
disbursing agent for Shares of the Fund and as shareholder servicing agent for
the Fund. The Transfer Agent accepts such appointments and agrees to perform
the duties hereinafter set forth.

3. Compensation.

(a) The Fund will compensate or cause the Transfer Agent to be
compensated for the performance of its obligations hereunder in accordance
with the fees set forth in the written schedule of fees annexed hereto as
Schedule A and incorporated herein. The Transfer Agent will transmit an
invoice to the Fund as soon as practicable after the end of each calendar
month which will be detailed in accordance with Schedule A, and the Fund will
pay to the Transfer Agent the amount of such invoice within thirty (30) days
after the Fund's receipt of the invoice.

In addition, the Fund agrees to pay, and will be billed separately for,
reasonable out-of-pocket expenses incurred by the Transfer Agent in the
performance of its duties hereunder. Out-of-pocket expenses shall include,
but shall not be limited to, the items specified in the written schedule of
out-of-pocket charges annexed hereto as Schedule B and incorporated herein.
Unspecified out-of-pocket expenses shall be limited to those out-of-pocket
expenses reasonably incurred by the Transfer Agent in the performance of its
obligations hereunder. Reimbursement by the Fund for expenses incurred by the
Transfer Agent in any month shall be made as soon as practicable but no later
than 15 days after the receipt of an itemized bill from the Transfer Agent.

(b) Any compensation agreed to hereunder may be adjusted after
the second anniversary of the Effective Date of this Agreement by attaching to
Schedule A, a revised fee schedule executed and dated by the parties hereto.

4. Documents. In connection with the appointment of the Transfer
Agent the Fund shall deliver or caused to be delivered to the Transfer Agent
the following documents on or before the date this Agreement goes into effect,
but in any case within a reasonable period of time for the Transfer Agent to
prepare to perform its duties hereunder:

(a) If applicable, specimens of the certificates for Shares of
the Fund;

(b) All account application forms and other documents relating
to Shareholder accounts or to any plan, program or service offered by the
Fund;

(c) A signature card bearing the signatures of any officer of
the Fund or other Authorized Person who will sign Written Instructions or is
authorized to give Oral Instructions.

(d) A certified copy of the Articles of Incorporation, as
amended;

(e) A certified copy of the By-laws of the Fund, as amended;

(f) A copy of the resolution of the Board of Directors
authorizing the execution and delivery of this Agreement;

(g) A certified list of Shareholders of the Fund with the name,
address and taxpayer identification number of each Shareholder, and the number
of Shares of the Fund held by each, certificate numbers and denominations (if
any certificates have been issued), lists of any accounts against which stop
transfer orders have been placed, together with the reasons therefore, and the
number of Shares redeemed by the Fund; and

(h) An opinion of counsel for the Fund with respect to the
validity of the Shares and the status of such Shares under the securities Act
of 1933, as amended.

5. Further Documentation. The Fund will also furnish the Transfer
Agent with copies of the following documents promptly after the same shall
become available:

(a) each resolution of the Board of Directors authorizing the
issuance of Shares;

(b) any registration statements filed on behalf of the Fund and
all pre-effective and post-effective amendments thereto filed with the
Commission;

(d) certified copies of each resolution of the Board of
Directors or other authorization designating Authorized Persons; and

(e) such other certificates, documents or opinions as the
Transfer Agent may reasonably request in connection with the performance of
its duties hereunder.

6. Representations of the Fund. The Fund represents to the Transfer
Agent that all outstanding Shares are validly issued, fully paid and non-
assessable. When Shares are hereafter issued in accordance with the terms of
the Fund's Articles of Incorporation and its Prospectus, such Shares shall be
validly issued, fully paid and non-assessable.

7. Distributions Payable in Shares. In the event that the Board of
Directors of the Fund shall declare a distribution payable in Shares, the Fund
shall deliver or cause to be delivered to the Transfer Agent written notice of
such declaration signed on behalf of the Fund by an officer thereof, upon
which the Transfer agent shall be entitled to rely for all purposes,
certifying (i) the identity of the Shares involved, (ii) the number of Shares
involved, and (iii) that all appropriate action has been taken.

8. Duties of the Transfer Agent. The Transfer Agent shall be
responsible for administering and/or performing those functions typically
performed by a transfer agent; for acting as service agent in connection with
dividend and distribution functions; and for performing shareholder account
and administrative agent functions in connection with the issuance, transfer
and redemption or repurchase (including coordination with the Custodian) of
Shares in accordance with the terms of the Prospectus and applicable law. The
operating standards and procedures to be followed shall be determined from
time to time by agreement between the Fund and the Transfer Agent and shall
initially be as described in Schedule C attached hereto. In addition, the
Fund shall deliver to the Transfer Agent all notices issued by the Fund with
respect to the Shares in accordance with and pursuant to the Articles of
Incorporation or By-laws of the Fund or as required by law and shall perform
such other specific duties as are set forth in the Articles of Incorporation
including the giving of notice of any special or annual meetings of
shareholders and any other notices required thereby.

9. Record Keeping and Other Information. The Transfer Agent shall
create and maintain all records required of it pursuant to its duties
hereunder and as set forth in Schedule C in accordance with all applicable
laws, rules and regulations, including records required by Section 31(a) of
the 1940 Act. All records shall be available during regular business hours
for inspection and use by the Fund. Where applicable, such records shall be
maintained by the Transfer Agent for the periods and in the places required by
Rule 31a-2 under the 1940 Act.

Upon reasonable notice by the Fund, the Transfer Agent shall make
available during regular business hours such of its facilities and premises
employed in connection with the performance of its duties under this Agreement
for reasonable visitation by the Fund, or any person retained by the Fund as
may be necessary for the Fund to evaluate the quality of the services
performed by the Transfer Agent pursuant hereto.

10. Other Duties. In addition to the duties set forth in Schedule C,
the Transfer Agent shall perform such other duties and functions, and shall be
paid such amounts therefor, as may from time to time by agreed upon in writing
between the Fund and the Transfer Agent. The compensation for such other
duties and functions shall be reflected in a written amendment to Schedule A
or B and the duties and functions shall be reflected in an amendment to
Schedule C, both dated and signed by authorized persons of the parties hereto.

11. Reliance by Transfer Agent; Instructions

(a) The Transfer Agent will have no liability when acting upon
Written or Oral Instructions believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice
of any change of authority of any person until receipt of a Written
Instruction thereof from the Fund pursuant to section 4(c). The Transfer
Agent will also have no liability when processing Share certificates which it
reasonably believes to bear the proper manual or facsimile signatures of the
officers of the Fund and the proper countersignature of the Transfer Agent.

(b) At any time, the Transfer Agent may apply to any Authorized
Person of the Fund for Written Instructions and may seek advice from legal
counsel for the Fund, or its own legal counsel, with respect to any matter
arising in connection with this Agreement, and it shall not be liable for any
action taken or not taken or suffered by it in good faith in accordance with
such Written Instructions or in accordance with the opinion of counsel for the
Fund or for the Transfer agent. Written Instructions requested by the
Transfer Agent will be provided by the Fund within a reasonable period of
time. In addition, the Transfer Agent, its officers, agents or employees,
shall accept Oral Instructions or Written Instructions given to them by any
person representing or acting on behalf of the Fund only if said
representative is an Authorized Person. The Fund agrees that all Oral
Instructions shall be followed within one business day by confirming Written
Instructions, and that the Fund's failure to so confirm shall not impair in
any respect the Transfer Agent's right to rely on Oral Instructions. The
Transfer agent shall have no duty or obligation to inquire into, nor shall the
Transfer agent be responsible for, the legality of any act done by it upon the
request or direction of a person reasonably believed by the Transfer Agent to
be an Authorized Person.

(c) Notwithstanding any of the foregoing provisions of this
Agreement, the Transfer Agent shall be under no duty or obligation to inquire
into, and shall not be liable for: (i) the legality of the issuance or sale
of any Shares or the sufficiency of the amount to be received therefor; (ii)
the legality of the redemption of any Shares, or the propriety of the amount
to be paid therefor; (iii) the legality of the declaration of any dividend by
the Board of Directors, or the legality of the issuance of any Shares in
payment of any dividend; or (iv) the legality of any recapitalization or
readjustment of the Shares.

12. Acts of God, etc. The Transfer Agent will not be liable or
responsible for delays or errors by acts of God or by reason of circumstances
beyond its control, including acts of civil or military authority, national
emergencies, labor difficulties, mechanical breakdown, insurrection, war,
riots, or failure or unavailability of transportation, communication or power
supply, fire, flood or other catastrophe.

13. Duty of Care and Indemnification. Each party hereto (the
"Indemnifying Party') will indemnify the other party (the "Indemnified Party")
against and hold it harmless from any and all losses, claims, damages,
liabilities or expenses of any sort or kind (including reasonable counsel fees
and expenses) resulting from any claim, demand, action or suit or other
proceeding (a "Claim") unless such Claim has resulted from a negligent failure
to act or omission to act or bad faith of the Indemnified Party in the
performance of its duties hereunder. In addition, the Fund will indemnify the
Transfer Agent against and hold it harmless from any Claim, damages,
liabilities or expenses (including reasonable counsel fees) that is a result
of: (i) any action taken in accordance with Written or Oral Instructions, or
any other instructions, or share certificates reasonably believed by the
Transfer Agent to be genuine and to be signed, countersigned or executed, or
orally communicated by an Authorized Person; (ii) any action taken in
accordance with written or oral advice reasonably believed by the Transfer
Agent to have been given by counsel for the Fund or its own counsel; or (iii)
any action taken as a result of any error or omission in any record (including
but not limited to magnetic tapes, computer printouts, hard copies and
microfilm copies) delivered, or caused to be delivered by the Fund to the
Transfer Agent in connection with this Agreement.

In any case in which the Indemnifying Party may be asked to
indemnify or hold the Indemnified Party harmless, the Indemnifying Party shall
be advised of all pertinent facts concerning the situation in question. The
indemnified Party will notify the Indemnifying Party promptly after
identifying any situation which it believes presents or appears likely to
present a claim for indemnification against the Indemnifying Party although
the failure to do so shall not prevent recovery by the Indemnified Party. The
Indemnifying Party shall have the option to defend the Indemnified Party
against any Claim which may be the subject of this indemnification, and, in
the event that the Indemnifying Party so elects, such defense shall be
conducted by counsel chosen by the Indemnifying Party and satisfactory to the
Indemnified Party, and thereupon the Indemnifying Party shall take over
complete defense of the Claim and the Indemnified Party shall sustain no
further legal or other expenses in respects of such Claim. The Indemnified
Party will not confess any Claim or make any compromise in any case in which
the Indemnifying Party will be asked to provide indemnification, except with
the Indemnifying Party's prior written consent. The obligations of the
parties hereto under this Section shall survive the termination of this
Agreement.

14. Consequential Damages. In no event and under no circumstances
shall either party under this Agreement be liable to the other party for
indirect loss of profits, reputation or business or any other special damages
under any provisions of this Agreement or for any act or failure to act
hereunder.

15. Term and Termination.

(a) This Agreement shall be effective on the date first written
above and shall continue for a term of three years from the Effective Date of
this Agreement; provided however that it may be terminated by the Fund in the
event of a material breach, as set forth in Section 2 of Schedule D attached
hereto. This Agreement thereafter shall automatically continue for successive
annual periods ending on the anniversary of the date first written above,
provided that it may be terminated during the successive annual periods by
either party upon written notice given at least 60 days prior to termination.

(b) In the event a termination notice is given by the Fund, it
shall be accompanied by a resolution of the Board of Directors, certified by
the Secretary of the Fund, designating a successor transfer agent or transfer
agents. Upon such termination and at the expense of the Fund, the Transfer
Agent will deliver to such successor a certified list of shareholders of the
Fund (with names and addresses), and all other relevant books, records,
correspondence and other Fund records or data in the possession of the
Transfer Agent, and the Transfer Agent will cooperate with the Fund and any
successor transfer agent or agents in the substitution process.

16. Confidentiality. Both parties hereto agree that any non public
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other
party, except as may be required by applicable law or at the request of the
Commission or other governmental agency. The parties further agree that a
breach of this provision would irreparably damage the other party and
accordingly agree that each of them is entitled, without bond or other
security, to an injunction or injunctions to prevent breaches of this
provision.

17. Amendment. This Agreement may only be amended or modified by a
written instrument executed by both parties.

18. Subcontracting. The Fund agrees that the Transfer Agent may, in
its desecration, subcontract for certain of the services described under this
Agreement or the Schedules hereto; provided that the appointment of any such
Transfer Agent shall not relieve the Transfer Agent of its responsibilities
hereunder.

19. Miscellaneous.

(a) Notices. Any notice or other instrument authorized or
required by this Agreement to be given in writing to the Fund or the Transfer
Agent, shall be sufficiently given if addressed to that party and received by
it at its office set forth below or at such other place as it may from time to
time designate in writing.

To the Fund:

Lehman Institutional Funds Group Trust
260 Franklin Street
Boston, Massachusetts 02109
Attention: Peter Meenan

To the Transfer Agent:

The Shareholder Services Group
One Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: Robert F. Radin, President

with a copy to TSSG Counsel

(b) Successors. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns,
provided, however, that this Agreement shall not be assigned to any person
other than a person controlling, controlled by or under common control with
the assignor without the written consent of the other party, which consent
shall not be unreasonably withheld.

(c) Governing Law. This Agreement shall be governed exclusively
by the laws of the State of New York without reference to the choice of law
provisions thereof. Each party hereto hereby agrees that (i) the Supreme
Court of New York sitting in New York County shall have exclusive jurisdiction
over any and all disputes arising hereunder; (ii) hereby consents to the
personal jurisdiction of such court over the parties hereto, hereby waiving
any defense of lack of personal jurisdiction; and (iii) appoints the person to
whom notices hereunder are to be sent as agent for service of process.

(d) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.

(e) Captions. The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.

(f) Use of Transfer Agent's Name. The Fund shall not use the
name of the Transfer Agent in any Prospectus, Statement of Additional
Information, shareholders' report, sales literature or other material relating
to the Fund in a manner not approved prior thereto in writing; provided, that
the Transfer Agent need only receive notice of all reasonable uses of its name
which merely refer in accurate terms to its appointment hereunder or which are
required by any government agency or applicable law or rule. Notwithstanding
the foregoing, any reference to the Transfer Agent shall include a statement
to the effect that it is a wholly owned subsidiary of First Data Corporation.

(g) Use of Fund's Name. The Transfer Agent shall not use the
name of the Fund or material relating to the Fund on any documents or forms
for other than internal use in a manner not approved prior thereto in writing;
provided, that the Fund need only receive notice of all reasonable uses of its
name which merely refer in accurate terms to the appointment of the Transfer
Agent or which are required by any government agency or applicable law or
rule.

(h) Independent Contractors. The parties agree that they are
independent contractors and not partners or co-venturers.

(i) Entire Agreement; Severability. This Agreement and the
Schedules attached hereto constitute the entire agreement of the parties
hereto relating to the matters covered hereby and supersede any previous
agreements. If any provision is held to be illegal, unenforceable or invalid
for any reason, the remaining provisions shall not be affected or impaired
thereby.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized officers, as of the day and year first
above written.

LEHMAN INSTITUTIONAL FUNDS GROUP TRUST

By: _________________________________________

Title: ________________________________________

THE SHAREHOLDER SERVICES GROUP, INC.

By: ___________________________________________

Title:
__________________________________________

TRANSFER AGENT FEE

Schedule A

The Fund shall pay the Transfer Agent an annualized fee of one and one-
half basis points (.00015%) of the first $5 billion of assets under management
by the Fund, one basis points (.0001%) of the first assets under management by
the Fund between $5 billion and $10 billion, and eight-tenths of one basis
points (.0008%) of the first assets under management by the Fund in excess of
$10 billion. Such fee shall be billed by the Transfer Agent monthly in
arrears on a prorated basis of 1/12 of the annualized fee.

The Fund shall pay the Transfer Agent a minimum monthly payment of:
$2,000 for each portfolio with a single class of shares; $2,500 for each
portfolio with two classes of shares; $3,000 for each portfolio with three
classes of shares; and, an additional minimum per-class charge of $1,000 for
each class in excess of three classes. In addition, the Fund shall pay the
Transfer Agent a one-time start up fee of $50,000, within 30 days of the
Effective Date of this Agreement.

These fees, on the second anniversary date of this Agreement and on each
subsequent anniversary date, shall be increased by a percentage amount equal
to the percentage increase for the then previous twelve month in the then
current Consumer Price Index (all urban consumers) or its successor index.

Notwithstanding the foregoing, if all other service providers to the
Fund waive all of their respective fees, charges and other payments from the
Fund for the same period, the Transfer Agent shall waive all fees, but no the
out-of-pocket reimbursements, for the 180 days immediately following the
Effective Date. If some or all of the other service providers to the Fund
waive some portion of their respective fees, charges and other payments from
the Fund for the same period, the Transfer Agent shall consider waiving a
proportional amount of its fees, but not the out-of-pocket reimbursements, for
the 180 days immediately following the Effective Date.

Schedule B

OUT-OF-POCKET EXPENSES

The Fund shall reimburse the Transfer Agent monthly for applicable out-
of-pocket expenses, including, but not limited to the following items:

- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks
and stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first
class) direct pass through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including all
lease, maintenance and line costs
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other
equipment and any expenses incurred in connection with such terminals and
lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Record retention, retrieval and destruction costs,
including, but not limited to exit fees charged by third party record keeping
vendors
- All Fund requested systems enhancements after the
commencement of operations, at the rate of $90 per programmer hour
- Third party audit reviews
- Insurance
- Such other miscellaneous expenses reasonably incurred by
the Transfer Agent in performing its duties and responsibilities under this
Agreement.

The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with the Transfer Agent. In addition,
the Fund will promptly reimburse the Transfer Agent for any other unscheduled
expenses incurred by the Transfer Agent whenever the Fund and the Transfer
Agent mutually agree that such expenses are not otherwise properly borne by
the Transfer Agent as part of its duties and obligations under the Agreement.

Schedule C

DUTIES OF THE TRANSFER AGENT

1. Shareholder Information. The Transfer Agent or its agent shall
maintain a record of the number of Shares held by each holder of record which
shall include name, address, taxpayer identification and which shall indicate
whether such Shares are held in certificates or uncertificated form.

2. Shareholder Services. The Transfer Agent or its agent will
investigate all inquiries from shareholders of the Fund relating to
Shareholder accounts and will respond to all communications from Shareholders
and others relating to its duties hereunder and such other correspondence as
may from time to time by mutually agreed upon between the Transfer Agent and
the Fund. The Transfer Agent shall provide the Fund with reports concerning
shareholder inquires and the responses thereto by the Transfer Agent, in such
form and at such times as are agreed to by the Fund and the Transfer Agent.

3. Share Certificates.

(a) At the expense of the Fund, it shall supply the Transfer
Agent or its agent with an adequate supply of blank share certificates to meet
the Transfer Agent or its agent's requirements therefor. Such Share
certificates shall be properly signed by facsimile. The Fund agrees that,
notwithstanding the death, resignation, or removal of any officer of the Fund
whose signature appears on such certificates, the Transfer Agent or its agent
may continue to countersign certificates which bear such signatures until
otherwise directed by Written Instructions.

(b) The Transfer Agent or its agent shall issue replacement
Share certificates in lieu of certificates which have been lost, stolen or
destroyed, upon receipt by the Transfer Agent or its agent of properly
executed affidavits and lost certificate bonds, in form satisfactory to the
Transfer Agent or its agent, with the Fund and the Transfer Agent or its agent
as obligees under the bond.

(c) With respect to Shares held in open accounts or
uncertificated form, i.e., no certificate being issued with respect thereto,
the Transfer Agent or its agent shall maintain comparable records of the
record holders thereof, including their names, addresses and taxpayer
identification.

4. Mailing Communications to Shareholders; Proxy Materials.

The Transfer Agent or its agent will address and mail to
Shareholders of the Fund, all reports to Shareholders, dividend and
distribution notices and proxy material for the Fund's meetings of
Shareholders. In connection with meetings of Shareholders, the Transfer Agent
or its Agent will prepare Shareholder lists, mail and certify as to the
mailing of proxy materials, process and tabulate returned proxy cards, report
on proxies voted prior to meetings, act as inspector of election at meetings
and certify Shares voted at meetings.

5. Sales of Shares

(a) Suspension of Sale of Shares. The Transfer Agent or its
agent shall not be required to issue any Shares of the Fund where it has
received a Written Instruction from the Fund or official notice from any
appropriate authority that the sale of the Shares of the Fund has been
suspended or discontinued. The existence of such Written Instructions or such
official notice shall be conclusive evidence of the right of the Transfer
Agent or its agent to rely on such Written Instructions or official notice.

(b) Returned Checks. In the event that any check or other order
for the payment of money is returned unpaid for any reason, the Transfer Agent
or its agent will: (i) give prompt notice of such return to the Fund or its
designee; (ii) place a stop transfer order against all Shares issued as a
result of such check or order; and (iii) take such actions as the Transfer
Agent may from time to time deem appropriate.

6. Transfer and Repurchase

(a) Requirements for Transfer or Repurchase of Shares. The
Transfer Agent or its agent shall process al requests to transfer or redeem
Shares in accordance with the transfer or repurchase procedures set forth in
the Fund's Prospectus.

The Transfer Agent or its agent will transfer or repurchase
Shares upon receipt of Oral or Written Instructions or otherwise pursuant to
the Prospectus and Share certificates, if any, properly endorsed for transfer
or redemption, accompanied by such documents as the Transfer Agent or its
agent reasonably may deem necessary.

The Transfer Agent or its agent reserves the right to refuse
to transfer or repurchase Shares until it is satisfied that the endorsement on
the instructions is valid and genuine. The Transfer Agent or its agent also
reserves the right to refuse to transfer or repurchase Shares until it is
satisfied that the requested transfer or repurchase is legally authorized, and
it shall incur no liability for the refusal, in good faith, to make transfer
or repurchases which the Transfer Agent or its agent, in its good judgment,
deems improper or unauthorized, or until it is reasonably satisfied that there
is no basis to any claims adverse to such transfer or repurchase.

(b) Notice to Custodian and Fund. When Shares are redeemed, the
Transfer Agent or its agent shall, upon receipt of the instructions and
documents in proper form, deliver to the Custodian and the Fund or its
designee a notification setting forth the number of Shares to be repurchased.
Such repurchased shares shall be reflected on appropriate accounts maintained
by the Transfer Agent or its agent reflecting outstanding Shares of the Fund
and Shares attributed to individual accounts.

(c) Payment of Repurchase Proceeds. The Transfer Agent or its
agent shall, upon receipt of the moneys paid to it by the Custodian for the
repurchase of Shares, pay such moneys as are received from the Custodian, all
in accordance with the procedures described in the written instruction
received by the Transfer Agent or its agent from the Fund.

The Transfer Agent or its agent shall not process or effect
any repurchase with respect to Shares of the Fund after receipt by the
Transfer Agent or its agent of notification of the suspension of the
determination of the net asset value of the Fund.

7. Dividends

(a) Notice to Agent and Custodian. Upon the declaration of each
dividend and each capital gains distribution by the Board of Directors of the
Fund with respect to Shares of the Fund, the Fund shall furnish or cause to be
furnished to the Transfer Agent or its agent a copy of a resolution of the
Fund's Board of Directors certified by the secretary of the Fund setting forth
the date of the declaration of such dividend or distribution, the ex-dividend
date, the date of payment thereof, the record date as of which shareholders
entitled to payment shall be determined, the amount payable per Share to the
shareholders of record as of that date, the total amount payable to the
Transfer Agent or its agent on the payment date and whether such dividend or
distribution is to be paid in Shares of such class at net asset value.

On or before the payment date specified in such resolution
of the Board of Directors, the Custodian of the Fund will pay to the Transfer
Agent sufficient cash to make payment to the shareholders of record as of such
payment date.

(b) Insufficient Funds for Payments. If the Transfer Agent or
its agent does not receive sufficient cash from the Custodian to make total
dividend and/or distribution payments to all shareholders of the Fund as of
the record date, the Transfer Agent or its agent will, upon notifying the
Fund, withhold payment to all Shareholders of record as of the record date
until sufficient cash is provided to the Transfer Agent or its agent.

Exhibit 1
to
Schedule C

Summary of Services

The services to be performed by the Transfer Agent or its agent shall be
as follows:

A. DAILY RECORDS

Maintain daily the following information with respect to each
Shareholder account as received:

o Name and Address (Zip Code)
o Class of Shares
o Taxpayer Identification Number
o Balance of Shares held by Agent
o Beneficial owner code: i.e., male, female, joint tenant,
etc.
o Dividend code (reinvestment)

B. OTHER DAILY ACTIVITY

o Identify redemption requests made with respect to accounts
in which Shares have been purchased within an agreed-upon period of time for
determining whether good funds have been collected with respect to such
purchase and process as agreed by the Agent in accordance with written
instructions set forth by the Fund.

o Process wire requests submitted by the Fund. Reconcile DDA
balances.

C. DIVIDEND ACTIVITY

o Calculate and process Share dividends and distributions as
instructed by the Fund.

o Compute, prepare and mail all necessary reports to
Shareholders or various authorities as requested by the Fund. Report to the
Fund reinvestment plan share purchases and determination of the reinvestment
price.

D. MEETINGS OF SHAREHOLDERS

o Cause to be mailed proxy and related material for all
meetings of Shareholders. Tabulate returned proxies (proxies must be
adaptable to mechanical equipment of the Agent or its agents) and supply daily
reports when sufficient proxies have been received.

o Prepare and submit to the Fund an Affidavit of Mailing.

o At the time of the meeting, furnish a certified lists of
Shareholders, hard copy, microfilm or microfiche and, if requested by the
Fund, Inspection of Election.

E. PERIODIC ACTIVITIES

o Cause to be mailed reports, Prospectuses, and any other
enclosures requested by the Fund (material must be adaptable to mechanical
equipment of Agent or its agents).

o Receive all notices issued by the Fund with respect to the
Preferred Shares in accordance with and pursuant to the Articles of
Incorporation and the Indenture and perform such other specific duties as are
set forth in the Articles of Incorporation including a giving of notice of a
special meeting and notice of redemption in the circumstances and otherwise in
accordance with all relevant provisions of the Articles of Incorporation.

Schedule D
TRANSFER AGENT PERFORMANCE STANDARDS

1. SCOPE

The Transfer Agent agrees to meet or exceed the processing standards set
forth in this schedule, for those items received by the Transfer Agent in the
proper condition, form and order to permit the Transfer Agent to process the
item within the requirements of this Agreement. The Funds agree to waive the
standards for the 90 days following each system conversion for the Funds by
the Transfer Agent, or as otherwise agreed to by the Funds and the Transfer
Agent.

"Turnaround", for the purposes of this Agreement, shall be tracked by
the Transfer Agent and shall consist of the date the Transfer Agent receives
the item in good order ("R") and such additional business days (e.g. R+1, R+2)
as designated. For the purposes of this Agreement, "business days" shall be
the calendar days on which the New York Stock Exchange is opened and such
other days as agreed to in writing by the Transfer Agent and the Funds. The
Transfer Agent shall track the processing of items on a calendar month basis
and shall report to the Funds the percentage of the total number of items
received and the percentage of items that were processed within the specified
Turnaround period.

With respect to these turnaround and error standards, the Transfer Agent
shall be responsible for its own conduct only and shall not be held
responsible for delays and other problems arising from the actions or
omissions of the Funds, other agents of the Funds or third parties not
affiliated with the Transfer Agent. In addition, the Funds agree that these
performance standards shall be waived for any calendar month in which the
number of Funds items received by the Transfer Agent for processing exceeds by
more than 20% the average monthly number of items received by the Transfer
Agent during the 90 day period prior to that calendar month.

2. CORRECTIVE ACTIONS

If performance standards are not met for any type of transaction for a
given monthly period, the Transfer Agent shall report to the Funds the reason
for the deficiency and the corrective action being taken by the Transfer
Agent.

The Funds may terminate this Agreement if either: (i) one-third or more
of the performance standards listed in this Agreement are not met by the
Transfer agent for four consecutive months, (ii) any one performance standard
is not met by the Transfer Agent for any six months during a 12 month period,
or (iii) a client holding the lesser of (a) shares in the Fund valued in the
aggregate of $35 million or more, or (b) shares representing 10% or more of
the Fund, redeems 90% or more of the shares in their account, primarily and
directly as a result of the Transfer Agent's failure to meet one or more of
the performance standards specified in this Schedule. The failure will
require a written notification by the client documenting their reasons, and
the Transfer Agent may require independent verification in a manner mutually
agreed upon by the parities to this Agreement. Unless the Funds provides the
Transfer Agent with notice of the Funds' intent to exercise this option within
45 days of the occurrence, the Funds shall have waived its option to terminate
under this provision.

3. PERFORMANCE STANDARDS

For purposes of this Section, the Transfer Agent shall not be liable for
any item overdue because of incomplete or inaccurate data maintained by a
previous transfer agent or by the Funds. All priority items (i.e. adjustments
and research) must be received at the Transfer Agent's facility by noon E.S.T.
to receive the designated turnaround time. Additionally, turnaround times for
special projects with high volumes will be negotiated.

LEHMAN INSTITUTIONAL FUNDS GROUP TRUST
QUALITY STANDARDS

A. Control
Timeliness:

- Redemption Wires
R
98%

- Dividend Wires
1st Business Day, (following month
end)
98%

- Dividend Reinvestment
1st Business Day, (following month
end)
98%

- Reports to Fund
Accountants*
12:30 PM, 1:30 PM, 2:30 PM, 3:15
PM
98%

- Reports to custody
12:45 PM, 3:15 PM
98%

Accuracy:

- Redemption Wires
R
98%

- Dividend Wires
1st Business Day (following month
end)
98%

- Dividend Reinvestment
1st Business Day (following month
end)

- Reports to Fund
Accountants*
12:30 PM, 1:30 PM. 2:30 PM. 3:15
PM
98%

- Reports to custody
12:45 PM, 3:15 PM
98%

B. Account Research
- Priority**
R
98%

- Non-Priority
R+2
98%

C. Account Adjustments
- Priority ***
R
98%

- Non-Priority
R+2
98%

D. Administration
-Daily Confirms Mailed
T+1
98%

- Monthly Statements Mailed
T+5
98%

E. System Availability and Response
These systems standards shall apply on business days for the FSR system.
- System availability
between
(8:00 AM to 6:00 PM EST)
Measured monthly
98%

- Average response time of 5
seconds or less
(8:00 AM to 6:00 PM EST)
Measured monthly
98%

__________________________

* All information must be received by the Transfer Agent in good order 1/2
hour before the agreed upon time frames.

** Research Priority items are directly related to incoming or outgoing
wires. All Requests must be received in good order prior to 12 noon or agreed
upon by the transfer agent. A timeframe for any requests for non-standard
items i.e. transcripts, will be agreed upon at the time of the request.

*** Adjustment Priority items are monetary or highly sensitive issues, and
must be received in good order by 12:00 noon or as agreed upon by the transfer
agent.

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EXHIBIT 10(b)

March 29, 1995

Lehman Brothers Institutional Funds Group Trust
One Exchange Place
Boston, MA 02109

RE: Post-Effective Amendment No. 9 to the Registration Statement for
Lehman Brothers Institutional Funds Group Trust
File Nos: 811-7364 and 33-55034

Gentlemen:

In connection with the registration of 4,033,312,876 shares of
beneficial interest (the "Shares"), $.001 par value per share, of Lehman
Brothers Institutional Funds Group Trust, a Massachusetts business trust (the
"Trust"), pursuant to Post-Effective Amendment No. 9 to the Trust's
Registration Statement under the Securities Act of 1933, as amended (the "1933
Act"), and in reliance upon Rule 24e-2 under the Investment Company Act of
1940, as amended (the "1940 Act"), you have requested that the undersigned
provide the required legal opinion.

The undersigned is Vice President and Associate General Counsel of The
Shareholder Services Group, Inc., the Trust's administrator, and in such
capacity, from time to time and for certain purposes, acts as counsel to the
Trust. I have examined copies of the Trust's Declaration of Trust, as
amended, its By-Laws, votes adopted by its Board of Trustees, and such other
records and documents as I have deemed necessary for purposes of this opinion.

On the basis of the foregoing, I am of the opinion that the Shares when
sold in accordance with the terms of the Trust's current Prospectuses and
Statements of Additional Information will, at the time of sale, be validly
issued, fully paid and non-assessable by the Trust. This opinion is for the
limited purposes expressed above and should not be deemed to be an expression
of opinion as to compliance with the 1933 Act, the 1940 Act or applicable
State "blue sky" laws in connection with the sales of the Shares.

The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, 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
the Trust is charged or held personally liable solely by reason of being or
having been a shareholder, the shareholder shall be entitled out of the assets
of the Trust 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 shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its
obligations.

I consent to the filing of this opinion with and as 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

shared/lehman/institut/filings/24e-2opn.doc

EXHIBIT 13(a)

PURCHASE AGREEMENT

Lehman Brothers Institutional Funds Group Trust (the
"Company"), a Massachusetts business trust, and Shearson Lehman
Brothers Inc. (the "Distributor"), hereby agree as follows:

1. The Company hereby offers the Distributor and the
Distributor hereby purchases 100,000 shares at $1.00 per share in
such classes of the Company's Prime Money Market Fund, Prime Plus
Money Market Fund, Government Obligations Money Market Fund, 100%
Government Obligations Money Market Fund, Treasury Instruments
Money Market Fund, 100% Treasury Instruments Money Market Fund,
Tax-Free Money Market Fund, Municipal Money Market Fund,
California Municipal Money Market Fund, New York Municipal Money
Market Fund and Treasury Instruments Money Market Fund II, all
with par value of $.001 per share (the "Portfolios") as
determined by Distributor. The shares are the "initial shares"
of the Portfolios. The Distributor hereby acknowledges receipt
of a purchase confirmation reflecting the purchase of 100,000
shares, and the Company hereby acknowledges receipt from the
Distributor of funds in the amount of $100,000 in full payment
for the shares.

2. The Distributor represents and warrants to the Company
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 Company begins its
investment activities, the Distributor will pay to the Company an
amount equal to the number resulting from multiplying the
Company'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 Company 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
Company by the undersigned officer of the Company in his capacity
as an officer of the Company. The obligations of this Agreement
shall be binding only upon the assets and property of each
individual Portfolio and not upon the assets and property of any
other portfolio of the Company and shall not be binding upon any
Trustee, officer or shareholder of a Portfolio or the Company
individually.

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 3rd day of February, 1993.

LEHMAN BROTHERS INSTITUTIONAL
FUNDS GROUP TRUST

Attest:

____________________________ By:
_____________________________

Attest: SHEARSON LEHMAN BROTHERS INC.

____________________________ By:
_____________________________

ifg/agreemen/purchase.doc

EXHIBIT 15(a)
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

SHAREHOLDER SERVICES PLAN

This Shareholder Services Plan (the "Plan") is adopted by Lehman
Brothers Institutional Funds Group Trust, a business trust organized under the
laws of The Commonwealth of Massachusetts (the "Trust"), with respect to each
investment fund currently offered by the Trust, or that may be offered in the
future (each, a "Fund" and collectively, the "Funds"), each of which is a
series of the Trust, pursuant to Rule 12b-1 (the "Rule") under the Investment
Company Act of 1940, as amended (the "1940 Act"), subject to the following
terms and conditions:

Section 1. Compensation.

Upon the recommendation of The Boston Company Advisors, Inc. ("Boston
Advisors"), the administrator of each Fund, any officer of the Trust is
authorized to execute and deliver, in the name and on behalf of the Trust,
written agreements in substantially the form attached hereto or in any other
form duly approved by the Board of Trustees of the Trust ("Servicing
Agreements") with institutional shareholders of record ("Service
Organizations") whose clients may from time to time beneficially own each
Fund's Class B and/or Class C shares. Such Servicing Agreements shall require
the Service Organizations to provide services on behalf of the Trust as set
forth therein to their clients who beneficially own Class B and/or Class C
shares in consideration of fees, computed daily and paid monthly in the manner
set forth in the Servicing Agreements, (a) at an annual rate of .25% of the
average daily net asset value of Class B shares beneficially owned by clients
of a Service Organization and (b) at an annual rate of .35% of the average
daily net asset value of Class C shares beneficially owned by clients of a
Service Organization. Such Servicing Agreements shall also require a Service
Organization to agree that it would waive such portion of any payments made to
it pursuant to the relevant Servicing Agreement to the extent necessary to
assure that payments, if any, required to be accrued by any class of Fund
shares on any day do not exceed the income to be accrued to such class on that
day. All expenses incurred by the Trust in connection with a Servicing
Agreement and the implementation of this Plan with respect to a particular
class of shares of a Fund shall be borne entirely by the holders of that class
of shares of that Fund.

Section 2. Monitoring.

Boston Advisors shall monitor the arrangements pertaining to the
Servicing Agreements with Service Organizations in accordance with the terms
of Boston Advisors' administration agreement with the Trust. Boston Advisors
shall not, however, be obliged by this Plan to recommend, and the Trust shall
not be obliged to execute, any Servicing Agreement with any qualifying Service
Organization.

Section 3. Approval by Shareholders.

The Plan will not take effect with respect to a Fund, and no fee will be
payable in accordance with Section 1 of the Plan, until the Plan has been
approved by a vote of at least a majority of the outstanding voting securities
of the Fund.

Section 4. Approval by Trustees.

Neither the Plan nor any related agreements will take effect with
respect to a Fund until approved by a majority vote of both (a) the full Board
of Trustees of the Trust and (b) those Trustees who are not interested persons
of the Trust and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related to it (the "Independent
Trustees"), cast in person at a meeting called for the purpose of voting on
the Plan and the related agreements.

Section 5. Continuance of the Plan.

The Plan will continue in effect from year to year with respect to a
Fund, so long as its continuance is specifically approved annually by vote of
the Trust's Board of Trustees in the manner described in Section 4 above.

Section 6. Termination.

The Plan may be terminated with respect to a Fund at any time, without
penalty, by vote of a majority of the Independent Trustees or by a vote of a
majority of the outstanding voting securities of the Fund.

Section 7. Amendments.

The Plan may not be amended with respect to a Fund to increase
materially the amount of the fees described in Section 1 above, unless the
amendment is approved by a vote of at least a majority of the outstanding
voting securities of the Fund, and all material amendments to the Plan must
also be approved by the Trust's Board of Trustees in the manner described in
Section 4 above.

Section 8. Selection of Certain Trustees.

While the Plan is in effect, the selection and nomination of the Trust's
Trustees who are not interested persons of the Trust will be committed to the
discretion of the Trustees then in office who are not interested persons of
the Trust.

Section 9. Written Reports.

In each year during which the Plan remains in effect with respect to a
Fund, Boston Advisors will prepare and furnish to the Trust's Board of
Trustees, and the Board will review, at least quarterly, written reports,
complying with the requirements of the Rule, that set out the amounts expended
under the Plan relating to the Fund and the purposes for which those
expenditures were made.

Section 10. Preservation of Materials.

The Trust will preserve copies of the Plan, any agreement relating to
the Plan and any report made pursuant to Section 9 above, for a period of not
less than six years (the first two years in an easily accessible place) from
the date of the Plan, agreement or report.

Section 11. Meanings of Certain Terms.

As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act and the rules and regulations under the
1940 Act, subject to any exemption that may be granted to the Trust under the
1940 Act by the Securities and Exchange Commission.

Section 12. Filing of Declaration of Trust.

The Trust represents that a copy of its Declaration of Trust dated as of
November 25, 1992, as amended from time to time (the "Declaration of Trust"),
is on file with the Secretary of The Commonwealth of Massachusetts and with
the Boston City Clerk.

Section 13. Limitation of Liability.

The obligations of the Trust under this Plan will not be binding upon
any of the Trustees of the Trust, shareholders of the Funds, 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 Funds,
as provided in the Declaration of Trust . The execution and delivery of this
Plan 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 trust property of the Funds as
provided in the Declaration of Trust. No Fund will be liable for any claims
against any other Fund.

Section 14. Dates.

The Plan has been executed by the Trust with respect to each Fund as of
, 1993 and will become effective upon the date
the Fund first commences its investment operations.

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

By:
Name:
Title: President

ifg/agreemen/servplan.doc

EXHIBIT 15(b)
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

PLAN DISTRIBUTION

This Plan of Distribution (the "Plan) is adopted by Lehman Brothers
Institutional Funds Group Trust, a business trust organized under the laws of
The Commonwealth of Massachusetts (the "Trust"), with respect to Class D
Shares of the Prime Value Money Market Fund, Government Obligations Money
Market Fund and the Municipal Money Market Fund (each, a "Fund" and
collectively, the "Funds"), each of which is a series of the Trust, pursuant
to Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as
amended (the "1940 Act"), subject to the following terms and conditions:

Section 1. Compensation.

Upon the recommendation of the Boston Company Advisors, Inc. ("Boston
Advisors"), the administrator of the Funds, any officer of the Trust is
authorized to execute and deliver, in the name and on behalf of the Trust, a
written agreement in substantially the form attached hereto or in any other
form duly approved by the Board of Trustees of the Trust ("Service Agreement")
with Lehman Brothers. Such Service Agreement shall require Lehman Brothers to
provide services on behalf of the Trust as set forth therein to holders of
Class D Shares in consideration of fees, computed daily and paid monthly in
the manner set forth in the Service Agreement, for advertising, marketing and
distributing its shares at an annual rate of .____% of its average daily net
assets. Lehman Brothers may retain all or a portion of the payments made to
it pursuant to the Plan and may make payments to a Service Organization for
the provision of certain services to investors in Class D Shares. Lehman
Brothers may make payments to assist in the distribution of the Funds' shares
out of these other fees received by it or its affiliates from the Fund, its
past profits or any other sources available to it. Lehman Brothers may waive
receipt of fees under the Plan for a Fund while retaining the ability to be
paid thereafter. All expenses incurred by the Trust in connection with the
Service Agreement and the implementation of this Plan with respect to a
particular class of shares of a Fund shall be borne entirely by the holders of
that class of shares of that Fund.

Section 2. Monitoring.

Boston Advisors shall monitor the arrangements pertaining to the Service
Agreement in accordance with the terms of Boston Advisors' administration
agreement with the Trust. Boston Advisors shall not, however, be obliged by
this Plan to recommend, and the Trust shall not be obliged to execute, any
Service Agreement with any qualifying Service Organization.

Section 3. Approval by Shareholders.

The Plan will not take effect with respect to a Fund, and no fee will be
payable in accordance with Section 1 of the Plan, until the Plan has been
approved by a vote of a least a majority of the outstanding voting securities
of Class D of the Fund.

Section 4. Approval by Trustees.

Section 5. Continuance of the Plan.

Section 6. Termination.

Section 7. Amendments.

The Plan may not be amended with respect to a Fund to increase
materially the amount of the fees described in Section 1 above, unless the
amendment is approved by a vote of at least a majority of the outstanding
voting securities of Class D of the Fund, and all material amendments to the
Plan must also be approved by the Trust's Board of Trustees in the manner
described in Section 4 above.

Section 8. Selection of Certain Trustees.

Section 9. Written Reports.

In each year during which the Plan remains in effect with respect to a
Fund, Boston Advisors will prepare and furnish to the Trust's Board of
Trustees, and the Board will review, at least quarterly, written reports,
complying with the requirements of the Rule, the set out the amounts expended
under the Plan relating to the Fund and the purposes for which those
expenditures were made.

Section 10. Preservation of Materials.

Section 11. Meanings of Certain Terms.

Section 12. Filing of Declaration of Trust.

Section 13. Limitation of Liability.

The obligations of the Trust under this Plan will not be binding upon
any of the Trustees of the Trust, shareholders of the Funds, 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 Funds,
as provided in the Declaration of Trust. The execution and delivery of this
Plan 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 trust property of the Funds as
provided in the Declaration of Trust. No Fund will be liable for any claims
against any other Fund.

Section 14. Dates.

The Plan has been executed by the Trust with respect to each Fund as of
____________, 1993 and will become effective upon the date the Fund first
commences its investment operations.

LEHMAN BROTHERS INSTITUTIONAL
FUNDS GROUP TRUST

By:
Name:
Title: President

lehman/miscinstut/institut/ifg/agreemen/distplan.doc

EXHIBIT 15(c)
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

SHAREHOLDER SERVICING AGREEMENT (Class B)

[Name and Address of Service Organization]

Ladies and Gentlemen:

Lehman Brothers Institutional Funds Group Trust (the
"Trust") confirms its agreement with
_________________________________ ("Service Organization"), in
accordance with the terms of the shareholder service plan dated
as of _________ (the "Plan") adopted by the Trust with respect to
each separate Fund (each individually, the "Fund"), which is a
series of the Trust, pursuant to Rule 12b-1 (the "Rule") under
the Investment Company Act of 1940, as amended (the "1940 Act"),
as follows:

Section 1. Compensation and Services to be Rendered.

(a) Service Organization agrees to provide the
following support services to its clients ("Clients") who may
from time to time beneficially own Class B shares of the Fund
("Shares"): (i) aggregating and processing purchase and
redemption requests for Shares from Clients and placing net
purchase and redemption orders with the distributor of the
Shares; (ii) responding to Client inquiries relating to the
services performed by the Service Organization and handling
correspondence; and (iii) acting as shareholder of record and
nominee. The Service Organization, at its option, may also (iv)
provide Clients with a service that invests the assets of their
accounts in Shares pursuant to specific or pre-authorized
instructions; (v) provide sub-accounting with respect to Shares
beneficially owned by Clients or the information necessary for
sub-accounting; (vi) provide checkwriting services; (vii) process
dividend payments from the Fund on behalf of Clients; (viii)
provide information periodically to Clients showing their
positions in Shares; (ix) arrange for bank wires; (x) forward
shareholder communications from the Fund (such as proxies,
shareholder reports, annual and semi-annual financial statements
and dividend, distribution and tax notices) to Clients; and (xi)
provide such other similar services as the Fund may reasonably
request to the extent the Service Organization is permitted to do
so under applicable statutes, rules or regulations.

(b) Service Organization 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 its business, or any personnel employed by it) as may be
reasonably necessary or beneficial in order to provide the
aforementioned services and assistance.

(c) Neither Service Organization nor any of its
officers, employees or agents are authorized to make any
representations concerning the Trust, the Fund or Shares except
those contained in the then current prospectus for such Shares,
copies of which will be supplied to Service Organization, or in
such supplemental literature or advertising as may be authorized
by the Trust in writing.

(d) For all purposes of this Agreement, Service
Organization will be deemed to be an independent contractor, and
will have no authority to act as agent for the Trust or the Fund
in any matter or in any respect. By its written acceptance of
this Agreement, Service Organization agrees to and does 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 Service Organization or
its officers, employees or agents regarding its responsibilities
hereunder or the purchase, redemption, transfer or registration
of Shares by or on behalf of Clients. Service Organization and
its employees will, upon request, be available during normal
business hours to consult with the Trust or its designees
concerning the performance of their responsibilities under this
Agreement.

(e) In consideration of the services and facilities
provided by Service Organization hereunder, the Trust will pay to
Service Organization, and Service Organization will accept as
full payment therefor, a fee at the annual rate of .25 of 1% of
the average daily net asset value of the Shares held of record by
Service Organization from time to time on behalf of Clients (the
"Clients' Shares"), which fee will be computed daily and payable
monthly. For purposes of determining the fees payable under this
Section 1(e), the average daily net asset value of the Clients'
Shares will be computed in the manner specified in the Trust's
registration statement relating to the Fund (as the same is in
effect from time to time) in connection with the computation of
the net asset value of Shares for purposes of purchases and
redemptions. The fee rate stated above may be prospectively
decreased by the Trust, in its sole discretion, at any time upon
notice to Service Organization. Further, the Trust may, in its
discretion and without notice, suspend or withdraw the sale of
Shares, including the sale of such Shares to Service Organization
for the account of any Client or Clients. Nothwithstanding the
above, in order to seek to assure that the net asset value per
share for all Fund shares is the same, Service Organization
agrees to waive such portion of any payments to it hereunder to
the extent necessary to ensure that payments, if any, required to
be accrued by the Shares on any day do not exceed the income to
be accrued to such Shares on that day.

Section 2. Approval by Trustees.

This Agreement will not take effect with respect to a
Fund until approved by a majority vote of both (a) the full Board
of Trustees of the Trust and (b) those Trustees who are not
interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in
this Agreement (the "Independent Trustees"), cast in person at a
meeting called for the purpose of voting on this Agreement.

Section 3. Continuance of the Agreement.

This Agreement will continue in effect for an initial
two-year term and thereafter will continue from year to year with
respect to the Fund so long as its continuance is specifically
approved annually by vote of the Trust's Board of Trustees in the
manner described in Section 2 above.

Section 4. Termination.

(a) This Agreement will become effective on the date a
fully executed copy of this Agreement is received by the Trust or
its designee. This Agreement may be terminated with respect to
the Fund at any time, without the payment of any penalty, by vote
of a majority of the Independent Trustees or by vote of a
majority of the outstanding voting securities of the Class, or by
you, in either case upon written notice to the other party
hereto.

(b) This Agreement will terminate automatically in the
event of its assignment.

Section 5. Written Reports.

(a) Service Organization will furnish the Trust or its
designees with such information as they may reasonably request
(including, without limitation, periodic certifications
confirming the provision to Clients of the services described
herein), and will otherwise cooperate with the Trust and its
designees (including, without limitation, any auditors designated
by the Trust), in connection with the preparation of reports to
the Trust's Board of Trustees concerning this Agreement and the
monies paid or payable by Trustees pursuant hereto, as well as
any other reports or filings that may be required by law.

(b) The Trust may enter into other similar Servicing
Agreements with any other person or persons without Service
Organization's consent.

Section 6. Representations and Warranties

By its written acceptance of this Agreement, Service
Organization represents, warrants and agrees that: (i) the
compensation payable to Service Organization hereunder, together
with any other compensation Service Organization receives from
Clients for services contemplated by this Agreement, will not be
excessive or unreasonable under the laws and instruments
governing Service Organization's relationships with Clients; and
(ii) Service Organization will provide to Clients a schedule of
any fees that it may charge to them relating to the investment of
their assets in Shares. In addition, Service Organization
understands that this Agreement has been entered into pursuant to
the Rule and is subject to the provisions of the Rule, as well as
any other applicable rules or regulations promulgated by the
Securities and Exchange Commission.

Section 7. Meaning of Certain Terms.

As used in this Agreement, the terms "interested
person" and "majority of the outstanding voting securities" will
be deemed to have the same meaning that those terms have under
the 1940 Act and the rules and regulations under the 1940 Act,
subject to any exemption that may be granted to the Trust under
the 1940 Act by the Securities and Exchange Commission.

Section 8. Filing of Declaration of Trust.

The Trust represents that a copy of its Declaration of
Trust dated as of November 25, 1992, as amended from time to time
(the "Declaration of Trust"), is on file with the Secretary of
The Commonwealth of Massachusetts and with the Boston City Clerk.

Section 9. Limitation of Liability.

The obligations of the Trust under this Agreement will
not be binding upon any of the Trustees of the Trust,
shareholders of the Fund or any other investment fund offered by
the Trust, 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 trust property of the Funds as
provided in the Declaration of Trust. No Fund will be liable for
any claims against any other investment fund offered by the Trust
and no class of Fund shares will be liable for any claims against
any other class.

Section 10. Governing Law.

This Agreement will be governed by the laws of the
State of New York, without regard to the choice of law provisions
thereof.

If the terms and conditions described above are in
accordance with your understanding, kindly indicate your
acceptance of this Agreement by signing and returning to us the
enclosed copy of this Agreement.

Very truly yours,

LEHMAN BROTHERS INSTITUTIONAL
FUNDS GROUP TRUST

By:
Name:
Title:

Accepted:

[Service Organization]

By:
Name:
Title:

Dated: , 1993

ifg/agreem/service.doc

EXHIBIT 15(d)
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

SHAREHOLDER SERVICING AGREEMENT

[Name and Address of Service Organization]

Ladies and Gentlemen:

Lehman Brothers Institutional Funds Group Trust (the
"Trust") confirms its agreement with ____________________________
("Service Organization"), in accordance with the terms of the
shareholder service plan dated as of __________ (the "Plan")
adopted by the Trust with respect to each separate Fund (each
individually, the "Fund"), which is a series of the Trust,
pursuant to Rule 12b-1 (the "Rule") under the Investment Company
Act of 1940, as amended (the "1940 Act"), as follows:

Section 1. Compensation and Services to be Rendered.

(a) Service Organization agrees to provide the
following support services to its clients ("Clients") who may
from time to time beneficially own Class C shares of the Fund
("Shares"): (i) aggregating and processing purchase and
redemption requests for Shares from Clients and placing net
purchase and redemption orders with the distributor of the
Shares; (ii) processing dividend payments from the Fund on behalf
of Clients; (iii) providing information periodically to Clients
showing their positions in Shares; (iv) arranging for bank wires;
(v) responding to Client inquiries relating to the services
performed by the Service Organization and handling
correspondence; (vi) forwarding shareholder communications from
the Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and
tax notices) to Clients; (vii) acting as shareholder of record
and nominee; and (viii) providing such other similar services as
the Fund may reasonably request to the extent the Service
Organization is permitted to do so under applicable statutes,
rules or regulations. The Service Organization, at its option,
may also (ix) provide Clients with a service that invests the
assets of their accounts in Shares pursuant to specific or
pre-authorized instructions; (vii) provide sub-accounting with
respect to Shares beneficially owned by Clients or the
information necessary for sub-accounting; and (xi) provide
checkwriting services. In addition, Service Organization shall
provide assistance in connection with the distribution of Shares
to Clients, which shall include marketing assistance and the
forwarding of sales literature and advertising provided by the
distributor of the Shares for Clients to the extent the Service
Organization is permitted to do so under applicable statutes,
rules or regulations.

(e) In consideration of the services and facilities
provided by Service Organization hereunder, the Trust will pay to
Service Organization, and Service Organization will accept as
full payment therefor, a fee at the annual rate of .35 of 1% of
the average daily net asset value of the Shares held of record by
Service Organization from time to time on behalf of Clients (the
"Clients' Shares"), which fee will be computed daily and payable
monthly. For purposes of determining the fees payable under this
Section 1(e), the average daily net asset value of the Clients'
Shares will be computed in the manner specified in the Trust's
registration statement relating to the Fund (as the same is in
effect from time to time) in connection with the computation of
the net asset value of Shares for purposes of purchases and
redemptions. The fee rate stated above may be prospectively
decreased by the Trust, in its sole discretion, at any time upon
notice to Service Organization. Further, the Trust may, in its
discretion and without notice, suspend or withdraw the sale of
Shares, including the sale of such Shares to Service Organization
for the account of any Client or Clients. Notwithstanding the
above, in order to seek to assure that the net asset value per
share for all Fund shares is the same, Service Organization
agrees to waive such portion of any payments to it hereunder to
the extent necessary to assure that payments, if any, required to
be accrued by the Shares on any day do not exceed the income to
be accrued to such Shares on that day.

Section 2. Approval by Trustees.

Section 3. Continuance of the Agreement.

Section 4. Termination.

(b) This Agreement will terminate automatically in the
event of its assignment.

Section 5. Written Reports.

(b) The Trust may enter into other similar Servicing
Agreements with any other person or persons without Service
Organization's consent.

Section 6. Representations and Warranties

Section 7. Meaning of Certain Terms.

Section 8. Filing of Declaration of Trust.

The Trust represents that a copy of its Declaration of
Trust dated as of November 25, 1992, as amended from time to time
(the "Declaration of Trust"), is on file with the Secretary of
The Commonwealth of Massachusetts and with the Boston City Clerk.

Section 9. Limitation of Liability.

Section 10. Governing Law.

This Agreement will be governed by the laws of the
State of New York, without regard to the choice of law provisions
thereof.

Very truly yours,

LEHMAN BROTHERS INSTITUTIONAL
FUNDS GROUP TRUST

By:
Name:
Title:

Accepted:

[Service Organization]

By:
Name:
Title:

Dated: , 1993

ifg/agreem/shrserv.doc

EXHIBIT 15(e)

LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST

SERVICE AGREEMENT (Class D)

Lehman Brothers Incorporated
New York, New York

Ladies and Gentlemen:

Lehman Brothers Institutional Funds Group Trust (the "Trust") confirms
its agreement with Lehman Brothers, in accordance with the terms of the plan
of distribution dated as of ___________, 1993 (the "Plan") adopted by the
Trust with respect to Class D shares of the Prime Value Money Market Fund,
Government Obligations Money Market Fund and the Municipal Money Market Fund
(each individually, the "Fund"), each of which is a series of the Trust,
pursuant to Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended (the "1940 Act"), as follows:

Section 1. Compensation and Services to be Rendered.

(a) Lehman Brothers agrees to provide the following services to
holders ("Clients") of Class D shares of the Fund ("Shares"): advertising,
marketing and distributing Shares and providing Clients with assistance in
connection with their investment in the Fund. Under the Plan of Distribution,
Lehman Brothers may retain all or a portion of the payments made to it
pursuant to the Plan and may make payments to a Service Organization that
provides services to investors in Class D Shares. Lehman Brothers may make
payments to assist in the distribution of the Funds' 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. Lehman Brothers may waive receipt of fees
under the Plan of Distribution for either Fund while retaining the ability to
be paid under such Plan thereafter and provide such other similar services as
the Fund may reasonably request to the extent Lehman Brothers is permitted to
do so under applicable statutes, rules or regulations.

(b) Lehman Brothers 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 its business, or any personnel
employed by it) as may be reasonably necessary or beneficial in order to
provide the aforementioned services and assistance.

(c) Neither Lehman Brothers nor any of its officers, employees or
agents are authorized to make any representations concerning the Trust, the
Fund or Shares except those contained in the then current prospectus for such
Shares, copies of which will be supplied to Lehman Brothers, or in such
supplemental literature or advertising as may be authorized by the Trust in
writing.

(d) For all purposes of this Agreement, Lehman Brothers will be deemed
to be an independent contractor, and will have no authority to act as agent
for the Trust or the Fund in any matter or in any respect. By its written
acceptance of this Agreement, Lehman Brothers agrees to and does release,
indemnify and hold us harmless from and against any and all direct or indirect
liabilities or losses resulting from requests, directions, actions or
inaction's of or by Lehman Brothers or its officers, employees or agents
regarding its responsibilities hereunder or the purchase, redemption, transfer
or registration of Shares by or on behalf of Clients. Lehman Brothers and its
employees will, upon request, be available during normal business hours to
consult with the Trust or its designees concerning the performance of their
responsibilities under this Agreement.

(e) In consideration of the services and facilities provided by Lehman
Brothers hereunder, the Trust will pay to Lehman Brothers, and Lehman Brothers
will accept as full payment therefor, a fee at the annual rate of .____% of
the average daily net asset value of the Class D Shares, which fee will be
computed daily and payable monthly. The fee rate stated above may be
prospectively decreased by the Trust, in its sole discretion, at any time upon
notice to Lehman Brothers. Further, the Trust may, in its discretion and
without notice, suspend or withdraw the sale of Shares. Notwithstanding the
above, in order to seek to assure that the net asset value per share for all
Fund shares is the same, Lehman Brothers agrees to waive such portion of any
payments to it hereunder to the extent necessary to ensure that payments, if
any, required to be accrued by the Shares on any day do not exceed the income
to be accrued to such Shares on that day.

Section 2. Approval by Trustees.

This Agreement will not take effect with respect to a Fund until
approved by a majority vote of both (a) the full Board of Trustees of the
Trust and (b) those Trustees who are not interested persons of the Trust and
who have no direct or indirect financial interest in the operation of the Plan
or in this Agreement (the "Independent Trustees"), cast in person at a meeting
called for the purpose of voting on this Agreement.

Section 3. Continuance of the Agreement.

This Agreement will continue in effect for an initial one-year term and
thereafter will continue from year to year with respect to the Fund so long as
its continuance is specifically approved annually by vote of the Trust's Board
of Trustees in the manner described in Section 2 above.

Section 4. Termination.

(a) This Agreement will become effective on the date a fully executed
copy of this Agreement is received by the Trust or its designee. This
Agreement may be terminated with respect to the Fund at any time, without the
payment of any penalty, by vote of a majority of the Independent Trustees or
by vote of a majority of the outstanding voting securities of Class D of the
Fund, or by you, in either case upon written notice to the other party hereto.

(b) This Agreement will terminate automatically in the event of its
assignment

Section 5. Written Reports.

(a) Lehman Brothers will furnish the Trust or its designees with such
information as they may reasonably request (including, without limitation,
periodic certifications confirming the provision of the services described
herein), and will otherwise cooperate with the Trust and its designees
(including, without limitation, any auditors designated by the Trust), in
connection with the preparation of reports to the Trust's Board of Trustees
concerning this Agreement and the monies paid or payable by the Trust pursuant
hereto, as well as any other reports or filings that may be required by law.

(b) The Trust may enter into other similar Agreements with any other
person or persons without Lehman Brothers' consent.

Section 6. Representation and Warranties

By its written acceptance of this Agreement, Lehman Brothers represents,
warrants and agrees that: (i) the compensation payable to Lehman Brothers
hereunder, together with any other compensation Lehman Brothers receives for
services contemplated by this Agreement, will not be excessive or unreasonable
under the laws and instruments governing Lehman Brothers' relationships with
Clients; and (ii) Lehman Brothers will provide to Clients a schedule of any
fees that it may charge to them relating to the investment of their assets in
Shares. In addition, Lehman Brothers understands that this Agreement has been
entered into pursuant to the Rule and is subject to the provisions of the
Rule, as well as any other applicable rules or regulations promulgated by the
Securities and Exchange Commission.

Section 7. Meaning of Certain Terms.

As used in this Agreement, the terms "interested person" and "majority
of the outstanding voting securities" will be deemed to have the same meaning
that those terms have under the 1940 Act and the rules and regulations under
the 1940 Act, subject to any exemption that may be granted to the Trust under
the 1940 Act by the Securities and Exchange Commission.

Section 8. Filing of Declaration of Trust.

Section 9. Limitation of Liability.

The obligations of the Trust under this Agreement will not be binding
upon any of the Trustees of the Trust, shareholders of the Fund or any other
investment fund offered by the Trust, 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 trust property of the Funds as provided in the Declaration
of Trust. No Fund will be liable for any claims against any other investment
fund offered by the Trust and no class of Fund shares will be liable for any
claims against any other class.

Section 10. Governing Law.

This Agreement will be governed by the laws of the State of New York,
without regard to the choice of law provisions thereof.

If the terms and conditions described above are in accordance with your
understanding, kindly indicate your acceptance of this Agreement by signing
and returning to us the enclosed copy of this Agreement.

Very truly yours,

LEHMAN BROTHERS INSTITUTIONAL
FUNDS GROUP TRUST

By:
Name:
Title:

Accepted:

Lehman Brothers, Incorporated

By:
Name:
Title:

Dated: _________ ___, 1993

shared/lehman/miscinst/institut/ifg/agreement/srvagred.doc

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
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<NAME> LBI 100% Treasury Instruments MM Class A

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
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<NAME> LBI 100% Treasury Instruments MM Class B

<S> <C>
<PERIOD-TYPE> 12-MOS
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> LBI 100% Treasury Instruments MM Class C

<S> <C>
<PERIOD-TYPE> 12-MOS
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<PERIOD-END> JAN-31-1995
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<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> LBI 100% Treasury Instruments MM Class E

<S> <C>
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<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 79,161,840
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> LBI Floating Rate U.S. Govt Fund Premier Shares

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<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> LBI Floating Rate U.S. Govt Fund Select Shares

<S> <C>
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<FISCAL-YEAR-END> JAN-31-1995
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> LBI GOVT OBLIGATIONS MM CLASS A

<S> <C>
<PERIOD-TYPE> 12-MOS
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<SHARES-COMMON-STOCK> 40,081,039
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<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 0
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<NET-INVESTMENT-INCOME> 3,673,525
<REALIZED-GAINS-CURRENT> (4,414)
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<NET-CHANGE-FROM-OPS> 3,669,111
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<DISTRIBUTIONS-OF-INCOME> (3,323,563)
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<NUMBER-OF-SHARES-REDEEMED> (1,448,866,123)
<SHARES-REINVESTED> 465,286
<NET-CHANGE-IN-ASSETS> (72,130,724)
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-EXPENSE> 291,253
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<PER-SHARE-NAV-BEGIN> 1.00
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<PER-SHARE-GAIN-APPREC> (0.00)
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<PER-SHARE-NAV-END> 1.00
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<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> LBI GOVT OBLIGATIONS MM CLASS B

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 49,443,800
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<NET-INVESTMENT-INCOME> 3,673,525
<REALIZED-GAINS-CURRENT> (4,414)
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (349,962)
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<NUMBER-OF-SHARES-SOLD> 88,597,518
<NUMBER-OF-SHARES-REDEEMED> (79,287,821)
<SHARES-REINVESTED> 13,481
<NET-CHANGE-IN-ASSETS> (72,130,724)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,817
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 86,255
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 291,253
<AVERAGE-NET-ASSETS> 7,879,809
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> LBI GOVT OBLIGATIONS MM CLASS C

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 49,443,800
<INVESTMENTS-AT-VALUE> 49,443,800
<RECEIVABLES> 182,504
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 39,867
<TOTAL-ASSETS> 49,666,171
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 264,251
<TOTAL-LIABILITIES> 264,251
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 1,817
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,414)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,828,853
<OTHER-INCOME> 0
<EXPENSES-NET> 155,328
<NET-INVESTMENT-INCOME> 3,673,525
<REALIZED-GAINS-CURRENT> (4,414)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,669,111
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (72,130,724)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,817
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 86,255
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 291,253
<AVERAGE-NET-ASSETS> 100
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.00)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> LBI GOVT OBLIGATIONS CLASS E

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 49,443,800
<INVESTMENTS-AT-VALUE> 49,443,800
<RECEIVABLES> 182,504
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 39,867
<TOTAL-ASSETS> 49,666,171
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 264,251
<TOTAL-LIABILITIES> 264,251
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,817
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,414)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,828,853
<OTHER-INCOME> 0
<EXPENSES-NET> 155,328
<NET-INVESTMENT-INCOME> 3,673,525
<REALIZED-GAINS-CURRENT> (4,414)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,669,111
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 100
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (72,130,724)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,817
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 86,255
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 291,253
<AVERAGE-NET-ASSETS> 100
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> LBI Municipal MM, Class A

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 92,441,918
<INVESTMENTS-AT-VALUE> 92,441,918
<RECEIVABLES> 1,096,753
<ASSETS-OTHER> 29,450
<OTHER-ITEMS-ASSETS> 260,012
<TOTAL-ASSETS> 93,828,133
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 232,551
<TOTAL-LIABILITIES> 232,551
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 93,601,276
<SHARES-COMMON-STOCK> 93,601,276
<SHARES-COMMON-PRIOR> 350,956,240
<ACCUMULATED-NII-CURRENT> 18,620
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (24,614)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 93,595,282
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,715,804
<OTHER-INCOME> 0
<EXPENSES-NET> 327,914
<NET-INVESTMENT-INCOME> 6,387,890
<REALIZED-GAINS-CURRENT> (24,497)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,363,393
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,387,890)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,299,613,976
<NUMBER-OF-SHARES-REDEEMED> (4,558,624,785)
<SHARES-REINVESTED> 1,655,845
<NET-CHANGE-IN-ASSETS> (257,379,461)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 18,503
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 223,512
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 687,967
<AVERAGE-NET-ASSETS> 223,511,862
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> LBI Municipal MM, Class B

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 92,441,918
<INVESTMENTS-AT-VALUE> 92,441,918
<RECEIVABLES> 1,096,753
<ASSETS-OTHER> 29,450
<OTHER-ITEMS-ASSETS> 260,012
<TOTAL-ASSETS> 93,828,133
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 232,551
<TOTAL-LIABILITIES> 232,551
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 18,620
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (24,614)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,715,804
<OTHER-INCOME> 0
<EXPENSES-NET> 327,914
<NET-INVESTMENT-INCOME> 6,387,890
<REALIZED-GAINS-CURRENT> (24,497)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,363,393
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (257,379,461)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 18,503
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 223,512
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 687,967
<AVERAGE-NET-ASSETS> 100
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> LBI Municipal MM, Class C

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 92,441,918
<INVESTMENTS-AT-VALUE> 92,441,918
<RECEIVABLES> 1,096,753
<ASSETS-OTHER> 29,450
<OTHER-ITEMS-ASSETS> 260,012
<TOTAL-ASSETS> 93,828,133
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 232,551
<TOTAL-LIABILITIES> 232,551
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 18,620
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (24,614)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,715,804
<OTHER-INCOME> 0
<EXPENSES-NET> 327,914
<NET-INVESTMENT-INCOME> 6,387,890
<REALIZED-GAINS-CURRENT> (24,497)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,363,393
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (257,379,461)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 18,503
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 223,512
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 687,967
<AVERAGE-NET-ASSETS> 104
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> LBI Municipal MM, Class D

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 92,441,918
<INVESTMENTS-AT-VALUE> 92,441,918
<RECEIVABLES> 1,096,753
<ASSETS-OTHER> 29,450
<OTHER-ITEMS-ASSETS> 260,012
<TOTAL-ASSETS> 93,828,133
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 232,551
<TOTAL-LIABILITIES> 232,551
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 18,620
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (24,614)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,715,804
<OTHER-INCOME> 0
<EXPENSES-NET> 327,914
<NET-INVESTMENT-INCOME> 6,387,890
<REALIZED-GAINS-CURRENT> (24,497)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,363,393
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (100)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (257,379,461)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 18,503
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 223,512
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 687,967
<AVERAGE-NET-ASSETS> 15
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.00)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> LBI Municipal MM, Class E

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 92,441,918
<INVESTMENTS-AT-VALUE> 92,441,918
<RECEIVABLES> 1,096,753
<ASSETS-OTHER> 29,450
<OTHER-ITEMS-ASSETS> 260,012
<TOTAL-ASSETS> 93,828,133
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 232,551
<TOTAL-LIABILITIES> 232,551
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 18,620
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (24,614)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,715,804
<OTHER-INCOME> 0
<EXPENSES-NET> 327,914
<NET-INVESTMENT-INCOME> 6,387,890
<REALIZED-GAINS-CURRENT> (24,497)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,363,393
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 100
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (257,379,461)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 18,503
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 223,512
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 687,967
<AVERAGE-NET-ASSETS> 59
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> LBI PRIME MM CLASS A

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 1,899,991,183
<INVESTMENTS-AT-VALUE> 1,899,991,183
<RECEIVABLES> 3,430,395
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 38,975
<TOTAL-ASSETS> 1,903,460,553
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,422,580
<TOTAL-LIABILITIES> 6,422,580
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,538,801,574
<SHARES-COMMON-STOCK> 1,538,801,574
<SHARES-COMMON-PRIOR> 2,866,335,220
<ACCUMULATED-NII-CURRENT> 19,757
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (18,737)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,538,802,416
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 105,358,398
<OTHER-INCOME> 0
<EXPENSES-NET> 3,564,348
<NET-INVESTMENT-INCOME> 101,794,050
<REALIZED-GAINS-CURRENT> (18,737)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 101,775,313
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (88,718,314)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 50,834,385,668
<NUMBER-OF-SHARES-REDEEMED> (52,195,513,578)
<SHARES-REINVESTED> 33,594,264
<NET-CHANGE-IN-ASSETS> (1,319,981,266)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 19,757
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,386,734
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,785,289
<AVERAGE-NET-ASSETS> 2,074,990,343
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> LBI PRIME MM CLASS B

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 1,899,991,183
<INVESTMENTS-AT-VALUE> 1,899,991,183
<RECEIVABLES> 3,430,395
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 38,975
<TOTAL-ASSETS> 1,903,460,553
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,422,580
<TOTAL-LIABILITIES> 6,422,580
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 342,672,590
<SHARES-COMMON-STOCK> 342,672,590
<SHARES-COMMON-PRIOR> 350,664,162
<ACCUMULATED-NII-CURRENT> 19,757
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (18,737)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 342,672,753
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 105,358,398
<OTHER-INCOME> 0
<EXPENSES-NET> 3,564,348
<NET-INVESTMENT-INCOME> 101,794,050
<REALIZED-GAINS-CURRENT> (18,737)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 101,775,313
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,134,365)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,726,597,698
<NUMBER-OF-SHARES-REDEEMED> (1,734,629,736)
<SHARES-REINVESTED> 40,466
<NET-CHANGE-IN-ASSETS> (1,319,981,266)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 19,757
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,386,734
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,785,289
<AVERAGE-NET-ASSETS> 290,315,374
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> LBI PRIME MM CLASS C

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 1,899,991,183
<INVESTMENTS-AT-VALUE> 1,899,991,183
<RECEIVABLES> 3,430,395
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 38,975
<TOTAL-ASSETS> 1,903,460,553
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,422,580
<TOTAL-LIABILITIES> 6,422,580
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,224,890
<SHARES-COMMON-STOCK> 7,244,890
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 19,757
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (18,737)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 7,244,907
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 105,358,398
<OTHER-INCOME> 0
<EXPENSES-NET> 3,564,348
<NET-INVESTMENT-INCOME> 101,794,050
<REALIZED-GAINS-CURRENT> (18,737)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 101,775,313
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (746,966)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 294,282,614
<NUMBER-OF-SHARES-REDEEMED> (287,048,923)
<SHARES-REINVESTED> 11,099
<NET-CHANGE-IN-ASSETS> (1,319,981,266)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 19,757
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,386,734
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,785,289
<AVERAGE-NET-ASSETS> 17,374,246
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> LBI PRIME MM CLASS E

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 1,899,991,183
<INVESTMENTS-AT-VALUE> 1,899,991,183
<RECEIVABLES> 3,430,395
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 38,975
<TOTAL-ASSETS> 1,903,460,553
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,422,580
<TOTAL-LIABILITIES> 6,422,580
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,317,899
<SHARES-COMMON-STOCK> 8,317,899
<SHARES-COMMON-PRIOR> 3,216,999,482
<ACCUMULATED-NII-CURRENT> 19,757
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (18,737)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 8,317,897
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 105,358,398
<OTHER-INCOME> 0
<EXPENSES-NET> 3,564,348
<NET-INVESTMENT-INCOME> 101,794,050
<REALIZED-GAINS-CURRENT> (18,737)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 101,775,313
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (194,405)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 195,210,550
<NUMBER-OF-SHARES-REDEEMED> (187,089,928)
<SHARES-REINVESTED> 197,277
<NET-CHANGE-IN-ASSETS> (1,319,981,266)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 19,757
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,386,734
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,785,289
<AVERAGE-NET-ASSETS> 4,053,642
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> LBI PRIME VALUE MM CLASS A

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 1,493,342,159
<INVESTMENTS-AT-VALUE> 1,493,342,159
<RECEIVABLES> 2,117,428
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 40,301
<TOTAL-ASSETS> 1,495,499,888
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,444,254
<TOTAL-LIABILITIES> 3,444,254
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,470,637,137
<SHARES-COMMON-STOCK> 1,470,637,337
<SHARES-COMMON-PRIOR> 3,981,182,206
<ACCUMULATED-NII-CURRENT> 1,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (326,519)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,470,316,827
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 79,724,070
<OTHER-INCOME> 0
<EXPENSES-NET> 1,778,979
<NET-INVESTMENT-INCOME> 77,945,091
<REALIZED-GAINS-CURRENT> (326,519)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 77,618,572
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (77,274,366)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35,347,664,625
<NUMBER-OF-SHARES-REDEEMED> (37,881,911,178)
<SHARES-REINVESTED> 23,701,484
<NET-CHANGE-IN-ASSETS> (2,506,642,276)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,576
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,858,719
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,767,798
<AVERAGE-NET-ASSETS> 1,842,383,166
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> LBI PRIME VALUE MM CLASS B

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 1,493,342,159
<INVESTMENTS-AT-VALUE> 1,493,342,159
<RECEIVABLES> 2,117,428
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 40,301
<TOTAL-ASSETS> 1,495,499,888
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,444,254
<TOTAL-LIABILITIES> 3,444,254
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,743,240
<SHARES-COMMON-STOCK> 21,743,240
<SHARES-COMMON-PRIOR> 17,503,905
<ACCUMULATED-NII-CURRENT> 1,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (326,519)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 21,738,607
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 79,724,070
<OTHER-INCOME> 0
<EXPENSES-NET> 1,778,979
<NET-INVESTMENT-INCOME> 77,945,091
<REALIZED-GAINS-CURRENT> (326,519)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 77,618,572
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (670,725)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 122,964,083
<NUMBER-OF-SHARES-REDEEMED> (118,724,748)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,506,642,276)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,576
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,858,719
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,767,798
<AVERAGE-NET-ASSETS> 16,335,005
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> LBI PRIME VALUE MM CLASS C

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 1,493,342,159
<INVESTMENTS-AT-VALUE> 1,493,342,159
<RECEIVABLES> 2,117,428
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 40,301
<TOTAL-ASSETS> 1,495,499,888
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,444,254
<TOTAL-LIABILITIES> 3,444,254
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 1,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (326,519)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 79,724,070
<OTHER-INCOME> 0
<EXPENSES-NET> 1,778,979
<NET-INVESTMENT-INCOME> 77,945,091
<REALIZED-GAINS-CURRENT> (326,519)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 77,618,572
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,506,642,276)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,576
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,858,719
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,767,798
<AVERAGE-NET-ASSETS> 100
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> LBI PRIME VALUE MM CLASS D

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 1,493,342,159
<INVESTMENTS-AT-VALUE> 1,493,342,159
<RECEIVABLES> 2,117,428
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 40,301
<TOTAL-ASSETS> 1,495,499,888
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,444,254
<TOTAL-LIABILITIES> 3,444,254
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 10,123
<ACCUMULATED-NII-CURRENT> 1,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (326,519)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 79,724,070
<OTHER-INCOME> 0
<EXPENSES-NET> 1,778,979
<NET-INVESTMENT-INCOME> 77,945,091
<REALIZED-GAINS-CURRENT> (326,519)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 77,618,572
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (10,146)
<SHARES-REINVESTED> 23
<NET-CHANGE-IN-ASSETS> (2,506,642,276)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,576
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,858,719
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,767,798
<AVERAGE-NET-ASSETS> 1,021
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.00)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> LBI PRIME VALUE MM CLASS E

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 1,493,342,159
<INVESTMENTS-AT-VALUE> 1,493,342,159
<RECEIVABLES> 2,117,428
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 40,301
<TOTAL-ASSETS> 1,495,499,888
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 3,444,254
<TOTAL-LIABILITIES> 3,444,254
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (326,519)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 79,724,070
<OTHER-INCOME> 0
<EXPENSES-NET> 1,778,979
<NET-INVESTMENT-INCOME> 77,945,091
<REALIZED-GAINS-CURRENT> (326,519)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 77,618,572
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 100
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,506,642,276)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,576
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,858,719
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,767,798
<AVERAGE-NET-ASSETS> 100
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> LBI Short Duration U.S. Govt Fund Premier Shares

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 33,469,075
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<RECEIVABLES> 214,824
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<TOTAL-ASSETS> 33,327,984
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<OTHER-ITEMS-LIABILITIES> 223,552
<TOTAL-LIABILITIES> 223,552
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,480,990
<SHARES-COMMON-STOCK> 3,149,623
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7,857
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 61,727
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (397,582)
<NET-ASSETS> 31,162,015
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,500,450
<OTHER-INCOME> 0
<EXPENSES-NET> 28,995
<NET-INVESTMENT-INCOME> 1,471,455
<REALIZED-GAINS-CURRENT> 61,727
<APPREC-INCREASE-CURRENT> (397,582)
<NET-CHANGE-FROM-OPS> 1,135,600
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,402,859)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,150,273
<NUMBER-OF-SHARES-REDEEMED> (7,242)
<SHARES-REINVESTED> 6,592
<NET-CHANGE-IN-ASSETS> 33,104,332
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 81,388
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 196,262
<AVERAGE-NET-ASSETS> 30,703,915
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> (0.12)
<PER-SHARE-DIVIDEND> (0.45)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.89
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</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> LBI Short Duration U.S. Govt Fund Select Shares

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 33,469,075
<INVESTMENTS-AT-VALUE> 33,054,873
<RECEIVABLES> 214,824
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 58,287
<TOTAL-ASSETS> 33,327,984
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 223,552
<TOTAL-LIABILITIES> 223,552
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,951,440
<SHARES-COMMON-STOCK> 196,333
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7,857
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 61,727
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (397,582)
<NET-ASSETS> 1,942,417
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,500,450
<OTHER-INCOME> 0
<EXPENSES-NET> 28,995
<NET-INVESTMENT-INCOME> 1,471,455
<REALIZED-GAINS-CURRENT> 61,727
<APPREC-INCREASE-CURRENT> (397,582)
<NET-CHANGE-FROM-OPS> 1,135,600
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (60,739)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 196,496
<NUMBER-OF-SHARES-REDEEMED> (163)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 33,104,432
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 81,388
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 196,262
<AVERAGE-NET-ASSETS> 1,342,013
<PER-SHARE-NAV-BEGIN> 9.94
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> (0.04)
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.89
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> LBI Tax Free MM, Class A

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 59,954,366
<INVESTMENTS-AT-VALUE> 59,954,366
<RECEIVABLES> 557,004
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 63,573
<TOTAL-ASSETS> 60,574,943
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 224,106
<TOTAL-LIABILITIES> 224,106
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 60,348,059
<SHARES-COMMON-STOCK> 60,348,059
<SHARES-COMMON-PRIOR> 59,729,790
<ACCUMULATED-NII-CURRENT> 4,796
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,318)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 60,350,537
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,866,871
<OTHER-INCOME> 0
<EXPENSES-NET> 96,001
<NET-INVESTMENT-INCOME> 1,770,870
<REALIZED-GAINS-CURRENT> (2,318)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,768,552
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,770,323)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 685,428,863
<NUMBER-OF-SHARES-REDEEMED> (685,042,968)
<SHARES-REINVESTED> 232,374
<NET-CHANGE-IN-ASSETS> 616,051
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,796
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 59,392
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 225,907
<AVERAGE-NET-ASSETS> 59,379,625
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> LBI Tax Free MM, Class B

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 59,954,366
<INVESTMENTS-AT-VALUE> 59,954,366
<RECEIVABLES> 557,004
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 63,573
<TOTAL-ASSETS> 60,574,943
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 224,106
<TOTAL-LIABILITIES> 224,106
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 4,796
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,318)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,866,871
<OTHER-INCOME> 0
<EXPENSES-NET> 96,001
<NET-INVESTMENT-INCOME> 1,770,870
<REALIZED-GAINS-CURRENT> (2,318)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,768,552
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (547)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,072,223
<NUMBER-OF-SHARES-REDEEMED> (1,072,495)
<SHARES-REINVESTED> 272
<NET-CHANGE-IN-ASSETS> 616,051
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,796
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 59,392
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 225,907
<AVERAGE-NET-ASSETS> 11,851
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> LBI Tax Free MM, Class C

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 59,954,366
<INVESTMENTS-AT-VALUE> 59,954,366
<RECEIVABLES> 557,004
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 63,573
<TOTAL-ASSETS> 60,574,943
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 224,106
<TOTAL-LIABILITIES> 224,106
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 4,796
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,318)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,866,871
<OTHER-INCOME> 0
<EXPENSES-NET> 96,001
<NET-INVESTMENT-INCOME> 1,770,870
<REALIZED-GAINS-CURRENT> (2,318)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,768,552
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 616,051
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,796
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 59,392
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 225,907
<AVERAGE-NET-ASSETS> 104
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> LBI Tax Free MM, Class E

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 59,954,366
<INVESTMENTS-AT-VALUE> 59,954,366
<RECEIVABLES> 557,004
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 63,573
<TOTAL-ASSETS> 60,574,943
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 224,106
<TOTAL-LIABILITIES> 224,106
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4,796
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,318)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,866,871
<OTHER-INCOME> 0
<EXPENSES-NET> 96,001
<NET-INVESTMENT-INCOME> 1,770,870
<REALIZED-GAINS-CURRENT> (2,318)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,768,552
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 100
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 616,051
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,796
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 59,392
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 225,907
<AVERAGE-NET-ASSETS> 59
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> LBI Treasury Instruments MM II Class A

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 397,409,378
<INVESTMENTS-AT-VALUE> 397,409,378
<RECEIVABLES> 29,790
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 72,365
<TOTAL-ASSETS> 397,511,533
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,473,289
<TOTAL-LIABILITIES> 1,473,289
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 368,796,397
<SHARES-COMMON-STOCK> 368,796,407
<SHARES-COMMON-PRIOR> 156,781,748
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 368,796,397
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,084,188
<OTHER-INCOME> 0
<EXPENSES-NET> 504,400
<NET-INVESTMENT-INCOME> 15,579,788
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 15,579,788
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (14,277,424)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,209,159,843
<NUMBER-OF-SHARES-REDEEMED> (3,000,100,464)
<SHARES-REINVESTED> 2,955,280
<NET-CHANGE-IN-ASSETS> 205,394,812
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (10)
<GROSS-ADVISORY-FEES> 357,350
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,053,745
<AVERAGE-NET-ASSETS> 324,059,738
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> LBI Treasury Instruments MM II Class B

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 397,409,378
<INVESTMENTS-AT-VALUE> 397,409,378
<RECEIVABLES> 29,790
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 72,365
<TOTAL-ASSETS> 397,511,533
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,473,289
<TOTAL-LIABILITIES> 1,473,289
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,241,640
<SHARES-COMMON-STOCK> 27,241,640
<SHARES-COMMON-PRIOR> 33,861,590
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 27,241,640
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,084,188
<OTHER-INCOME> 0
<EXPENSES-NET> 504,400
<NET-INVESTMENT-INCOME> 15,579,788
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 15,579,788
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,302,358)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 138,750,163
<NUMBER-OF-SHARES-REDEEMED> (146,364,683)
<SHARES-REINVESTED> 994,570
<NET-CHANGE-IN-ASSETS> 205,394,812
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (10)
<GROSS-ADVISORY-FEES> 357,350
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,053,745
<AVERAGE-NET-ASSETS> 33,289,625
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.37
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> LBI Treasury Instruments MM II Class C

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 397,409,378
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<RECEIVABLES> 29,790
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<OTHER-ITEMS-ASSETS> 72,365
<TOTAL-ASSETS> 397,511,533
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 1,473,289
<TOTAL-LIABILITIES> 1,473,289
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 107
<SHARES-COMMON-STOCK> 107
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 107
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,084,188
<OTHER-INCOME> 0
<EXPENSES-NET> 504,400
<NET-INVESTMENT-INCOME> 15,579,788
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 15,579,788
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4)
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 7
<NET-CHANGE-IN-ASSETS> 205,394,812
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (10)
<GROSS-ADVISORY-FEES> 357,350
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,053,745
<AVERAGE-NET-ASSETS> 105
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> LBI Treasury Instruments MM II Class E

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 397,409,378
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<OTHER-ITEMS-ASSETS> 72,365
<TOTAL-ASSETS> 397,511,533
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<OTHER-ITEMS-LIABILITIES> 1,473,289
<TOTAL-LIABILITIES> 1,473,289
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<PAID-IN-CAPITAL-COMMON> 100
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<SHARES-COMMON-PRIOR> 0
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<NET-ASSETS> 100
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<OTHER-INCOME> 0
<EXPENSES-NET> 504,400
<NET-INVESTMENT-INCOME> 15,579,788
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<NET-CHANGE-FROM-OPS> 15,579,788
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 100
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 205,394,812
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<OVERDIST-NET-GAINS-PRIOR> (10)
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,053,745
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<PER-SHARE-NAV-BEGIN> 1.00
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<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>